UAW won't budge ... next up Chapter 11?

Union balks and $14B auto bailout dies in Senate

Excerpt:

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry - and the 3 million jobs it touches - in limbo at a time of growing economic turmoil. General Motors Corp. (GM) and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. (F) says it does not need federal help now, but its survival is far from certain.

Comment: GM and Chrysler will be in chapter 11 (where this belongs) in the 1st QTR '09. More from the NYTimes:

Senate Abandons Automaker Bailout Bid

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

...

The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

More from the Star Tribune: Domino effect of bankruptcy could begin quickly

GM and Chrysler are unlikely to be able to hold out until Obama takes office and that could affect their suppliers, many of which are barely holding on themselves.

With Congress unable to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year's end are growing rapidly.

The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline.

Will Barack Obama stare down Detroit?

The Latest Song of Detroit - Barack Obama's opening to practice some tough love

Excerpt:

In addition to these measures, Congress must revisit one of its own special-interest shibboleths if it really wants to save Detroit. Requiring car companies to meet corporate average fuel economy (CAFE) standards forces them to lose money on small cars that people don't want so they can sell big cars that people do want, at least until gas prices soar out of sight. Proof positive came last month, when the Toyota Sequoia and Honda Pilot SUVs posted big gains while sales of most other cars plunged. The obvious reason: gasoline prices plunged too.

The reason Europe has fuel-efficient cars is high gas prices, not CAFE laws. What's more, the only times that Americans have switched to smaller cars is 1973, 1979 and the spring of 2008, when gas prices here were high. So the time has come for Congress to stop pretending that fuel-economy can be legislated and to put market forces to work. That means raising gasoline taxes -- offset by cuts in income taxes and by gas vouchers for needy people. These measures would succeed at raising fuel economy and in reducing automotive emissions where the CAFE law has failed.

There are no painless solutions here. But amid this dismal picture, there is a real opportunity for our new president-elect. If Barack Obama can stare down the UAW, the pro-CAFE environmental lobby and the corporate-welfare supplicants by insisting on the sort of tough-love measures outlined here, he'll establish himself as a true leader. Rahm Emanuel, the president-elect's designated chief of staff, says a good crisis shouldn't be wasted. That goes for presidents, too. Can you rise to the tough-love challenge, Mr. Obama? If so, a lot of people will be singing your praises.

UAW grants concessions, exec warns of depression

Excerpt:

Worried about their jobs and warned that the cost of failure could be a depression, hundreds of leaders of the United Auto Workers voted overwhelmingly Wednesday to make concessions to the struggling Detroit Three, including all but ending a much-derided program that let laid-off workers collect up to 95 percent of their salaries.

"Everybody has to give a little bit," said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. "We've made concessions. We really feel we're doing our part."

Union leaders also agreed to let the cash-starved automakers delay billions of dollars in payments to a union-administered trust set to take over health care for blue-collar retirees starting in 2010.

In addition, they decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed with the automakers last year, a move that could lead to wage concessions.

GM, Chrysler May Accept Bankruptcy to Receive Bailout

Excerpt:

General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions.

Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies. Staff for three members of Congress have asked restructuring experts if a pre- arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said.

“It’s essential for Congress to do due diligence on bankruptcy as an option so it gets a clear sense from independent people what the risks and possibilities are,” said Alan Gover of White & Case, who has been lead lawyer in $60 billion of corporate-debt restructurings.

Comments:

Re Barak Obama: I doubt he has the intestinal fortitude to address the Detroit issue

Re the UAW: Seems to be too little too late

Re GM and Chrysler: They waited until they were at the edge of the cliff (Think Tina and Louise!) before they began to get serious about their problem.

GM vs Toyota labor costs

Comment: Below is a link from NPS that compares GM to Toyota. The data is not current (c 2005), but highlights one of the real issues with GM - the high cost of labor.

NPR: GM vs. Toyota: By the Numbers

Excerpts:

Profitability per Vehicle

GM: Loses $2,331 per vehicle
Toyota: Makes $1,488 per vehicle


Production Time per Vehicle

GM: 34.3 hours, 2.5% improvement since 2003
Toyota: 27.9 hours, 5.5% improvement since 2003


Average Hourly Salary for Non-Skilled, Assembly Line Worker

GM: $31.35/hour (NOTE: Includes idle workers still on payroll.)
Toyota: $27/hour (NOTE: Includes year-end bonus.)


Average Labor Cost per U.S. Hourly Worker

GM: $73.73
Toyota: $48

Comment: Unless GM (and Ford and Chrysler) AND the U.A.W. deal with labor costs, no amount of bailout money will help them.

The U.A.W.: the enemy of turning around the Big Three

Comment: The Big Three is more like the Big One (GM), the Half Pint (Ford), and the Dwarf (Chrysler).

Seeking Aid, Automakers Have a Friend in the U.A.W.

Excerpts:

Ron Gettelfinger, president of the United Automobile Workers union says:

“It’s not just G.M. going bankrupt, ... It’s all the rest of the industry that goes with it. Two of the three companies would go under, and there’s a high probability all three would go.”

The problem (high wages relative to Honda, Nissan, Toyota - even in the US where these "foreign" makers have plants!):

Mr. Gettelfinger expects the union to be labeled part of Detroit’s problems, and to defend its $27-an-hour wages and top-of-the-line health care benefits and pensions.

...

... union rules that provide workers with 95 percent of their wages while on layoff and other job-security provisions.

The Future of the U.A.W. is at stake.

“The future of the U.A.W. will be determined over the next two weeks,” said Gary N. Chaison, a professor of labor relations at Clark University. “If G.M. goes bankrupt or doesn’t get a bailout, it’s just going to be a shadow of what it was 50 years ago.”

Why the Democrats care so much (and the Republicans so little!):

The U.A.W. was instrumental in the pivotal victories in Michigan and Ohio by Barack Obama in the presidential election, and two union loyalists in Michigan, Gov. Jennifer M. Granholm and former Representative David E. Bonior, are members of Mr. Obama’s economic advisory team.

Why bankruptcy of GM is better than a bailout:

A carmaker’s bankruptcy would abrogate workers’ contracts

Final comment: A bailout of GM would not solve the seminal problems: high labor costs, rigid Union rules, and bad management.