The Problems Facing Big Three Belong to All of Us

Finally. A journalist with some common sense comes to the Big Three's defense. Thank you, Warren Brown.

According to the MOP [Mob of Pundits] crowd, American car companies have messed up -- making too many trucks and sport-utility vehicles, ignoring consumer and governmental demands for more fuel-efficient vehicles and, as Will stated in a column last week, entering "improvident labor contracts" with the UAW.

It's baloney.

Americans went truck crazy in the 1990s and in the early years of this century, making light trucks more than 50 percent of new vehicles annually sold in this country, for the same reason they are in danger of re-embracing that madness -- cheap gasoline. They were enabled by lawmakers who, with one hand, pushed car companies to increase technical fuel efficiency while using the other to give American consumers the least-expensive gasoline in the developed world.

Increased technical fuel efficiency plus low-cost gasoline fueled consumer demand for more driving and bigger and more powerful vehicles with which to do that driving. Gasoline consumption in the United States soared . . . until high fuel prices restored some sanity to the U.S. consumer automotive market.

As Brown reminds us, Honda, Nissan, Toyota and even Mercedes-Benz all had some kind of truck or SUV too because they were following "market demand." Nobody twisted our arms and forced us to buy the gas guzzlers.

What about the critics who say, "but look at that fuel-efficient, gas-electric Toyota Prius hybrid?"

Go ahead and look at it, preferably in Japan, where the Ministry of International Trade and Industry (MITI) has done a marvelous job of coordinating industrial and energy policy into a vehicle development and consumption strategy that makes sense. We have no such government-industry cooperation in the United States. We have no industrial policy, no energy policy, which largely is why we now have a core segment of our natively owned manufacturing infrastructure teetering on the brink of collapse.

Furthermore, Brown points out that European and Asian countries tax horsepower. The least-efficient motor fuels are taxed heavily, while favorable treatment is given to more efficient fuels, such as diesel.

That cost-sharing creates a kind of honesty. Car companies aren't inclined to design, develop and produce gas-guzzlers because European and Asian consumers are not inclined to buy them. It creates market predictability, contrary to what we have in the United States, where vehicle markets can flower or wither in an instant, depending on the price of fuel.

What did Brown have to say about the unions?

It is the rankest hypocrisy for well-paid journalists to decry the "high" pay of UAW-represented employees. I doubt that there is one UAW critic in the media, or on Capitol Hill, who would be willing to settle for a UAW paycheck. I'm almost certain there isn't one who would be willing to trade his or her relatively cushy employment for a year on an auto plant assembly line.

Criticism of "improvident labor contracts" thus smacks of class bias. It reeks of the notion that some work, such as that involving manual labor, inherently deserves less compensation than others, such as expressing one's opinion. It's more baloney.

Brown doesn't excuse the Big Three and he admits they've made mistakes, but he also points out they've done many things right - "contributing to the defense of this country; helping to create a viable middle class, especially in America's minority communities; and contributing to technological advancements in the global automobile industry."

The bottom line: "The potential failure confronting GM, Ford and Chrysler is not Detroit's alone. It belongs to all of us."

The solution to this problem belongs to all of us too - consumers, domestic automakers and the government. We have to keep pushing for meaningful energy policies regardless of the price of gas and we have to demand industrial policies that level the playing field for our domestic automakers and workers.

Citigroup vs. General Motors

Citigroup is in trouble and Washington might step in and give them more financial aid from the bailout funds. They already received $25 billion in October.

Why are we helping them and not GM? Robert Reich (Secretary of Labor under Clinton) has the answer - kind of.

So why save Citi and not GM? It's not at all clear. In fact, there may be more reason to do the reverse. GM has a far greater impact on jobs and communities. Add parts suppliers and their employees, and the number of middle-class and blue-collar jobs dependent on GM is many multiples that of Citi. And the potential social costs of GM's demise, or even major shrinkage, is much larger than Citi's -- including everything from unemployment insurance to lost tax revenues to families suddenly without health insurance to entire communities whose infrastructure and housing may become nearly worthless. I'm not arguing that GM should be bailed out; as I've noted elsewhere, GM's creditors, shareholders, executives, and workers should have to make substantial sacrifices before taxpayers should be expected to sacrifice as well.

Nonetheless, Citi is about to be bailed out while GM is allowed to languish.

It all boils down to perception. Reich says the Treasury and the Fed believe their job is to keep "the financial economy "sound", by which they mean keeping Wall Street's own investors and creditors reasonably happy."

What about GM?

GM is simply a big, clunky old manufacturing company... GM is just ... jobs and communities.

And people with families and mortgages and medical bills, but we must keep investors and creditors happy at all costs. Jobs be damned.

Senator Shelby owes Michigan an apology

Senator Shelby from Alabama has been pretty outspoken in his opinion that the Big Three shouldn't get financial aid from Washington. He had this to say on Meet the Press recently:

This is a dead-end, it's a road to nowhere, and it's a big burden on the American taxpayer.

And this:

We don't need government--governmental subsidies for manufacturing in this country. It's the French model, it's the wrong road, we will pay for it. The average American taxpayer is going to pay dearly for this, if I'm not wrong.

Senator, we don't take kindly to southern hypocrisy in the north, as Wizardkitten was quick to point out:

Turns out that Senator Richard Shelby has some authority to speak on being a "big burden on the American taxpayer". As of 2005, his home state of Alabama is No. 7 on the list of beneficiary states of the federal taxpayer dollar...They take in more and more federal taxpayer dollars, but yet keep falling behind the rest of the country.

Alabama taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of federal tax collected in 2005, Alabama citizens received approximately $1.66 in the way of federal spending. This ranks the state 7th highest nationally and represents a rise from 1995 when Alabama received $1.33 per dollar of taxes in federal spending (ranked 9th nationally).

FYI Senator: Michigan is a donor state. We pay more in federal taxes than we receive back from the government.

The Senator probably doesn't care what some blogger thinks, but he should care that Peter Karmanos, Jr. (CEO of Compuware Corporation and owner of the Carolina Hurricanes, Plymouth Whalers, and Florida Everblades hockey franchises) thinks his comments were inaccurate, over-simplistic and hypocritical.

I trust it is safe to say that when you refer to “government subsidies,” you are referring to subsidies provided by both federal and state governments. And if this is in fact true, then I am sure you were adamantly against the State of Alabama offering lucrative incentives (in essence, subsidies) to Mercedes Benz in the early 1990s to lure the German automobile manufacturer to the State.

As it turned out, Alabama offered a stunning $253 million incentive package to Mercedes. Additionally, the State also offered to train the workers, clear and improve the site, upgrade utilities, and buy 2,500 Mercedes Benz vehicles. All told, it is estimated that the incentive package totaled anywhere from $153,000 to $220,000 per created job. On top of all this, the State gave the foreign automaker a large parcel of land worth between $250 and $300 million, which was coincidentally how much the company expected to invest in building the plant.

With all due respect, Senator, where was your outrage when all this was going on? … I certainly don’t recall you going in front of the nation (as you did this past Sunday) to discuss what a big mistake Alabama was making in providing subsidies to Mercedes Benz. If you had, however, you could have talked about how, applying free market principles, Alabama shouldn’t have had to resort to subsidies to land Mercedes Benz. Competitively speaking, if Alabama had been the strongest candidate under consideration (i.e. highest quality infrastructure, workforce, research and development facilities, business climate, etc.), then subsidies shouldn’t have been required.

The fact is that Alabama knew that, on a level playing field, it could not compete with the other states under consideration and, thus, to lure the German car builder to the State, it offered the aforementioned unprecedented subsidies. In effect, Alabama — your state — did exactly what you said government should not do: provide subsidies for manufacturing.

Karmanos ended his letter by saying, "It’s no great mystery why Alabama politicians went to such dramatic anti-free-market measures to secure Mercedes Benz — they did it for the betterment of their state through job creation and increased tax revenues. And who could blame them? Is that so different than what would occur by providing financial aid to help rescue the domestic auto industry? Such aid would save millions of jobs and millions of dollars in lost tax revenue."

Jobs and tax revenue that would probably finds its way back to Alabama.

Et tu, Mitt?

That sentiment was echoed by the Boston Globe, who remind us what Mitt had to say earlier this year:

In the days leading up to the Michigan presidential primary, Mitt Romney cast himself as the savior of the beleaguered auto industry.

"I will roll up my sleeves in the first 100 days I'm in office, and I will personally bring together industry, labor, congressional, and state leaders and together we will develop a plan to rebuild America's automotive leadership," he said in Detroit.

And when rival John McCain gave some "straight talk" in Michigan that "Some of the jobs that have left the state of Michigan are not coming back," Romney jumped all over him and declared that he would not let the "one-state recession" continue.

What a difference losing the primary makes. Earlier today Romney said he favors letting the automakers fail.

Typical Republican. They'll say anything to get themselves elected, but their spots never really change.

(Cross-posted at Blogging for MI.)

Think losing the Big 3 will be a mere blip? Think again.

Why is Paulson allowing this kind of wheeling and dealing to take place with the $700 billion dollar bailout fund? It should be used to help save the jobs of hundreds of thousands of auto workers, who also happen to be productive, taxpaying consumers. You know, the same consumers Bush called on after 9/11 to help keep the economy going.

What a double-standard, one that could very well touch your life or that of someone you know. Watch the video and you'll get a good idea of just how many people's lives are affected by Detroit's auto industry.


I wanted to mention those $71 dollar an hour autoworker wages and benefits the papers keep talking about. What they don't tell you is those figures are based on old contracts and include the projected cost of lifetime health care and pensions. Under a new contract negotiated last year, union employees will make considerably less than that, some as little as $14 per hour, and benefits have been reduced too. (Another reason we should have universal health care.)

Union workers aren't the fat cats the media makes them out to be. In fact, UAW members are actually losing their edge against foreign automakers. From the Detroit Free Press, February 2007:

Workers for foreign automakers don't pay union dues, but they do share the costs of insurance and retirement plans. UAW-represented autoworkers get health insurance and a full pension after 30 years -- valuable perks they will fight to keep during contract negotiations this year.

But even accounting for Toyota employees' health care spending -- $700 per year on average, according to the company -- the [Toyota] Georgetown workers still made more in 2006.

General Motors Corp., which lost $10.6 billion in 2005 and didn't issue profit-sharing checks last year, paid its production workers an average of $27 an hour, GM spokesman Daniel Flores said. That would be a base of about $54,000 a year, based on a 2,000-hour work year. The $30 average at Toyota's Georgetown plant, which includes a bonus, equals $60,000 a year.

Ford Motor Co. and Chrysler Group representatives said GM's base pay figures are similar to theirs. Only Chrysler, which had a 2005 profit, paid a bonus last year. The $650 bonus was not enough to surpass Toyota's pay. [...]

Assembly workers for Detroit automakers last year remained a bit ahead of Honda's U.S. hourly workers, who made an average $24.25 an hour, or $26.20 with the $4,485 bonus they received. In November, Honda paid bonuses for the 21st consecutive year, the longest streak in U.S. auto history, said Ed Miller, Honda spokesman.

Nissan workers are paid $24 an hour in Mississippi and $26 an hour in Tennessee, but company officials would not disclose employee bonuses.

Hyundai Motor Co. pays its U.S. production workers less than other automakers. Wages at its Alabama plant start at $14 an hour and grow to $21 an hour after two years on the job, according to a January 2004 company release.

Detroit's automakers have been shedding workers by the thousands over the past decade and the average wages will continue to fall, but the difference between union and non-union autoworkers isn't as vast as the media makes it out to be. In fact, by 2011, Toyota's labor costs could exceed the Big 3 because they've been here for 30 years now and a growing number of their workers are paid top wages.

The domestic automakers are competitive with foreign ones, but they currently find themselves in trouble not of their own making. Credit has dried up, people can't get loans, and cars aren't selling. Don't blame the middle-class auto workers, blame those highly compensated Wall Street and Washington types who made a mess of things.

UPDATE: Dean Baker did a better job of clarifying claims that GM auto workers are paid $70 an hour than I did: "The trick is to add in GM's legacy costs, the pension and health care costs for retired workers. These legacy costs are a serious expense for GM, but this is not money being paid to current workers. The person on the line in 2008 is not benefiting from these legacy costs."

Obama campaign donates to schools in need

In the midst of the presidential race, President-elect Obama had the foresight to do something wonderful for poor school districts across the country. The Sto-Rox school district in southwestern Pennsylvania was one of them.

Word spread quickly last week through Sto-Rox High School when students learned that the administrative offices were filled with Barack Obama paraphernalia.

Students snapped up posters and stickers for their lockers, backpacks and bedroom walls, eager to commemorate the victory of the first African American to ascend to the nation's highest office.

The enthusiasm excited administrators, but it's not what brought tears to the eyes of Jean Schmalzreid, the district's director of federal programs and special projects. That happened when she saw school facilities workers bring in dolly after dolly piled high with thousands of dollars worth of supplies donated from Obama campaign offices in Pittsburgh.

Six computers will be dedicated to creating learning centers for struggling middle school students. An all-in-one printer, copier and fax machine will hum all day in the middle school library. And the art department received piles of markers, paint and poster board.

They were part of a program Mr. Obama's campaign, funded better than any in the history of American politics, devised in partnership with iloveschools.com, a Web site that helps connect teachers with organizations that donate school supplies.

The campaign intentionally reached out to poorer areas. In the Sto-Rox district, 65 percent of students are eligible for free or reduced-price lunches.

Valerie Swanson, marketing director of iloveschools, said a specific focus of the Obama campaign was to give back and donate office supplies and other materials to schools, and they began planning how to do that a few weeks ago.

"Tens of thousands of supplies have been donated in two days to various schools across the country," Swanson said.

I don't know if schools in Michigan received any supplies, but 200 campaign offices across the country have pledged donations in 12 states, including Texas, Indiana and Oregon. And, as you might imagine, districts are excited by the help because it will allow them to spend their money on other needs.

It looks like poor children finally have someone who cares about them in Washington, after being ignored for so long.


(Cross-posted at Blogging for MI.)

Republicans: No coherent belief system

On Face the Nation yesterday, conservative columnist David Brooks was brutally candid about the Republican Party following their recent losses.

"World of pain," Brooks said. "A generation of pain. 1964, it was so much better than now. In '64, they had a coherent belief system. They lost, they didn't persuade the American people about it, but they understood where they wanted to take the country.

"Now it's just a circular firing squad, with everybody attacking each other, and no coherent belief system, no leaders. You've got half the party waiting for Sarah Palin to come and rescue them. The other half is waiting for Bobby Jindal, the Louisiana governor, to come rescue them. But no set of beliefs. Really a decayed conservative infrastructure. It's just a world of pain." [...]

"And, fundamentally, the conservative movement failed (and I've been in it my entire life) because it hasn't addressed the problems of today, the rise of China and Russia, the rise of inequality, energy, health care.

Republicans haven't addressed any of the issues that concern voters for one simple reason:

At this point, though, the party exists to oppose Democratic ideas. That's fine for an opposition force, but for a governing philosophy, it's an obvious sign of bankruptcy.

You can watch video from the show here.

Who can save us from this mini depression?

John Nichols says the middle-class should be reassured by two people Obama picked to give him financial advice: David Bonior (former congressman from Michigan) and Robert Reich (Secretary of Labor under Clinton).

Nichols calls Bonior "one of the truest allies of organized labor" and said Reich "was a voice of reason" during the Wall Street bailout debate. Also noteworthy is this:

During his 2002 campaign for governor of Massachusetts, Reich scoped out a distinctly progressive vision for economic development -- emphasizing investment in the renewal of urban areas and the development of new uses for old factories. Long before others were speaking seriously about a green economy -- and the industrial policies that might make it work -- Reich was talking these ideas up.

Speaking on behalf of labor, David Bonior is encouraged by the results of the election because voters chose a pro-worker president and new pro-worker members of Congress, which is significant in light of the big business front groups that tried to use the Employee Free Choice Act as a wedge issue. According to Bonior, "Groups such as the Coalition for a Democratic Workplace and the U.S. Chamber of Commerce spent nearly $20 million on misleading ads in Senate battleground states." Voters weren't buying it though.

Newly-elected Senators like Mark Udall, Jeff Merkley, and Jeanne Shaheen withstood millions of dollars in attack ads criticizing their support for the bill. They managed to not only score victories, but actually improve their polling numbers despite the negative onslaught. Why? Americans know we can't continue the status quo of stagnant wages, rampant outsourcing, reduced healthcare coverage, and high unemployment. Unions make a difference in improving not only working conditions, but wages, access to medical care and job security. Through an aggressive public education and grassroots campaign, workers' rights advocates and unions were able to remind and convince the public that policies to help more workers join unions ultimately will help save our failing economy.

And about that failing economy, Robert Reich had this to say:

This is not the Great Depression of the 1930s, but nor is it turning out to be merely a bad recession of the kind we've experienced periodically over the last half century. Call it a Mini Depression.

Reich also says its important to understand that the main problem right now is not the supply of credit. The real problem is the demand side of the economy. The precipitous drop in consumer spending is causing the rest of the economy to shut down, and absent consumer spending, businesses aren't going to invest, so that leaves us with the government.

Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression.

Reich believes the government may have to spend $600 or $700 billion dollars next year to reverse the downward cycle we're in, and spending should be targeted mostly on infrastructure, but also health care and child care. He calls these expenditures double whammies: they'll create lots of jobs and fulfill vital public needs.

Both men care about policies that help working class Americans instead of Wall Street. No wonder Nichols said Obama needs to listen closely to Bonior and Reich if he's serious about rescuing the middle class.

Possible ramifications of a Big Three failure

If you're one of the skeptics inclined to let one of the domestic automakers fail, read this article in the Detroit News. [emphasis added]

Auto manufacturers and related businesses employ as many as 3.1 million workers across the United States, a broad network of jobs that loom large for federal officials considering taking steps to bolster domestic carmakers whose plummeting sales have created a cash crisis that threatens the very concept of the Big Three.

Every direct job at an automaker in the United States creates five more jobs, said Sean McAlinden, chief economist and vice president for research for the Center for Automotive Research in Ann Arbor. Two of the five are related to suppliers or dealers; the other three are spinoff jobs at businesses where auto industry workers spend their paychecks.

The next closest industry to autos is high-tech, where each job creates a total of four, including spinoffs, he said. By contrast, one Wall Street position creates a total of about 2.5 jobs, yet Congress expedited aid to the financial services sector this year.

Also, the problems in our economy aren't totally because of the housing crisis:

Declining auto sales have contributed to the nation's economic downturn, but that hasn't diminished the industry's importance, said Charles Chesbrough, senior economist for CSM Worldwide in Northville, an automotive market research firm.

"We won't see a turnaround in the economy as a whole," he said, "until we see improvement in the auto industry."

The Center for Automotive Research plans on releasing an analysis later this week of the impact it would have on our economy if one of the Big Three fail. It goes beyond job losses.

McAlinden said the resulting drop in tax income and other losses over three years would far exceed the amount being sought in government aid. When the jobs tied to everything from buying a car to washing it and refining the gas that fuels it are added to the total, more than 14 million U.S. workers -- about 1 in 10 -- can draw a line from their job back to an auto factory or office worker, according to CAR.

Scary stuff to even contemplate.


(Cross-posted at Blogging for MI)