What Toyota knows that GM doesn’t

[Rooster_Ties]

Do you know how many hourly jobs GM has laid off from 2006 to July 2008? Take a guess. How about 34,000? And now, they’re talking about another 5,500 layoffs. And now they’re asking you and your government for a bailout to end their troubled, outdated, low quality, wasteful production system. But, let’s not focus on fixing GM’s problems with an infusion of cash. There’s something even deeper going on here that’s really wrong.

OK, here’s a better question. How many hourly jobs has Toyota’s American production system laid off in the same time frame? Zero. That’s right. ZERO. How? Isn’t Toyota experiencing the same slow down in auto sales as GM is? Yes, it is. And yes, Toyota has halted production at its Texas and Indiana plants for the past 3 months. But the 4,500 people who work at those plants have not been laid off. What!?!?! How? Why?

Full article...

http://edgehopper.com/what-toyota-knows-that-gm-doesnt/

Wow!

Edit: And, one week later, I just saw this quote buried in an article about Honda...

Honda has never had an unprofitable year. It has never had to lay off employees.

Full article (on two pages, the 2nd one you have to click to get to).

Edited November 25, 2008 by Rooster_Ties

[BruceH]

How to run a company?

[catesta]

How to stay away from the United Auto Workers.

[JSngry]

How to stay away from the United Auto Workers.

Unions are like Laws - there's no pressing need for them if everybody does the right thing.

Having said that, though, I still believe in the idea of and the need for unions in some form. Labor will always need representation, just to keep the playing field level.

What I am fervently against is outmoded & unfeasible union tactics & demands that make the playing field less than level.

I would hope that sanity prevails and that unions evolve their way into a fruitful & useful 21st Century, but that is their call to make. I see signs that this is occurring (new UAW contracts are beginning at 50% of the previous rate, companies are no longer being saddled with unmanageable legacy health care costs, etc.). I do feel 100% certain that if they should meet their demise, companies such as Toyota, who implement practices that engender loyalty and performance will remain in the minority.

It's easy to criticize unions - too easy, in fact. Horror stories of abuse and corruption abound. But if you want real horror stories of abuse and corruption, look at the environment for labor pre-union. Don't be fooled into thinking that "things can never get that bad again", because they can. Not all at once, mind you, but over time, definitely. If we've learned nothing else from the recent financial meltdown, let's learn this - business/business power left unchecked & unbalanced can not be trusted to do the right thing over the long haul. This is a basic law of human nature.

Surely Toyota has some sort of "employees association" or something to create/maintain/sustain constructive dialog between management & labor?

[GA Russell]

All of the American written material that I am aware of (i.e., the Consumer Reports guides) classes and compares vehicles by their size and type.

Toyota and other foreign companies make better vehicles than the Big Three do, but the Big Three vehicles are at lower price points.

It's easy to say that a Toyota midsize is a better vehicle than a Chevrolet midsize, but maybe not so easy to say that a $15,000. Toyota is better than a $15,000. Chevrolet.

The Big Three (both management and labor) never got it into their heads that the American customer wants quality when paying big bucks for something.

I remember in the 70s when Honda cars were first sold in the American market, the standard Detroit refrain was that the Japanese cars were less expensive than American cars. But everyone I knew who had a Honda would tell me how pleased he was with the quality of the car, never about what its price was.

[BruceH]

All of the American written material that I am aware of (i.e., the Consumer Reports guides) classes and compares vehicles by their size and type.

Toyota and other foreign companies make better vehicles than the Big Three do, but the Big Three vehicles are at lower price points.

It's easy to say that a Toyota midsize is a better vehicle than a Chevrolet midsize, but maybe not so easy to say that a $15,000. Toyota is better than a $15,000. Chevrolet.

The Big Three (both management and labor) never got it into their heads that the American customer wants quality when paying big bucks for something.

I remember in the 70s when Honda cars were first sold in the American market, the standard Detroit refrain was that the Japanese cars were less expensive than American cars. But everyone I knew who had a Honda would tell me how pleased he was with the quality of the car, never about what its price was.

They also made fun of them for being so small.

[Dave James]

This is the most informative article I've seen about the Big 3 bailout. It's from Friday's WSJ. Here's the link. Read this if you're at all interested in what's going on with GM.

http://online.wsj.com/article/SB122688631448632421.html

Up over and out.

[Jazzmoose]

Thanks for the link. I read another column yesterday or the day before (Freidman maybe?) suggesting that bankruptcy was indeed the proper way to go. Frankly, if it comes down to taxpayer's being handed the bag, I can't argue against that.

[The Magnificent Goldberg]

How to stay away from the United Auto Workers.

Unions are like Laws - there's no pressing need for them if everybody does the right thing.

Having said that, though, I still believe in the idea of and the need for unions in some form. Labor will always need representation, just to keep the playing field level.

What I am fervently against is outmoded & unfeasible union tactics & demands that make the playing field less than level.

I would hope that sanity prevails and that unions evolve their way into a fruitful & useful 21st Century, but that is their call to make. I see signs that this is occurring (new UAW contracts are beginning at 50% of the previous rate, companies are no longer being saddled with unmanageable legacy health care costs, etc.). I do feel 100% certain that if they should meet their demise, companies such as Toyota, who implement practices that engender loyalty and performance will remain in the minority.

It's easy to criticize unions - too easy, in fact. Horror stories of abuse and corruption abound. But if you want real horror stories of abuse and corruption, look at the environment for labor pre-union. Don't be fooled into thinking that "things can never get that bad again", because they can. Not all at once, mind you, but over time, definitely. If we've learned nothing else from the recent financial meltdown, let's learn this - business/business power left unchecked & unbalanced can not be trusted to do the right thing over the long haul. This is a basic law of human nature.

Surely Toyota has some sort of "employees association" or something to create/maintain/sustain constructive dialog between management & labor?

Quite right. Workers need unions when their employer can't be trusted. Few large employers can be.

In particular, it's recognised the world over that government at all levels - local, regional, national and (in the EU) supra-national - is not to be trusted, because politicians will do whatever they have to to get what they want - re-elected - including changing the law. So there is no real protection for public sector workers short of their own industrial strength.

But the balance between employers and workers needs to be re-jigged from time to time. By the 1970s in Britain, the general balance that had been agreed in the period post WWI was no longer functional, as the unions had too many immunities that gave them too much power for the then prevailing circumstances. Mrs Thatcher, though she did many things that in my view fucked up the country and for which we're still paying the price, took on the re-jigging issue and I think there is a better balance between unions and employers now. I had thought that the same thing happened in the US, since she and Reagan worked hand in glove so much. Perhaps that wasn't the case, though.

MG

[Brad]

The following was in today's NY Times Business section.

*****

A British Lesson on Auto Bailouts

By NELSON D. SCHWARTZ

Published: November 17, 2008

PARIS — A faltering auto giant whose brands are synonymous with the open road. Hundreds of thousands of unionized workers with powerful political backers. An urgent plea for the government to write a virtual blank check.

This is not the story of Ford and General Motors, but British Leyland, a car company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business. All that is left of the company now are memories of cars like the Triumph, and a painful lesson in the limited effectiveness of bailouts.

“It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but the lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”

Other experts are sounding the same alarm. “The British Leyland experience is a relevant and cautionary one,” said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group in New York. “The government got in the business of trying to make a winner out of a structurally flawed company. That’s the risk in the U.S. as well.”

Though Continental automakers have fared better than British ones, Mr. Casesa argues that the long history of government support in Europe made companies like Renault and Fiat strong players in their home markets, but not worldwide.

“With the exception of BMW and Mercedes, European automakers haven’t been globally successful,” he said. “Nor have they been hugely profitable.”

That comparative history is receiving new attention as Congress turns its attention this week to the fate of Detroit.

The British Leyland bailout remains the classic example of a futile government intervention. The tight cooperation between governments and automakers on the Continent has produced happier results.

For half a century after World War II, the French government was the majority stakeholder in Renault, and Paris still holds a 15 percent stake in the company. In the 1980s, the company received a bailout equal to nearly 4 billion euros, or $5.1 billion in today’s money. Now it is highly profitable — at least compared with its American counterparts.

Today, G.M.’s German subsidiary, Opel, is appealing to Berlin for help, seeking more than 1 billion euros in credit guarantees, according to Carl-Peter Forster, G.M.’s European chief.

Monday, Chancellor Angela Merkel of Germany said her government would make a decision before Christmas.

“It’s not decided yet whether these loan guarantees will become necessary,” Mrs. Merkel told reporters in Berlin after meeting with Mr. Forster and other management and labor officials.

“If these guarantees become necessary, those funds should remain within Opel” in Germany, she added, echoing a concern some Americans have expressed that any United States bailout money go only to American automakers.

So far, Asian companies have not complained that such a bailout would amount to an anticompetitive subsidy. But José Manuel Barroso, president of the European Commission, said last week that he thought an aid package for Detroit could be “illegal” under World Trade Organization rules.

That has not stopped European automakers from seeking 40 billion euros in loans from the European Investment Bank, ostensibly to help develop cleaner cars.

For Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales, the trajectory of General Motors is reminiscent of British Leyland not only because of the former’s decision to seek aid to avert bankruptcy, but also for its slow, seemingly inexorable loss of market share. “Both had a history of being the biggest in their market but couldn’t adapt as they lost sales,” he said. “They couldn’t get customers back.”

Historically, British Leyland’s roots stretched back further than Henry Ford’s Model T. The company controlled 36 percent of the British market well into the 1970s, with mass-market brands like Austin and Morris and premium lines like MG and Jaguar. But rising competition from Japanese and German automakers, shoddy workmanship and a breakdown in labor relations brought the company to near bankruptcy by 1975, Mr. Rhys said.

Michael Edwardes, who took over as British Leyland’s chief executive in November 1977, recalled that when he joined, no one even knew whether individual brands were profitable. “It was a farce — no one knew what the costs were,” he said.

As it turned out, every MG the company sold in the United States resulted in a loss of $2,000 for British Leyland.

Wildcat strikes consumed more than 32 million worker-hours in 1977, and the company became a symbol of labor strife, with some employees walking out the door with spark plugs in their coat pockets and engines in the trunks of their cars, Mr. Edwardes said.

Mr. Edwardes immediately began reducing the company’s work force of roughly 200,000 — to 104,000 within five years — and closing 19 factories. He appealed to the Thatcher government for aid, arguing the money was needed if British Leyland was going to be able to afford to lay off workers while investing in new models.

Eventually, the government put up £3.6 billion, equal to £11 billion in today’s money. But the rescue did not do much to preserve British Leyland’s labor force or market share in the long term.

By the time it received its last government infusion of cash in 1988, Mr. Rhys said, British Leyland’s market share had slumped to 15 percent. British Leyland evolved into MG Rover, which was eventually acquired by BMW, then spun off, finally going bankrupt in 2005.

According to Mr. Rhys, just 22,000 workers remain at British Leyland’s successor companies, about 10 percent of its work force in the mid-1970s.

“It was a very poor return,” he said. “We felt collectively and nationally that we got our fingers burnt, and this was always used as a reason to avoid bailouts, both by Labor and Conservative governments in Britain.”

Mr. Edwardes still defends the government aid, arguing it preserved parts of the company that remain in business now — like Jaguar and Land Rover, which were bought by Ford.

Jaguar never made a profit for Ford, however, and was sold with Land Rover to Tata Motors of India earlier this year. Ford recouped only about half of what it paid to acquire the two brands, and is estimated to have poured $10 billion into Jaguar.

Despite the British experience, the case of Renault, which combined fresh money and new management in the 1980s, showed that government bailouts can be beneficial.

The French government help for Renault also came amid increasing losses for the company. But Mr. Rhys said that unlike British Leyland, Renault was able to use the financing to create new car models that were ultimately successful. That, along with tough cost-cutting by a newly installed chairman, cleared the road to profitability by the time the government began privatizing Renault in the 1990s.

If Washington does go ahead and help Detroit, Mr. Edwardes said, it is crucial that the government overhaul the management of the Big Three. “Throwing money at them isn’t enough,” he said. “They need money and they need new management. They need both, not one or the other.”

*****

I'm tired of throwing good money after bad. It won't fix their problem; they need to be restructured. When will it stop?

[Larry Kart]

From Brad DeLong's blog, quoting from Felix Salmon (the diference between Chapter 7 and Chapter 11 bankruptcies is vast and crucial; they're as different as night from day):

Felix Salmon Says: Not Bailout or Bankruptcy But Bailout and Bankruptcy for GM

He writes:

GM: The Bailout vs Bankruptcy Meme: At heart, this argument is simple. There's no available DIP financing for an orderly Chapter 11 bankruptcy, and Chapter 7 liquidation would be disastrous, therefore we need a bailout which avoids any kind of bankruptcy at all. But I don't see why a government bailout must, ipso facto, avoid any kind of bankruptcy. GM alone has $35 billion in long-term debt, most of which is trading at about 20 cents on the dollar. That might only be a drop in the bucket compared to its total liabilities of $193 billion, but it's a good place to start: if bondholders took an 80% writedown while the government pitched in $12 billion of preferred equity in the post-restructuring entity, that's a $40 billion improvement to GM's balance sheet right there. And of course bankruptcy would give GM the opportunity to renegotiate onerous contracts with its dealers, as well as other real and contingent liabilities.

This is what I've been referring to as a "bail-in", and it makes quite a lot of sense on its face. Let the government provide the necessary financing, but ensure that bondholders share some of the pain as well, especially since doing so would simply ratify the mark-to-market losses they've already taken.

Such a plan would involve working out the details of a bankruptcy in advance: there are large dangers involved when a company the size of GM enters bankruptcy without any clear conception of how it might exit. So there would need to be serious negotiations between all of GM's stakeholders and the government -- negotiations which, I'll concede, would be all but impossible during this uncomfortable interregnum between the election and the inauguration. Even if GM can somehow muddle through until January, it can hardly expect such negotiations to be concluded in a matter of weeks. So there's a timing problem here, given that the present administration has demonstrated zero inclination to help out Detroit. But I still think that it would be useful to stop thinking of a bailout as an alternative to bankruptcy, and start thinking more imaginatively about the different mechanisms, including both government funds and bankruptcy, which could help put Detroit on a more sustainable footing.

The government could, for one thing, provide DIP financing...

[Larry Kart]

More than that from a somewhat different perspective from Peter Cohan but saying more about Chapter 7 versus Chapter 11; they are not at all the same):

Will GM file for Chapter 7 or Chapter 11?

Posted Nov 12th 2008 9:00AM by Peter Cohan

Filed under: General Motors (GM)

On Monday I told a TV interviewer that General Motors (NYSE: GM) would probably not last the week. It is looking more like that prediction will come true. With $16.2 billion in cash, GM needs $10 billion to pay its bills. But it will go through that by the end of 2008 since it is probably in default on $6 billion worth of credit agreements which would require GM to pay back those loans immediately. And GM has already been bankrupt in an accounting sense for years -- its liabilities exceed its assets by $58 billion ($12 billion more than in 2007). This raises many questions: Why is GM in this condition? What are its options? Should the U.S. government step in? Does it matter? Where do the bailouts end?

GM's basic problem is that it spent decades making excuses for why it could not give customers superior value rather than building better vehicles. With 2.5 million jobs on the line, Chapter 7 -- a complete liquidation of its assets -- could throw all these people out of work. Who are these people? Auto companies are big buyers of manufactured steel, aluminum, iron, copper, plastics, rubber and electronics -- and their dealers are people too. One study estimates that the workers in these companies could lose $125 billion in income.

So the U.S. government could provide a financial guarantee and some money to encourage financial institutions to give debtor-in-possession (DIP) financing which would allow GM to operate in Chapter 11. As a condition of the deal, its top executives ranks should be replaced with strategists who can decide which parts of GM to close or sell, and which can operate profitably. A better solution would be a pre-packaged bankruptcy where new contracts with creditors would be negotiated before the filling -- but GM is probably too complex to accomplish this ahead of time.

We will stop bailing out people when we run out of bailout money and lobbyists to fight for it. Starting with the bailout of Bear Stearns, the U.S. lost any logical basis for turning down anyone seeking taxpayer money. For example, why did the U.S. think it was OK to give $29 billion to keep Bear Stearns from going under but was quite comfortable letting Lehman Brothers file its $639 billion bankruptcy? Cat got your tongue Hank?

The simple fact is that GM is big enough to hire the lobbyists it needs to make the case that what's bad for GM is bad for America. (And the average taxpayer is not.) The big economic crime is that GM's board kept supporting the CEO who presided over a 96% loss in shareholder value since he took over in June 2000. If GM had invested the profits from SUVs and vehicle financing that it made during the boom years into cars that customers were eager to buy, it would not be on the brink of bankruptcy.

If President Bush resigns this week, President-Elect Obama could take over and make a terrible choice (GM in Chapter 11) to avoid a catastrophic one (GM in Chapter 7). Since that won't happen, it looks to me like GM could be in Chapter 7 very soon -- adding another remarkable "accomplishment" to a historic legacy.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in GM securities.

[Larry Kart]

A link (Hi there, 7/4) to a New Republic article on the 7 versus 11 problem:

http://www.tnr.com/politics/story.html?id=...59-2dfa3a3211bf

[John Tapscott]

My guess is that there will be a bail-out THIS time, but this is only to help get everyone's mind around the fact that GM is for all intents and purposes BANKRUPT and that will be no NEXT time. The bail-out is only putting off the inevitable.

There's enough blame to go around, but the bottom line is that consumers are basically saying to GM - "we don't want your stuff - it doesn't measure up." Why bail out a company when consumers have given thumbs down to their product? Let Toyota or Honda take over the GM plants and put out product people want to buy. This is why the hand-wringers over bankruptcy like Gov. Jennifer Granholm of Michigan are on the wrong track. The plants will be bought up and someone will produce vehicles from them and employ workers and need parts etc. Yes, there will be a harsh adjustment period but it's either now or later.

My father was a driver of GM vehicles all his life and my mother still dives a small Buick, which to be honest is a decent car and serves her purposes well. I've never had a GM vehicle, and likely won't in the future. Not that I haven't tried, but I have always found GM dealers to be arrogant and unwilling to really make a deal. They always low ball your trade-in and want top dollar for their product. The attitude is (or at least was) - "We're GM, we're great, so pay up!" One would hope that attitude is disappearing.

Oh yes, I worked in a GM plant for several summers when I was in college. Here's how stupid the work rules are. The supervisor can tell you how to do something but can't actually show you how to to do it. A non-union supervisor can't touch the product, only the unionized workers can actually touch and handle product. Now how stupid is that? What is a supervisor for, if not to show you in a hands-on way how to do your work properly?

Edited November 18, 2008 by John Tapscott

[The Magnificent Goldberg]

Thanks Larry for that Cohn article. Good points.

The British lesson that Brad posted is all right as far as it goes but Garel forgot about the supply chain effects of allowing British Leyland to go bust rather than slowly subside. The slow decline allowed a lot of the supply chain sufficient breathing space to get other work from other manufacturers. (Don't forget, people still want to buy cars and more and more are being sold worldwide. We're not talking about an obsolete product.) And many of those firms - as Garel knows - are still in business.

MG

[7/4]

A link (Hi there, 7/4) to a New Republic article on the 7 versus 11 problem:

http://www.tnr.com/politics/story.html?id=...59-2dfa3a3211bf

dood - you two are in ethical purgatory.

[ejp626]

...This is why the hand-wringers over bankruptcy like Gov. Jennifer Granholm of Michigan are on the wrong track. The plants will be bought up and someone will produce vehicles from them and employ workers and need parts etc. Yes, there will be a harsh adjustment period but it's either now or later.

I have to disagree. I think they will close all the Michigan plants and Toyota/Honda/etc. will expand plants elsewhere in the US, mostly Tennessee. If GM does go under, Southeast Michigan is f***ed even more than it is now.

I think what bugs me the most about this idea that in the long run we will all be better off in some post-industrial economy is that it ignores the truly wrenching dislocations that happen -- large parts of the country have never recovered from deindustrialization (the same is true about the North of England and most of East Germany for that matter). Second, most people have gone from decent blue-collar jobs to truly shitty, temporary and unstable service work. Ultimately, if we can't provide jobs that pay a living wage, then we can't keep the economy stable. The rich keep too much in savings and the growing numbers of people sliding down the economic chute have been putting it on credit, and that is what has led us to where we are today. (Ironically, if everyone really started living within their means then the US would be in a Depression within a few days.) The winners out of the globalization sweepstakes have simply paid no attention to the losers, and they are legion.

[The Magnificent Goldberg]

...This is why the hand-wringers over bankruptcy like Gov. Jennifer Granholm of Michigan are on the wrong track. The plants will be bought up and someone will produce vehicles from them and employ workers and need parts etc. Yes, there will be a harsh adjustment period but it's either now or later.

large parts of the country have never recovered from deindustrialization (the same is true about the North of England and most of East Germany for that matter).

Yes. South Wales is in the same boat.

Second, most people have gone from decent blue-collar jobs to truly shitty, temporary and unstable service work.

SOME people have done that. But what a very large proportion of people have done - particularly here in South Wales - is something else. There has been a culture change that has affected the whole of society here. Nobody believes that there are jobs (even of the unstable service type you speak of) and therefore it is accepted that a large proportion of the working age population - particularly men - will maintain themselves on sick benefit; accepted by the medical profession, which is co-operative in signing people off as unfit. This is so prevalent here that new slang has been invented to express the situation. People are now "on the hobble"; ie working informally while claiming sickness benefit, which is now being viewed as early retirement for the poor.

Ultimately, if we can't provide jobs that pay a living wage, then we can't keep the economy stable. The rich keep too much in savings and the growing numbers of people sliding down the economic chute have been putting it on credit, and that is what has led us to where we are today. (Ironically, if everyone really started living within their means then the US would be in a Depression within a few days.) The winners out of the globalization sweepstakes have simply paid no attention to the losers, and they are legion.

Yes. The spending of relatively poor people is reliable because they spend it on necessities. The greater one's income, the greater the proportion that is spent on stuff that's not really necessary and can, therefore, be cut when things get tough. This has a downward racheting effect on the economy and makes recessions worse than they would otherwise be.

Furthermore, the spending of poor people is almost all domestic. Of course some of the goods are imported, but they are bought domestically and therefore support proportionately more jobs in the domestic economy than the spending of the rich does.

MG

[Dan Gould]

No one said "we will all be better off" - more people will be better off, at less overall cost. Will there be people in worse shape, more or less permanently? Yes. But why should a failing commercial concern be propped up indefinitely? For all the reasons listed in that WSJ article, as currently constituted, GM is in an untenable position, now and in the long-term. Giving them tax-payer money to finance current operations doesn't do a thing to change that.

[Dan Gould]

Ultimately, if we can't provide jobs that pay a living wage, then we can't keep the economy stable. The rich keep too much in savings and the growing numbers of people sliding down the economic chute have been putting it on credit, and that is what has led us to where we are today. (Ironically, if everyone really started living within their means then the US would be in a Depression within a few days.) The winners out of the globalization sweepstakes have simply paid no attention to the losers, and they are legion.

Yes. The spending of relatively poor people is reliable because they spend it on necessities. The greater one's income, the greater the proportion that is spent on stuff that's not really necessary and can, therefore, be cut when things get tough. This has a downward racheting effect on the economy and makes recessions worse than they would otherwise be.

Furthermore, the spending of poor people is almost all domestic. Of course some of the goods are imported, but they are bought domestically and therefore support proportionately more jobs in the domestic economy than the spending of the rich does.

MG

I don't think any of this is really true, Allan. Yes, the relatively poor spend on necessities. But with little for superfluous spending, they don't effect the economy for better or worse very much. Its when the large middle classes close their wallets that recessions worsen. Most of the rich go right along doing their thing - vacations, luxury cars, over-priced clothes. The economic "gas" isn't when the rich ramp up their spending, its when the huge middle of the income distribution feel better about their situation and start spending again.

Edited November 18, 2008 by Dan Gould

[John Tapscott]

...This is why the hand-wringers over bankruptcy like Gov. Jennifer Granholm of Michigan are on the wrong track. The plants will be bought up and someone will produce vehicles from them and employ workers and need parts etc. Yes, there will be a harsh adjustment period but it's either now or later.

I have to disagree. I think they will close all the Michigan plants and Toyota/Honda/etc. will expand plants elsewhere in the US, mostly Tennessee. If GM does go under, Southeast Michigan is f***ed even more than it is now.

I think what bugs me the most about this idea that in the long run we will all be better off in some post-industrial economy is that it ignores the truly wrenching dislocations that happen -- large parts of the country have never recovered from deindustrialization (the same is true about the North of England and most of East Germany for that matter). Second, most people have gone from decent blue-collar jobs to truly shitty, temporary and unstable service work. Ultimately, if we can't provide jobs that pay a living wage, then we can't keep the economy stable. The rich keep too much in savings and the growing numbers of people sliding down the economic chute have been putting it on credit, and that is what has led us to where we are today. (Ironically, if everyone really started living within their means then the US would be in a Depression within a few days.) The winners out of the globalization sweepstakes have simply paid no attention to the losers, and they are legion.

Well, for one thing under Chapter 11, as I understand it, the union contracts will be torn up, and Toyota/Honda/Hyundai etc would be able pay the workers the same very good (though non-union) wage and benefit rate they earn now at plants in Tennesee & Alabama etc. So there's no need to move the plants. And even if they did move and set up shop down south, so what? Lots of workers migrated from the southern United States to the north decades ago, why can't it happen in reverse. A dynamic economy will create lots of new jobs, but those jobs may not always be in places where the old ones were. (Northern England and East Germany are hardly good examples of places where you would want to invest in a new plant).

Look, I'm not a complete union basher (agree with Sangrey's earlier post), but the unions are at least partially responsible for this mess the Big 3 finds themselves in. The union's recent flexibilty comes too little too late. I think it was in one of the articles posted. - Big 3 hourly compensation (wages and benefits) to union workers = $74/hour; non-union auto plants =$48/hour, the economy as a whole $28/hr. The reasonable question has to be asked - why should the taxes of the $28/hr guy subsidize the guy who's making $74/hr.?

Nor am I an apologist for the "rich" , but the rich I know don't usually stuff their money under a mattress. Much of it is in some kind of investment which provides capital for the economy to grow and develop.

Look, consumers and investors have both made their judgement on the Big 3. There's no point in propping them up or bailing them out in their current form. Having read all the arguments here and elsewhere I think Chapter 11 is the way to go. It's going to happen sooner or later, so we might as well face the music and do it now.

Edited November 18, 2008 by John Tapscott

[The Magnificent Goldberg]

No one said "we will all be better off" - more people will be better off, at less overall cost. Will there be people in worse shape, more or less permanently? Yes. But why should a failing commercial concern be propped up indefinitely? For all the reasons listed in that WSJ article, as currently constituted, GM is in an untenable position, now and in the long-term. Giving them tax-payer money to finance current operations doesn't do a thing to change that.

I don't think it's necessarily been shown that more people will be better off at less overall cost. The overall cost to the taxpayer of supporting hundreds of thousands of ex-workers, and their descendents who will catch on to the same cultural shift, for an indefinite period on welfare is likely to completely outweigh any prop-up costs that would enable a short-term retrenchment or restructuring (by short I mean a decade or so). This has been going on here for decades (see my earlier post) and the situation is, in all probabilty, irretrievable. So you have a situation in which there is every prospect of supporting large proportions of the population on welfare for ever if you allow this kind of local/regional catastrophe.

MG

[Dave James]

All of us are familiar with the expression. "What's good for General Motors is good for the country." I would suggest at this juncture, it's more like "What's good for General Motors is not good for the country."

The spin associated with this Big 3 bailout is overwhelming. We even had a full page ad in yesterday's Oregonian lamenting the fallout from a GM bankruptcy. Look, whenever there's an ecomomic contraction, bad things are going to happen to people. I don't like that any more than the next guy, but, unfortunately, that's the cost associated with getting things back on track. Besides, if GM does declare, it doesn't mean they are going away, it means they can emerge as a leaner, more efficient and more cost effective company. Yes, many will lose jobs, but what's more important; rebuilding the nation's economy or trying to make sure no one gets hurt? I'm sure I would be whistling another tune entirely if I was in the UAW, but it's high time we take a broader view. If we don't, I'm not sure what's going to happen.

Up over and out.

[Dan Gould]

No one said "we will all be better off" - more people will be better off, at less overall cost. Will there be people in worse shape, more or less permanently? Yes. But why should a failing commercial concern be propped up indefinitely? For all the reasons listed in that WSJ article, as currently constituted, GM is in an untenable position, now and in the long-term. Giving them tax-payer money to finance current operations doesn't do a thing to change that.

I don't think it's necessarily been shown that more people will be better off at less overall cost. The overall cost to the taxpayer of supporting hundreds of thousands of ex-workers, and their descendents who will catch on to the same cultural shift, for an indefinite period on welfare is likely to completely outweigh any prop-up costs that would enable a short-term retrenchment or restructuring (by short I mean a decade or so). This has been going on here for decades (see my earlier post) and the situation is, in all probabilty, irretrievable. So you have a situation in which there is every prospect of supporting large proportions of the population on welfare for ever if you allow this kind of local/regional catastrophe.

MG

In the UK, descendants may be stuck in the same cultural shift, but that isn't the case in the States. People have many more options, including as John mentions, moving where the jobs are. Or choosing to pursue alternatives through higher education. The fact that being on the dole "for ever" or taking "poor man's early retirement" isn't an option in the States has something to do with that.

[The Magnificent Goldberg]

No one said "we will all be better off" - more people will be better off, at less overall cost. Will there be people in worse shape, more or less permanently? Yes. But why should a failing commercial concern be propped up indefinitely? For all the reasons listed in that WSJ article, as currently constituted, GM is in an untenable position, now and in the long-term. Giving them tax-payer money to finance current operations doesn't do a thing to change that.

I don't think it's necessarily been shown that more people will be better off at less overall cost. The overall cost to the taxpayer of supporting hundreds of thousands of ex-workers, and their descendents who will catch on to the same cultural shift, for an indefinite period on welfare is likely to completely outweigh any prop-up costs that would enable a short-term retrenchment or restructuring (by short I mean a decade or so). This has been going on here for decades (see my earlier post) and the situation is, in all probabilty, irretrievable. So you have a situation in which there is every prospect of supporting large proportions of the population on welfare for ever if you allow this kind of local/regional catastrophe.

MG

In the UK, descendants may be stuck in the same cultural shift, but that isn't the case in the States. People have many more options, including as John mentions, moving where the jobs are. Or choosing to pursue alternatives through higher education. The fact that being on the dole "for ever" or taking "poor man's early retirement" isn't an option in the States has something to do with that.

People have those same options here. They are strongly encouraged and given financial incentives to take the latter. Many do move also. Dole is cut off after a few months, so it's not an option here, either. Incapacity benefit isn't cut off (and is more than dole) and that's what people gravitate to. I assume you have a similar, open-ended, benefit for the disabled in America.

Where the US does differ is that, unlike South Wales, most people haven't lived in the same village/town for untold generations, so aren't so attached to their area. Also I guess, but don't know, that you don't have such wide disparities in house prices as to militate financially against moving. A typical working class house in the Velleys here may be sold for £20,000 (if anyone wants to buy one). But a cheap one one in South East or East England - where most migration is going - will cost 10-15 times that amount.

MG