Big Three Bailout

image from the AP GraphicsBank

There’s increasing talk of a possible Big Three Bailout by our Federal Government.  An interesting article was posted on the website today, written by CNET’s Declan McCullagh:

One of the best reasons why Detroit automakers should not receive a bailout can be found in a General Motors “Jobs Bank” program that, bizarrely, pays employees not to work.

A beneficiary of that program was someone named Jerry Mellon, who worked for GM until his division merged with another in 2000 and he was no longer needed. Except for a brief period in 2001, Mellon received his full salary for not working, which reached $64,500 a year by 2006. Include benefits, and the annual cost to GM exceeds $100,000.

[…] During those six years [that Mellon didn’t work, but collected his salary], Toyota surpassed GM as the world’s largest car manufacturer, thanks to innovations like the fuel-sipping Prius. Nissan developed the GT-R, a technological marvel with a 0 to 60 time of 3.2 seconds and a lower sticker price than the Corvette ZR1. Honda kept its focus on smaller cars such as the Civic and Accord, and saw its sales continue to increase this summer while GM, Ford, and Chrysler have slid.

[…] The better solution is a simple one: Allow automakers to declare bankruptcy. 

Contrary to popular belief, that will not mean the end of a company such as GM, which has indicatedit may run out of cash by the end of this year. Under Chapter 11, a bankruptcy judge will weigh the different interests of GM’s creditors, labor unions, shareholders, and so on, and the resulting company will emerge leaner and stronger. Many current customers of United Airlines, Texaco, Global Crossing, and Pacific Gas and Electric probably don’t even know that those companies once filed for Chapter 11. 

Chapter 11 also would let a judge alter gold-plated union contracts and benefits that have hamstrung the Big Three and crippled their ability to compete against Japanese and European car makers. Toyota, Honda, and other non-Big Three manufacturers that employ over 100,000 Americans, mostly in right-to-work states, have shown that they can make money building cars in the United States. The best way to keep U.S. auto workers employed in the future — tens of thousands already have lost their jobs — is to make it profitable to keep them on the payroll. 

One explanation for Washington’s haste is that while bankruptcy would alter union contracts, a bailout probably won’t. 

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  1. The biggest error made in the US of A in the last 30 years was the bail-out of Chrysler by both Federal and State governments. I called on two Chrysler facilities at that time and you could not find a worst case than they for total inefficiency! The UAW has been in complete control due to the caveing-in of the Chrysler management in all areas – just to stay out of chapter 11. If we had let Iaccoca go chapter 11, the entire US automobile business would be in healthy shape – just like if we had let banks and savings & loans continue to insure that borrowers could afford to continue the mortgage payments required we wouldn’t be in the mess we are. SEND DODD – FRANK – PELOSKI – SOUDER & those like them back to work in a real job!!!! AND GET THE GOVERNMENT OUT OF THE CONTROL OF BUSINESSES!!!!! Now we have to wait another 2 years to accomplish this!

  2. John, if you think it is bad then you should see it today.

    Toyota is getting ready to move end their joint venture with GM in Southern California. They are moving the Tundra truck production to Mexico. They have had it with the UAW (this is the only Toyota/UAW plant). They site quality, production rates, lack of flex in changing process, high cost of labor, and high cost of insurance. Every thing is a war!

    If Obama pushes the UAW/Union law through on “no vote” for unions then Toyota is already laying the ground work to move plants to Mexico.

    Toyota opened plants in the US because of the strong YEN in Japan over the weaker US dollar. That is gone. So returning some production to Japan now makes sense as the YEN has dropped greatly against the dollar.

    GM is going to going bankrupt. The only thing the Democrats and Obama want to do is pay off the UAW screwed up health coverage that no other working person in this country has. The thing is the rest of us poor working saps are going to pay for it.

  3. News to most of you….just like the citing of product quality, it seems that most Americans are sadly mis-informed of the “gold-plated” union contracts. Those contracts are long gone. They are the ocntracts of our parents/grandparents. We are making $14 an hour. Our insurance only covers our first 5 visits to a doctor (for an entire family) with a $25 co-pay. After those 5 visits, we pay 100%. It is generally quoted that we make $70/hr. That is including the retiree benefits, which is unfair to label us as making. GM pays about $154 per week for my insurance, and I make $14 an hour. With benefits, that equates to $17.84/hr. As for product quality, do some research. The problems of the 80’s are done. Workers take pride in what they are doing and our quality level is damn near that of the foreign vehicles. There is no more national pride out there. People should be buying American, but they were burned so bad in the 80’s, they will not come back. I challenge anyone to go out and test drive a Malibu and tell me how much better the foreign competition is.

    My point is that the Big 3 are in the middle of their change. Yes, it’s a dollar short and a day late, but they are in the middle of change for the better. Don’t kid yourselves into thinking that Chapter 11 is an option. Chapter 11 will force most, if not all of GM’s suppliers to go out of business. This is not the same as United Airlines, Texaco, etc. Bankruptcy will be Chapter 7, and it will be the end of GM.


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