Senator Corker's Corker - Automaker bailout

[ChrisC]

Sure, it not easy or pretty, but what is the alternative?

Nationalization of passenger railroads has happened in the past and continues to happen with Amtrak. I know it's not fashionable to say we ought to take a page from the French, but didn't the French do that with Renault and later privatized Renault after a period of nationalization?

 

[ERD50]

Nationalization of passenger railroads has happened in the past and continues to happen with Amtrak. I know it's not fashionable to say we ought to take a page from the French, but didn't the French do that with Renault and later privatized Renault after a period of nationalization?

I'm not certain Amtrak is a great example, but ...

So OK, Nationalization of the D3 *is* an option. But I think it still comes back to addressing labor compensation either way. If a govt run D3 is still paying higher than free-market compensation to the employees, and is saddled with high legacy costs, it isn't going to be cost competitive with the non-D3. And as I said earlier - if the govt raises all compensation to the higher level, we won't be competitive with imports, and domestic car prices will be even less attractive to buyers. It's just pushing the problem around, it's not addressing it.

Apparently, these legacy costs largely 'go away' in 2010, but I guess the fund that backed them 'goes away' too. So I'm not sure how that really looks overall on a balance sheet, or any estimate of future survivability. I think what it does do, is to keep the UAW from asking for better and better deals on the legacy stuff, because they now 'own it'.

-ERD50

PS: it *is* fashionable among some of us to say to take a page from the French. Nukes for example.

 

[Zathras]

It's been said there are six people working in the U.S. for every one in the auto industry; steel, rubber, glass, electrical and wire, carpet, fabric, nuts, bolts and screws, etc.

I keep hearing about this, but no specifics. Does this include the employees that make wire for the auto companies and also for other companies?
I suspect exageration, but without details I am just left to doubt.
Of the people I know with jobs, none are directly affected??

 

[Gone4Good]

So OK, Nationalization of the D3 *is* an option. But I think it still comes back to addressing labor compensation either way. If a govt run D3 is still paying higher than free-market compensation to the employees, and is saddled with high legacy costs, it isn't going to be cost competitive with the non-D3. And as I said earlier - if the govt raises all compensation to the higher level, we won't be competitive with imports, and domestic car prices will be even less attractive to buyers. It's just pushing the problem around, it's not addressing it.

These problems will be compounded by the government's desire to use the automotive industry as a tool to advance environmental policy. Rather than trying to figure out what kind of car the American consumer will want in 5 years, the government will make the kind of car they feel Americans should drive. Down with profitable trucks and up with unprofitable hybrids and plug-ins. When consumer's don't show up to buy them, the government will subsidize its preferred vehicles. Foreign government's will see this as the protectionism it is, and respond in kind.

The foreseeable end result will be an automobile industry that employs too many people, at too high a wage, making expensive cars, that few want to buy, at a massive loss, subsidized by the government, forever.

 

[Independent]

I keep hearing about this, but no specifics. Does this include the employees that make wire for the auto companies and also for other companies?
I suspect exageration, but without details I am just left to doubt.
Of the people I know with jobs, none are directly affected??

One way to look at this is to see how consumers spend their money. The assumption is that overall, wages in "all things automotive" are about average, so total spending is roughly proportional to total employment.

The BLS says that we spend 16.6% on "private transportation". But, only half of this is for the cars, parts, maintenance, and repairs. The rest is gasoline, insurance, and fees.

Of course, consumers are just 70% of the economy, I doubt that the other 30% spends as high a percent on cars.

When I look at the list, I'd say that most of the spending would continue, even in the short run, if the Detroit 3 all stopped building cars tomorrow.

Here's the breakdown from: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiri05-06_2007.txt

7.2% New and Used purchases
5.5% Fuel
1.5% Parts, Repairs, Maint.
2.0% Insurance
0.5% Fees

16.6% Total

 

[Independent]

But I think it still comes back to addressing labor compensation either way. If a govt run D3 is still paying higher than free-market compensation to the employees, and is saddled with high legacy costs, it isn't going to be cost competitive with the non-D3.

Apparently, these legacy costs largely 'go away' in 2010, but I guess the fund that backed them 'goes away' too. So I'm not sure how that really looks overall on a balance sheet, or any estimate of future survivability. I think what it does do, is to keep the UAW from asking for better and better deals on the legacy stuff, because they now 'own it'.

Remember that, according to the UAW, their wages and benefits only amount to 8.4% of the final retail cost of cars. I'd guess that's 10% of the wholesale cost. So a 30% cut in total compensation only equals 3% of gross revenue. That's not trivial, it's tough to be profitable when you start 3% behind, but I keep looking for bigger numbers somewhere.

 

[Gone4Good]

Remember that, according to the UAW, their wages and benefits only amount to 8.4% of the final retail cost of cars.

I hear them say this, but it doesn't jibe with the oft-quoted statistic that GM pays $1,500 per vehicle just for health care benefits.

 

[ERD50]

Remember that, according to the UAW, their wages and benefits only amount to 8.4% of the final retail cost of cars. I'd guess that's 10% of the wholesale cost. So a 30% cut in total compensation only equals 3% of gross revenue. That's not trivial, it's tough to be profitable when you start 3% behind, but I keep looking for bigger numbers somewhere.

I hear them say this, but it doesn't jibe with the oft-quoted statistic that GM pays $1,500 per vehicle just for health care benefits.

Yes, I'd like to see the numbers also.

I just spent a bit of time at the UAW site. They seem to like to talk out of both sides of their mouth. Right from their FAQ page, they link to this info:

About - Frequently Asked Questions

Research Bulletin

How does union pay compare to non-union pay?

The latest data from the BLS show that union workers in the private sector earn significantly more than their non-union counterparts. As the table below shows, the union advantage in wages and salaries was $4.11 per hour in March 2004; that’s worth over $8,500 for full-time, full-year workers. The advantage grows to $9.66 per hour ($20,000 per year) when benefits are included in the calculation.


Average Hourly Compensation – March 2004

Total Compensation

Union / NonUnion / Union Advantage
$31.94 / $22.28 / $9.66

That is 43.36% union over non-union delta.

So that's the data when they want to show all the good the UAW does for it's members. But, when they want to downplay this for the public, on the home page of the same site, they say this:

Save Auto Jobs: Debunking the $70-per-hour myth

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories.

....

average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007

....

the best estimates suggests the corresponding 2007 figure for these "transplants" -- as the foreign-owned factories are known -- was ... most likely around $24 or $25..

So, now they cherry pick the year and the basis (excluding benefits) to come up with a 14.3% union over non-union delta.

And neither number appears to include legacy costs, so these are more representative of what an employee is actually receiving in compensation (wages plus benefits).

So, I would be interested in knowing how these figures break down on a per car or per $ basis. But I'm not going to accept any number w/o some background to understand what that number represents.

- ERD50

 

[Midpack]

I keep hearing about this, but no specifics. Does this include the employees that make wire for the auto companies and also for other companies?
I suspect exageration, but without details I am just left to doubt.
Of the people I know with jobs, none are directly affected??

From an earlier post, one way to challenge it:

I have heard the '1 in 6/7/10 jobs in the US is tied to the D3' most of my life. Might have been true 40-50 years ago, who knows, but still? No question suppliers, dealers and the towns with large factories will be impacted, but I'd challenge you to show the ratio is still that high if it ever was. Far as I can tell there are about 150 million jobs in the US. You are saying 25 million people are employed directly or indirectly by the automakers, I find that hard to believe. GM and Ford employ 252K and 246K worldwide (verifiable), I don't know how many in the US. I'm told dealers employ the most between manufacturers, suppliers and deales. There are supposedly 6,500 GM dealers (verifiable), say 50 employees (estimate I heard) at each, that's 325K - double it to (generously) account for Ford & Chrysler and you have 750K. It's very hard to find exact numbers, the above is simply my best estimate. Say there are as many supplier employees as D3 workers - altogether that's 1.7 million employees. Where are the other 23 million? Maybe we should verify what the UAW and Michigan politicians want you to believe instead of assuming it's a fact before deciding your views on a bailout.

 

[lets-retire]

..

 

[Independent]

Yes, I'd like to see the numbers also.

I just spent a bit of time at the UAW site. They seem to like to talk out of both sides of their mouth. Right from their FAQ page, they link to this info:

About - Frequently Asked Questions

Research Bulletin
That is 43.36% union over non-union delta.

So that's the data when they want to show all the good the UAW does for it's members. But, when they want to downplay this for the public, on the home page of the same site, they say this:

Save Auto Jobs: Debunking the $70-per-hour myth
So, now they cherry pick the year and the basis (excluding benefits) to come up with a 14.3% union over non-union delta.

And neither number appears to include legacy costs, so these are more representative of what an employee is actually receiving in compensation (wages plus benefits).

So, I would be interested in knowing how these figures break down on a per car or per $ basis. But I'm not going to accept any number w/o some background to understand what that number represents.

- ERD50

I'm sure the UAW is spinning. In one case they compare "all non-union vs. all union", in another they compare "non-union auto vs. union auto". I can see where those would be different numbers. Also, I'd guess that their 8.4% of "final sales cost" is a comparison to MSRP, that's why I changed the number to 10% to reflect the fact that GM wholesale revenue isn't MSRP.

But, we've got enough data to make reasonableness check. Back in 2007, when they were getting into contract negotiations, the UAW had 73,500 active workers at GM. GM was on track to build about 4 million cars. Figure $25,000 as average wholesale value and that gives $100 million of revenue. (GM's income statement shows a little more for NA).

Now use the $75 per hour times 1,800 productive hours per year (the $75 includes the value of vacation and holidays). So that's $135,000 of cost per worker, some of which is benefits for retirees.

Finally, $135,000 x 73,500 = $9.9 billion, which is about 10% of $100 million.

Since then, the new contract cut the labor costs, so it's already scheduled to go down. Again, even if getting down to Toyota's blue collar costs would mean cutting 30%, you're still talking just 3% of total revenue. So I'm still looking for the rest of the money that makes this profitable business.

One check on this is that GM only uses 33 hours of labor per vehicle. At $75 an hour, that's $2,475 per vehicle, or about 10% of wholesale price (by my guess).
Chrysler ties Toyota for most productive plants in North America - Autoblog

 

[Independent]

I hear them say this, but it doesn't jibe with the oft-quoted statistic that GM pays $1,500 per vehicle just for health care benefits.

I've seen that quoted, as well. This is the best 2007 information I could find:

In fact, paying the cost of hospital stays, surgeries and expensive drugs for retirees, a group now larger than G.M.’s active work force, is a major reason the company’s financial woes are so great. G.M. says it spent $4.6 billion in 2007 on health care for its one million employees and retirees and their dependents.

Figuring that they were staffed for 4 million cars in 2007, that's about $1,150 per car. Maybe they had already made cuts.

From the article, it looks like about 30% of GM employees are "white collar". If so, then the blue collar is only 70% of the $1,500 or 70% of the $1,150.

Note that GM has already made a huge cut in white collar retiree costs in 2008, and the union contract called for future cuts in blue collar.

http://www.nytimes.com/2008/11/10/business/10gm.html?pagewanted=1&_r=1&em

 

[Zathras]

From an earlier post, one way to challenge it:

Good points, and the best estimates I have seen yet.
That is part of the reason I think they are liberally including electricians, the entire crew working at hardware stores, and others that contribute anything to the auto dealers, manufacturers or suppliers, but that would truely be unaffected by their loss.

Would love to see some detailed data.

 

[ERD50]

I think the ballpark numbers of labor being ~ 10% of the retail price make sense. So that 3% savings (with a 30% labor compensation cut) is significant, but probably not game-changing.

So it sounds like there would still be a lot of work to do to be competitive, whether that is the overhead of the dealers, warranty costs, general efficiencies in the designs and procurement of the parts, all of the above, etc, etc, etc.

But I just don't think it is going to pass muster with the general public for the govt to provide money to a few companies in an industry when the employees of those companies are making higher than industry average wages. Doesn't make sense. Heck, you could even argue the UAW should accept *lower* than average wages, until they are profitable again. The same way the CEOs are being asked to take a $1 salary.

-ERD50

 

[barbarus]

Doesn't matter to a Democratic or Republican politician WHAT the public wants.
The constituents were up to 100 to 1 against the bailout, but Congress passed it anyway.

The public with take what they're given and had better like it too!