Auto bailout

[ciphergoth]

Auto industry: labour costs 10% or $1.7B, must cut worker salaries to receive $17B bailout.
Financial industry: labour costs 90% or $490B, can have $700B bailout no strings attached.

Bush Loans $17 Billion to the Auto Industry

President Bush brought down the wrath of a large piece of the Republican Party on himself for giving the big three car manufacturers a $17 billion stopgap loan. The loan has a condition in it that members of the United Auto Workers union give back wage and benefits that bring them into line with what the Japanese companies pay at their plants in the South. The Republicans objection is that this condition is not written into law and Barack Obama could easily eliminate it after January 20th.

It is increasingly clear that what southern Republicans really want is to break the back of the UAW (which habitually supports the Democratic Party). Thus while demanding lower wages and benefits as part of the $17 billion loan to the auto industry (where labor costs are 10% of total expenditures) is crucial to them, they didn't make a peep about lowering salaries as part of the $700 billion bailout of the banking industry (where labor costs are 70% of the total). In other words, the $1.7 billion worth of labor costs in the (unionized) auto industry is a big deal but the $490 billion worth of labor costs in the (nonunionized) financial industry is a nonissue.

-- Andrew Tanenbaum

Comments

[palmer1984.livejournal.com]

*anger*

[lizw.livejournal.com]

That's depressing :-(

[incy.livejournal.com]

of course the financial industry is shedding jobs left right and centre, where the auto industry bailout is to save all the jobs.

[ciphergoth.livejournal.com]

If from that you're arguing that the above doesn't represent a double standard, I don't see how you get from one to the other - could you spell it out?

[incy.livejournal.com]

I do not think the aims of the bail outs are to achieve the same thing.

Pleas excuse the gross over simplification here, but anyway:
The automotive one is to save GM, Chrysler and Ford and the people they employ. So it is really a job and company saving exercise.

The banking one is not to save any company in particular (note Lehmans Brother was allowed to go bust), but to put liquidity into the financial system (and the ability to lend on beyond the finance system). Finance companies are going bust and laying off on mass. There seems to be little motivation to save companies or jobs directly and the bail out is to save the economy beyond the banks.

And while I probably agree with yo tha Southern Republicans might want to break the unions, i think you save there is not a love of love between them and Wall Street either.

[ciphergoth.livejournal.com]

OK, but how do you get from there to attaching conditions about driving down pay to the bailout? Especially when it makes a relatively small difference to their bottom line?

Besides which, it's only partly about saving the jobs of the direct employees - the collapse of the big three would have serious knock-on effects in a variety of other industries...

[incy.livejournal.com]

Of course the collapse of banks would also have a big knock on to other industries as well. And are you saying a job in banking is no less worth saving then one in the car industry?

There are differences in the bailout. Firstly in the car industry the US Treasury is simply handing over money to the companies, in terms of he banks they are actually buying the assets that the bank own (so the banks no longer own them, but the government does... in the car industry the equivalent would be the government buying the cars).

I was under the staffing costs in the US car industry was huge both (there medical insurance division are the biggest parts of the company, I do not know how true this is though). I am also guessing the bailout is an open ended commitment, but to help the firm to get their act in gear, which means getting their costs down and producing cars that people want to buy. Of course they cannot dictate the price of raw material for the cars so it really is only labour costs they can effect.

As for costs banks do tend to pay their workers as little as they can get away with and the industry has shown it is prepared to drive down it labours costs without being told to.

[deliberateblank.livejournal.com]

Of course they cannot dictate the price of raw material for the cars so it really is only labour costs they can effect.

This is only true if they point blank refuse to build anything smaller than a truck.

AAPL vs ORNG

[aidan-skinner.livejournal.com]

There are several crucial differences here:

1. The Auto bailout is in the form of short term loans, the financial bailout is largely in the form of the government taking equity in the companies.

2. The financial firms proportional labour costs are clearly not taking into account the cost of the capital required to operate.

3. The financial firms losses are not due to the high cost of labour in subset A compared to subset B.

4. The financial industry has already begun a process of laying off huge numbers of people, and is ruthless and competitive enough that the necessary restructuring is already occurring. In many ways, the current problems facing companies in obtaining loans commercially are a direct result of this restructuring. The TARP is being used to slow this down.

Both the Republicans who were blocking the deal and the Democrats who were pushing it are doing so for their own political interests. Neither is really helping to do much about the fundamental problem with the big 3: they make cars that too few people want at a unit cost that is too high.

Comparing it to it to the partial nationalisation of the financial services industry is just plain wrong headed. The issue is much more complicated than Republican Financiers Bad, Democrat Car Manufacturers Good.

On a different note, the UAW is a horrible example of unionisation gone wrong. It functions as a labour cartel, often in it's own interests and against those of it's workers. This is common across many American unions.

At least British union nutters like Bob Crow have a political ideology behind them. ;)

Re: AAPL vs ORNG

[aidan-skinner.livejournal.com]

Oh, and ObDisclaimer, I work for one of the aforementioned financial services companies that the government bought into. Don't think the board was too happy about that, but it was necessary since Everybody Else was getting government backing.

[ajva.livejournal.com]

I'm completely against the auto industry bailout - but then I was completely against the financial industry bailout too, so at least I'm consistent.

[ciphergoth.livejournal.com]

*surprised* what would you have them do?

Not that I know what to think one way or the other, mind...

[ajva.livejournal.com]

Well, this is, I suppose, where what you could call my right wing streak lies. I am very much a non-interventionist in cases like this where we are talking about problems which are long-term and structural rather than temporary blips (where it would be perfectly valid to offer short-term support to help companies through bad times). I would let these companies fail, let the disastrous knock-on effects happen, and *then* offer support for people hurt by it, rather than throwing good money after bad in an unsustainable attempt to solve the problem by keeping unviable businesses going. Money that could - and should - be spent on something that's going to benefit more people in the long run. This is on the grounds that I believe that a sharp bout of economic agony for a couple of years, though bloody awful, is much less destructive in the long run to everyone than a decades long death-of-a-thousand-cuts that will see industries like the American car industry destroyed anyway though pointlessness, with the money chucked after it as it sinks lost forever. Far better it be forced to turn itself into something viable (even if it means cutting back on its generous pension benefits) rather than be encouraged to keep making cars fewer and fewer people want any more.

Of course, politicians will tell you that this problem *is* essentially a short-term blip. But of course, you can't blame them for that, since that's what everyone's *hoping* it is - and since politicians have to be seen to do *something* - then it suits politicians to claim that that is what it is. But I'm pretty sure it isn't.

I make a similar case against financial bailouts, which puts me in an even smaller group of people, I'm aware. :o) (In fact, I do not subscribe to the seemingly growing consensus that letting Lehman fail was a mistake; I think in time to come it will be seen as a necessary move - a pawn sacrifice, if you will. :o) ) However, one of the additional reasons against I would have given then would have been "where does it end? If you bail out Wall Street, how can you then refuse to bail out everyone else?" And, indeed, your post is making this point eloquently.

[jhg.livejournal.com]

Oh brilliant.

Do you think if I start up a business, take out loads of debt, and run it into the ground, the government will reward my idiocy with a massive payment?