Letter to the editor:

Auto loans would have saved heartache

David Adams, Las Vegas

Wednesday, Dec. 17, 2008 | 2:01 a.m.

The Republicans in Congress have managed to block the emergency loan to the Big Three auto companies, but at what cost?

Various publications report domestic labor costs at about $70 per hour, and labor costs for some foreign car manufacturers with plants in the United States run closer to $40 per hour. Senate Republicans insisted the unions renegotiate contracts to bring domestic labor costs more in line with those of the foreign companies.

What is missing is simple arithmetic. GM, Ford and Chrysler have been in business in this country for a century. Over that time, thousands of employees have retired and are (deservedly) receiving pensions.

When the $70-per-hour figure is used, it means that GM, for example, incurs labor costs that include pensions and other benefits for retirees. Because the foreign companies haven’t been in business as long, their retiree benefits don’t come to nearly as much, so their labor costs appear to be much less.

If General Motors, Ford and Chrysler are allowed to go into bankruptcy, those labor costs can be drastically reduced. How? Simple. The U.S. government (meaning you and me) will have to pick up the costs for all of those pensions, thus reducing the Big Three’s “labor costs.”

Immediately, labor costs will align very closely with those of the foreign manufacturers. This should please congressional Republicans, but it means the American taxpayer is stuck with the bill.

Beyond that, if the Big Three go into bankruptcy, they will have to work out payments to creditors (meaning small businesses across the country). They won’t have to make full payment, but will have to wait for a bankruptcy court to determine what percentage of the debts they will have to pay.

Meanwhile, small businesses will have to wait for payment, surely causing many to run out of money and either declare for Chapter 11 bankruptcy protection themselves or go out of business. More unemployment results, not to mention businesses disappearing along with their tax dollars.

Wouldn’t it be much better to extend the loan to the auto companies?

Discussion: 9 comments so far…

By annienonymouse

12/17/08 at 6:39 a.m.

Suggest removal

No.
By azsk8fan

12/17/08 at 7:43 a.m.

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Ditto - not unless all involved are willing to work for a little (or a lot) less money and join the real world. If not then they can see how it feels to live on zero income instead of a lower income. Idiots.
By Future2012

12/17/08 at 8:08 a.m.

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Reid and Dodd took it of the table when they got close to a real deal.

But who cares.

I will buy only the best value car.

The big three need not bother to show up.
By jfnance32

12/17/08 at 8:20 a.m.

Suggest removal

The carmarkers are at cost disadvantage and they are losing billions each year.

Plus 2 of the big 3 are all out of cash which means they more cash to keep losing billions each year.

Eventually even the taxpayers will say, "NO" to attempts to get more cash every 2-3 years.

At that point in time, the companies will go out of business or UAW will wake and up and smell the crap.

In 2007 GM sold around 9.3 million in cars and it takes them around 33 labors hours to make one car. ($71 per labor cost per car - $44 per labor cost per car) * 33 labors hours * 9.3 million cars/trucks = $8.3 billion competitive disadvantage per YEAR

For each $10 in labor hour savings GM can achieve them $3 billion a year in cost savings. Do that for all the big 3 then you are taking about $9 billion per year in labor cost savings for all of them.

Yes, UAW should agree to immediately reduce their wages and benefits to match what US auto workers make in Japanese plants. This is still way above what most blue collars workers get in the USA.

Also, they should agree to reduce the future retirement benefits so when they retire it will not be a big burden on the company.

Lastly, current retirees should reduce subidizes that they are getting for private health care plans. It is not the taxpayer duty to fund somebody else platinum health car plan.

UAW should do this because it is in their best interest to do so. It is highly unlikely that GM or Chrsyler will survive after 5-10 years even with these labor savings and with the bailout money. If UAW wants GM or Chrsyler to have a half-a-chance to survive then they should agree to these reasonable request.

Taxpayers, their children and their children's will be paying on debt that will be used to pour money down these money losing operations.

We, the taxpayers, are not making an unreasonable request. If you want taxpayers' money to be pour down the drain into doomed companies then UAW members need to make some reasonable concessions.
By Plato

12/17/08 at 8:21 a.m.

Comment removed by staff.
By jfnance32

12/17/08 at 8:26 a.m.

Suggest removal

If we pour billions to bail them out and then in 3 years they want another bucket of billions and then in 3 they want antoher bucket of billions and then in 3 years they want another bucket of billions.....on and on and on and on.

Yes bail them out, but they MUST fix their cost structure problem and about 100 other things, too.
By KDR81

12/17/08 at 8:33 a.m.

Suggest removal

nope,

bailing them out now won't do a lick of difference, we've bailed them out before and nothing happend. You have to be insane to think it will be different this time.

Besides, why force 297 million Americans to pick up the tab so 3 million could live better off.

No auto bailout, there never even should have been a $700 billion financial bailout.
By KDR81

12/17/08 at 8:35 a.m.

Suggest removal

Plato,

want to make an appeal to a higher power again? At anyrate, the cost of not bailing out the big three will be big. The cost of bailing them out is bigger.
By jfnance32

12/17/08 at 8:44 a.m.

Suggest removal

Lets say they get $50 billion.

They are still going to have to lay off 20 to 30% of the workforce because the numbers for UAW cars that get sold are down 30% to 50% from previous year.

They are losing money because they can not sell their cars above what it cost to make the cars.

They will go throw that $50 billion pretty fast like in 3 years.

I guess it means that UAW plants will become like the Post Office and Amtrak. They losing billions each year and live off the taxpayers.

I am going to start a business building widgets and it is going to employee 1,000's of people. It will lose billions and I will get taxpayer money, too. Right?

How about this? Lets pretend that we all have jobs and government just give us checks for $100,000 each.