Opher BanarieAuto Industry Tales Of Woe
November 8th 2008 14:28
General Motors and Ford surprised many observers on Friday when they reported that they will run out of cash during 2009 if the auto industry does not improve or they do not get a government bailout.
"Bailout" appears to be the operative word, because "bankruptcy" is anathema to government bureaucrats this year.
The fact of the matter is that the auto industry in the United States is going great...EXCEPT in Michigan. Auto plants in Georgia, Tennessee, South Carolina and other states are running smoothly and cars are selling, although at a lower pace overall.
The problems in Michigan are two-fold: (1) As a union state the auto industry is forced to keep on more labor than truly needed to do the job and (2) pay benefits and wages far in excess of what comparable labor will receive in other states. (This last part includes the massive payments to retirees, who often cost as much as working employees.)
The industry wants $25 Billion in loans to pay for retiree health-care, according to at least one report, and President-elect Obama says he would consider the loan "...on the condition that the money would go toward helping the industry build fuel efficient cars". That's quite a gap to overcome.
But would bankruptcy of the auto industry be such a bad thing? Many companies go bankrupt in an effort to restructure their obligations in light of current operating conditions. Airlines, retailers and other industries are regular beneficiaries of such arrangements, often able to return to full profitability after the pressure has been taken off.
Would a bankruptcy arrangement to close plants without paying huge UAW penalties make it possible for these companies to be profitable again? Would lowering wages paid to current employees allow retirees to keep their benefits without causing the company to close entirely? What are retiree benefits worth if the company closes?
"Bailout" appears to be the operative word, because "bankruptcy" is anathema to government bureaucrats this year.
The fact of the matter is that the auto industry in the United States is going great...EXCEPT in Michigan. Auto plants in Georgia, Tennessee, South Carolina and other states are running smoothly and cars are selling, although at a lower pace overall.
The problems in Michigan are two-fold: (1) As a union state the auto industry is forced to keep on more labor than truly needed to do the job and (2) pay benefits and wages far in excess of what comparable labor will receive in other states. (This last part includes the massive payments to retirees, who often cost as much as working employees.)
The industry wants $25 Billion in loans to pay for retiree health-care, according to at least one report, and President-elect Obama says he would consider the loan "...on the condition that the money would go toward helping the industry build fuel efficient cars". That's quite a gap to overcome.
But would bankruptcy of the auto industry be such a bad thing? Many companies go bankrupt in an effort to restructure their obligations in light of current operating conditions. Airlines, retailers and other industries are regular beneficiaries of such arrangements, often able to return to full profitability after the pressure has been taken off.
Would a bankruptcy arrangement to close plants without paying huge UAW penalties make it possible for these companies to be profitable again? Would lowering wages paid to current employees allow retirees to keep their benefits without causing the company to close entirely? What are retiree benefits worth if the company closes?
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