Thursday, December 04, 2008

The Big Three

I caught a little of the hearings today with the heads of the Big Three in Washington begging for money.

All I could think about was how many times do they have to learn the same lesson? I'm old enough to remember the first oil shocks when Detroit got caught with their pants down building cars that were rolling, gas guzzling junk heaps.

The Big Three have expended millions if not billions of dollars making this bed. They, and their Democratic and Republican Congressional enablers, have fought for years the kinds of regulations that would have saved them from their current fate. While Toyota (now the world's largest automaker), Honda, Nissan, etc. have focused on making efficient and quality cars for a global market, the Big Three insisted on putting all their eggs in the truck / SUV basket (and getting Bush to triple the big SUV tax deduction), while dinosaurs like John Dingell (D - MI) did everything they could to make sure no regulation forced the Big Three to join the rest of the world. It's outrageous and everyone involved should find themselves unemployed including those in Congress who fought for years against modern CAFE standards, etc.

So it's not pity I feel for them, but anger. And what makes me maddest of all is that I know we have no choice but to once again save GM, Ford and Chrysler from themselves. Because in the end, it's not about them. It's about the 3 million plus jobs that include all their suppliers who also happen to supply all the other automotive plants in the US including Toyota, Honda, Nissan, Mitsubishi, Daimler, etc.

And last but not least, spare me the laying of all of these woes at the feet of the UAW. It's certainly true that the UAW is not blameless in this tail of woe, and is going to have to make concessions (which they have done before) without which the Big Three will never be profitable, but this is hardly all their fault. The labor issues are not so much wages, but health care costs which have soared, without any real explanation, for 10 years.

A little context is in order. 15 to 20 years ago, most of the pension plans of the Fortune 500 were believed to be way over funded (as in much more money than was needed to pay pensions obligagtions as they came due) thanks to great stock performance that went on for many years. With this extra money in the pension funds, many corporations saw an opportunity to offer early retirement to older, high wage, less productive employees that they could replace with younger, lower wage employees -- or in many cases not replace at all. Best of all, the money to fund the buyouts would come from the over-funded pension plans. The Big Three were no exception. They agreed to allow their UAW members to retire with 30 years at age 55 with medical benefits to age 65 when they were eligible for for medicare -- all funded but their supposed over-funded pension plans. And when these deals were made, it was a win - win proposition because the automakers could downsize painfree with a younger, cheaper and more produtctive work force.

Well, stock market conditions soured and it turned out these pension plans weren't so over-funded after all. Add to this the fact that health care costs soared during this same time and suddenly now these retiree costs -- so-called legacy costs -- were killing the Big Three automakers. This is exactly why health care reform is urgent, but the Big Three don't have years to wait for such reforms. They need saved today.

So save them we must, but will someone explain to me how we save them without releaving them of their legacy costs and how we do that without a bankruptcy filing? The UAW can't just agree to cut off the medical of all their retired members under age 65.

If anyone who has the answer to this question, please let me know.

On the plus side, the Big Three with their 3 million associated jobs is seeking a tiny fraction of what AIG alone has recieved.

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