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Sunday, December 14, 2008

Auto Industry

Hi Kim,

I think the problems are too big for a fifty billion or maybe even a hundred billion loan to get them through the next year and a half, and the bailout won't prevent massive layoffs in that period. Production and sales will be so curtailed that a lot of the suppliers and dealers are going to go out of business. So what good would it do?

I don't blame the unions for saying that they only contribute 10% of the car's cost. If they took a 50% cut and cars were 5% cheaper, would prople be buying? I think bankruptcies will happen and I guess I'd rether see them happen sooner rather than later, because we'll need the bailout money to help the unemployed and the needy. Things are going to get worse. The autmobile companies are getting all the attention, but in these economic circumstances, a lot of businesses will be going bankrupt, and I think the government knows they can't keep bailing out business (including the bankers). They just don't know how or where to draw the line. I also don't know who owns all the bonds and who will suffer from defaults. But, at least, that way the workers wll have the comfort of knowing that the execs, lenders, and vendors will share their pain. 2 of the car companies, with their debt diminished, and new exes making better plans can emerge viable if smaller and potentially grow from there.

What will happen to the unions? I think they'll still represent the workers and have to negotiate and accept lower wages and benefits, but they can't accept big cuts before the negotiatons. The workers would feel they'd been sold out - and still face the layoff of half the workers and eventually, all of them anyway.

2 comments:

Kimberly Cangelosi said...

Thanks Dad, it's all so gloomy :( I guess if it's certain they are going to go bust either way then who cares. But the attitude of the unions makes me uncomfortable. It seems to me that if the unions don't adjust their demands to reflect what the market can bear then they are falling into the kind of shortsighted "me first" attitude that got the banks into so much trouble. I don't know if a 5% drop would effect car sales, but wouldn't it make an impact on the rate at which these car companies are hemmoraging money? There are a limited number ways you can cut the fat (and if they want to make an honest go of it they should employ all of them) but I wonder how many of them would result in a 5% reduction in cost?

As for helping the unemployed and the needy... can the treasurey print more money for that? I thought I heard somewhere that because we have not seen a lot of inflation that might be a possibility...is that true?

Andy said...

You're right, Kim. A "voluntary" 10% wage cut by the unions would save the companies millions monthly and score some PR points as well. I don't know if the union can authorizs such an action without a meembership vote, or without reopening contract negotiations. What's more, the companies are talkinng about closing plants for the month of Jsnuary, abd I'm sure the workers fear a lot of plants won't reopem any time soon, and that they'll be kaid off. That concern makes it hard for them to volunteer to surrender wages or benrfits.

Beyond such good faith gestures, I don't think the union has many ways to affest the outcome positively, except to use whatever political clout they have to promote big loans.

There was a show on the news last night about GM introducing the updated Camarron, bringing back the muscle car. If that's the strategy the execs have been devoting time and energy to in the last year it makes one think that they really don't get it, and lends support to the worker's arguement that they're not the ones responsible for the company's problems.