GM to say, 'more aid or bankruptcy'

[ERD50]

Short of enforcing "Buy American" as a policy, introducing protectionism and fueling a global trade war -- ill-advised, IMO, especially in this economy...

I think this was the topic of another thread, but since you mentioned it here, it is relevant:

Obama was in Peoria the other day, talking with people at Caterpillar, and the CEO. While the CEO was positive on some aspects of the Stimulus bill, he was totally against the "Buy American" rules.

Think about that a second. Here is an American Manufacturer, against a "Buy American" policy. It's not a contradiction - he knows that there is more harm than good in that policy, it's a net negative for American Manufacturers.

Now, shouldn't Congress and the President listen to the people who are doing this for a living? And Caterpillar is exactly the kind of story America needs - they provide good jobs, they manufacture in the US, and they *export* those goods at a profit. Yes, I think we should listen.

The genie of the "global economy" can't be put back into the bottle no matter how much we want to make it so.

Yep. The only thing that I can see that will keep our standard of living from coming closer to the global mean, would be some new technology advancement that gives us some sort of regional advantage.

-ERD50

 

[samclem]

Yep. The only thing that I can see that will keep our standard of living from coming closer to the global mean, would be some new technology advancement that gives us some sort of regional advantage.
-ERD50

Agreed. Luckily, the US still has tremendous advantages compared to many developing countries. Our transportation system is good, our property rights (incl intellectual property) are very well established and robust compared to many developed and developing nations, our work force is literate, our domestic and "nearby" energy availability is better than most nations. Despite the loss of much of our manufacturing base, we still have a broader range of producers and expertise than many other countries. As we've seen, our capital markets have some problems, but they are still the envy of much of the world when you look at their transparency and efficiency. There's a built in consumer market that no developing nation can match. Heck, even the availability of illegal immigrants is a plus. So, the hourly labor rates in the US won't have to match Indonesia for our companies to be successful in the world market. But, neither can our industry successfully compete if they pay factory workers $70,000 per year with lifetime medical and huge retirement benefits--the gravy train is over.
We'll have to get closer to the worldwide labor rate average, but we won't have to go all the way there. The longer we wait to "get religion", the more advanced these other countries become, lessening our systemic advantages and assuring our workers will have to take lower hourly rates. The UAW and their ilk are sealing the fate of the next generation for the sake of a few bucks now.

 

[Rustic23]

George owns a restaurant in a small town. Twenty years ago he served very good food at a reasonable price. He had lots of customers and life was grand.

George got rich and began to play golf, taking cruises, and throwing big parties. While his service and food went downhill and his prices went up to support his new lifestyle. Georges's employees, seeing George's lifestyle demanded more, and George gave it to them.

Soon other restaurants opened in the town. They served good food and a reasonable price. George was not worried because he owned 'The Restaurant' in town. However more people were beginning to eat at their restaurant than George's.

As George began to loose money, he cut corners, lowered quality, cut service all the while increasing his salary and the salary of his employees.

George now finds himself facing bankruptcy, and is demanding that the city bail him out. And, isn't it quite obvious they should? Poor George!

So if you think George deserves a bailout, send me an email and I let you know where to mail your check.

 

[OAG]

Rustic good analogy, but the rest of the story is that the city "fathers" always take care of "George" because all of the city father's kin work for George. So, yes, George will get bailed out, and keep serving the lower quality food and keep taking his vacations now using his private jet, purchased with bail-out money, to do so.

 

[Nords]

The UAW and their ilk are sealing the fate of the next generation for the sake of a few bucks now.

Hunh, I'm pretty sure that's what was done by the last generation of GM management & UAW leaders... what's the dollar value of retiree obligations priced into each new GM vehicle today?

 

[HornedToad10]

Here's a fun bit of trivia. GM and Toyota sold within a couple thousand cars of each other last business cycle, and while Toyota had billions in profit GM had billions in loses.

I've read that GM and other American car manufacturers have some extremely efficient plants in Brazil, etc. but they can't build those same plants in the U.S. because the UAW won't let them. (Because too many employees would need to be laid off because they weren't needed anymore)

IMO, to me that is ridiculous. I understand some of the value of the unions, but the UAW seems psycho...

EDIT: I really really hope we let GM declare bankruptcy and then re-organize. It's the only way they'll ever be long-term viable...

 

[haha]

Agreed. Luckily, the US still has tremendous advantages compared to many developing countries. Our transportation system is good, our property rights (incl intellectual property) are very well established and robust compared to many developed and developing nations, our work force is literate, our domestic and "nearby" energy availability is better than most nations. Despite the loss of much of our manufacturing base, we still have a broader range of producers and expertise than many other countries. As we've seen, our capital markets have some problems, but they are still the envy of much of the world when you look at their transparency and efficiency. There's a built in consumer market that no developing nation can match. Heck, even the availability of illegal immigrants is a plus. So, the hourly labor rates in the US won't have to match Indonesia for our companies to be successful in the world market. But, neither can our industry successfully compete if they pay factory workers $70,000 per year with lifetime medical and huge retirement benefits--the gravy train is over.
We'll have to get closer to the worldwide labor rate average, but we won't have to go all the way there. The longer we wait to "get religion", the more advanced these other countries become, lessening our systemic advantages and assuring our workers will have to take lower hourly rates. The UAW and their ilk are sealing the fate of the next generation for the sake of a few bucks now.

How can Germany be so successful with a robust manufacturing economy, a high standard of living and high wages, an age structure worse than the US, good health care, and nonetheless a postive balance of trade? Is it that thery are better governed or are they inherently a more effective people?

I realize that like everyone they are having current cyclical problems, but they seem far out ahead of us.

ha

 

[samclem]

How can Germany be so successful with a robust manufacturing economy, a high standard of living and high wages, an age structure worse than the US, good health care, and nonetheless a postive balance of trade? Is it that thery are better governed or are they inherently a more effective people?

I realize that like everyone they are having current cyclical problems, but they seem far out ahead of us.

ha

I don't agree that Germany has a healthier economy than the US. Many people believe it, but the stats don't support it.

Per this article (written in 2004) At least in 2001, the per-capita GDP of Germany was the same as Arkansas.

In addition:

In other words poverty is relative, and in the U.S. a large 45.9% of the "poor" own their homes, 72.8% have a car and almost 77% have air conditioning, which remains a luxury in most of Western Europe. The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.
So what is Europe's problem? "The expansion of the public sector into overripe welfare states in large parts of Europe is and remains the best guess as to why our continent cannot measure up to our neighbor in the west," the authors write. In 1999, average EU tax revenues were more than 40% of GDP, and in some countries above 50%, compared with less than 30% for most of the U.S.

Now, per-capita GDP surely doesn't capture every nuance of the situation, but German workers produce less on average than their US counterparts. Before the current "turbulence", Germany had higher unemployment than the US (I don't know the situation today). While the US is busy marching toward increased government ownership of businesses and a higher social safety net (please don't call it socialism, it upsets people), Germany and the EU have been down that road and have retreated--they are busy re-privatizing industries in hopes of again being competitive on the world market.
Edited to add:
Here's a chart with unemployment rates 2001-2005. I don't think the situation has changed much in a relative sense.

I don't think we should look to Europe as a model for our future--that's the road to nowhere. They've seen that, and are now striving to look more like the US. No sense repeating the mistakes of others.

 

[haha]

I don't agree that Germany has a healthier economy than the US. Many people believe it, but the stats don't support it.

Per this article (written in 2004) At least in 2001, the per-capita GDP of Germany was the same as Arkansas.

To me all this proves is that these stats are very imperfect at describing the overall condition of an economy. For example, America's GDP depends on idiots borrowing themselves to the hilt to stock their garages with junk in their McMansions financed with underwater sub-prime mortgages. Germany's depends on manufacturing and high end services.

When Germany starts financing their existence by trading IOUs with stronger manufacturing nations I will take a look. IMO, not likely to happen.

Another thing, just look at healthcare. Say Germany spends 2/3 of what we do, yet achieves results roughly equal to ours. Their GDP is commensurately larger. Is is even possible to think this means they have a stronger economy?

Arkansas= Germany. Not too sure this is very helpful either Have you driven across Arkansas, say on I30? Compare to the Autobahn. If you tired to drive 100 mph on I-30 you'd wind up in the trees somewhere with broken springs and a bent axle.

Last but not least, would you prefer to live like the median German, or the median Arkansan?

Unless you really love hog jowl, I'd recommend Germany.

Ha

 

[Rustic23]

We lived in Germany from 80 - 83. I would have to say the German standard of living is not comparable to the U.S. Now I don't know how that effects there economy, I just know that looking at the average German compared to the average American the American has a better way of life. I would also question what their economy would be like if all the U.S. bases closed. Many Germans live in duplexes with an American couple paying rent on half. Often, we were told that rent paid the entire mortgage payment. In our home we had to run water into a holding tank, heat it, then drain it into the sink to wash dishes. German family did not tend to have two cars. Most towns were small, people walked to the market and there was little need for mass transit. Larger towns were similar to the U.S. The Autobon is great, but most of the interstates in Texas are better. While there is a 100mph speed limit, there are many times near the city that you were lucky to do 20.

My point is that comparing Germany and the U.S. or any other country is difficult unless you compare everything.

 

[FIREd]

Just a little anecdote. My mom is in the process of buying a brand new car in Europe. Car dealerships and manufacturers have so little stock, she has to wait 16 weeks to receive her run-of-the-mill car. Car manufacturers have tightened the supplies and they pretty much build on demand.

 

[Bikerdude]

How can Germany be so successful with a robust manufacturing economy, a high standard of living and high wages, an age structure worse than the US, good health care, and nonetheless a postive balance of trade? Is it that thery are better governed or are they inherently a more effective people?

I realize that like everyone they are having current cyclical problems, but they seem far out ahead of us.

ha

Couple of things come to mind. Germany has very few illegal aliens and few legal aliens for that matter compared to the rest of Europe. They do not spend much on defense and don't get involved in foreign wars. They, as most of "old Europe" let the Americans take care of that stuff (because they know we will). They also have a very efficient "apprenticeship" program that trains future workers.

 

[samclem]

To me all this proves is that these stats are very imperfect at describing the overall condition of an economy.

I'm sure they are imperfect. But we have to start somewhere. German unemployment is higher and they produce less per capita. Maybe we don't like the things Americans produce (financial products vs cars) , maybe we think they should spend their earnings in some other way, but the numbers are what they are. Germany does have a positive balance of trade--so do the well-known economic powerhouses Iran, Burma, and Kazakhstan.

All I know about Germany is what I've seen from walking around there. I'm not really sure how a "median income" German would live. But, if given the choice between
A) a 500 sq foot 12th floor apartment in one of the glorious concrete tenements of East Germany and no car or
B) a doublewide on an acre of land in Arkansas with a '72 Dodge Dart

then I'd happily choose that hog jowl and an occasional Moon Pie.

 

[FIREd]

There is no doubt that the American lifestyle is far superior to the German/European lifestyle. I lived/worked in both places, travel between the 2 continents all the time and I am familiar with incomes, taxes and lifestyle expenses on both sides of the Atlantic. And the difference is clear. But, I don't think that the American lifestyle in its current form is sustainable in the long run.

You can even compare the US with Switzerland if you want. Switzerland is probably the European country that bears the most resemblance with the US (in terms of GDP per capita, incomes, healthcare, etc...). There is no doubt that the Swiss lifestyle is far more restrained than the American lifestyle.

 

[haha]

But, if given the choice between
A) a 500 sq foot 12th floor apartment in one of the glorious concrete tenements of East Germany and no car or
B) a doublewide on an acre of land in Arkansas with a '72 Dodge Dart

then I'd happily choose that hog jowl and an occasional Moon Pie.

Not even Germans want to live in the former DDR, except perhaps in Berlin.

ha

 

[ziggy29]

Not even Germans want to live in the former DDR, except perhaps in Berlin.

True, but the other question is: Is the '72 Dart a busted up $1000 piece of junk or a well-preserved $20,000 classic?

 

[mark500]

Why can't the UAW get it through its head that the company they work for is bankrupt? Kaput. Gone. Over. History.

 

[ERD50]

True, but the other question is: Is the '72 Dart a busted up $1000 piece of junk or a well-preserved $20,000 classic?

I pictured it rusted out, on cement blocks, with Kudzu vines growing through it.

-ERD50

 

[ERD50]

Why can't the UAW get it through its head that the company they work for is bankrupt? Kaput. Gone. Over. History.

Not to get overly political, but there is no other answer:

The UAW cannot get it through its head, because the UAW helped get the current administration in office, and now it is looking for its payback. That payback is likely to be in the form of making sure that those companies do not go bankrupt. It is a different reality. Not wrong, different.

That's a fact, Jack. Or as close to one as we can get without scientific proof.

OK, I'll take it a step further. The UAW bled the D-3 when they could (using the threat of strike). Now that the D-3 have no more blood, they are eying the veins of the govt (you and me). Can it be described differently? I don't think so.

-ERD50

 

[FIREd]

I think that the UAW knows that it is losing its grip and they are starting to panic. I have seen it many times in Europe. There comes a point where the union would rather see the company shut down and layoff its entire workforce rather than seeing its members make further concessions and lose face (see what happened to Alitalia last year). It's crazy, it doesn't make any sense, but that's what they do!

 

[Rustic23]

Let's see how does Braniff, Eastern, and PanAm sound? Just to name a few!

 

[2B]

I think that the UAW knows that it is losing its grip and they are starting to panic. I have seen it many times in Europe. There comes a point where the union would rather see the company shut down and layoff its entire workforce rather than seeing its members make further concessions and lose face (see what happened to Alitalia last year). It's crazy, it doesn't make any sense, but that's what they do!

You are neglecting the fact that a union is a business. It's primary objective is not to welfare of its members but in the union continuing to exist. That way the "fat cat" union leaders keep their perks and paychecks. They like to convince their members that they are worried about them but that is secondary.

If the union makes major concessions to keep the company solvent, the members see less money and/or benefits. They immediately start to ask themselves why are they paying dues to the union when they give back wages and benefits. That makes the union vulnerable to another union taking over their industry or even to be decertified. It also makes the union look less desireable when they are trying to organize another company.

From a business perspective, the union will run a company or an entire industry into the ground.

Look at what's happening in Detroit. There are massive layoffs and many of them are permanent. The concessions being made are only giving back the most unbelieveable benefits that the union got in early contracts. If they didn't give up the "paid" layoffs, they wouldn't be able to get any federal help.

Many airlines have gone down in union flames. The steel industry is a mere shadow of its former self in the US.

 

[Tadpole]

I imagine that GM would rather have Chapter 11 than government bailouts. Accepting the bailout and "trying" to salvage the business is probably just good PR. Now they can have the Chapter 11 they preferred all along.

 

[ERD50]

You are neglecting the fact that a union is a business. It's primary objective is not to welfare of its members but in the union continuing to exist. That way the "fat cat" union leaders keep their perks and paychecks. They like to convince their members that they are worried about them but that is secondary.

This reminded me of a post I made earlier on this subject:

http://www.early-retirement.org/forums/showpost.php?p=759404&postcount=83


Reader's Digest version: On the SAME website, when they are addressing their members and telling them the benefits of UAW membership, they claim their members receive over 43% more in compensation than non-union.

On another page on the same site, when addressing the public and trying to tell them that UAW workers don't really get much more than others and couldn't possibly be responsible for any part of the D-3's demise in any way, they claim their members only make about 14.3% more.

Neither number appeared to include legacy benefits, but some real cherry picking of years, and what is included in "compensation". That sort of distortion sets me off.

-ERD50

 

[FinanceDude]

True, but the other question is: Is the '72 Dart a busted up $1000 piece of junk or a well-preserved $20,000 classic?

It depends on which motor it has, if it has the 318, then maybe........