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Sunday, Nov 8, 2009
First, lose the delusion that a "Big 3" bankruptcy is a great idea because it will allow them to get away from their legacy costs. As everyone (bar the odd ignoramus) now knows, the pay cost issue for the Big 3 is that they have to cover their long standing promises to provide health-car to retirees as well as their pensions. While it is true that a trustee in bankruptcy will be able to avoid these obligations, the cost will not disappear. Rather it they will be transferred to the public, by Medicare and Medicaid and by the PBGC (Pension Benefits Guarantee Corporation.) There are about 550,000 Big 3 retirees, all aged 50+ and the coverage typically covers their spouses and dependents. I'd price that coverage at an average $6,000 a year, and that is probably low -- so $3.3 billion a year will be transferred to the US taxpayer (capitalize that alone and it is more than $15 billion.) Add to that the fact that the PBGC will have to pick up a large chunk of the pensions, which it will recover in part by hiking the insurance rates on other pensions, but which will probably require a Federal bailout - this has an annualized cost of about, my guess, $20 billion a year! So if the Big 3 go bankrupt, or even just GM, it will cost the public a lot more than this rescue plan.
Next recognize that the transplant car companies in the United States have benefited from massive subsidies. Indeed, BMW, Mercedes Benz (especially) and Volkswagen's construction of plants in Tennessee and Alabama was the subject of substantial controversy in Germany when it happened because of the way in which huge subsidies were granted by those states to get the companies to build cars there -- that is right, the Germans were pissed at how big the tax rebates, free infrastructure, bond deals and other things used to get these plants to move from Germany to the US deep south were.
Third, Tennessee and Alabama made the Federal taxpayer effectively pick up the tab for many of subsidies, by bond back much of the infrastructure (with tax benefits), by using Federal Highway funds to build much of that infrastructure, by allowing the denial of benefits to employees of these benefits that then imposes costs on the Federal Government.
Fourth, the states where the Big 3 are located are generally substantial net contributors to the Federal Budget, i.e., they pay much more tax than they receive. By contrast, Red States pretty uniformly actually extract much more money from the Federal Government than they contribute, i.e., they are in effect freeloaders. In the case of Alabama and Tennessee they are massively freeloaders, extracting $30 billion more from the Federal Government than they contribute in taxes -- the bailout by the way would have cost about half of this. Were their Senators genuinely concerned about taxpayers money they would be taking steps to redress the balance.
Will it make a difference if the Big 3 go under - aren't the transplants enough. Well let's start with the states where the transplants have established themselves -- not only are these the net tax sucking states -- they are such deadbeats because they are the dumb states, the stupid places in the USA, the places where people are as a whole badly educated. Such labor is cheap and docile, but but it is no-creative. These are pure screwdriver assembly operations -- but know that design will remain in Stuttgart, Langen, Munich, Toyoda City, etc. That is where the profits will go, and the plants will move the next time they are offered a more attractive package. Even now, the US design facilities for the transplants, if in the US, are in California or (shock) Michigan.
The next problem in losing the Big 3 is losing the ability to create vehicles, which are big complex systems. This is a big issue -- prior to World War II Europe could build these things and the US was just about able (pre-WWI the US simply could not.) The more a country like the US exports these roles, the more it will lost the ability to build these things. Thus, for example in Europe, the UK was 90 years ago the best at building such systems (AIrcraft, ships, etc.) Over the last 40 years it has largely lost this ability, so that even the new Aircraft Carriers (which the British invented, including the steam catapult and angled deck) that the Royal Navy wants have to be designed in France. The ability to build big systems is a hugely important economic competence which currently resides with France, Germany, the US and Japan and to a lesser degree Italy, Canada and the UK -- it is not something to be discarded. Part of maintaining that ability is a supply of jobs for the managers and engineers who have or want to get those skills.
Are the Big 3 producing good cars -- no! SAAB was a great manufacture that has gone downhill ever since it was bought by GM. European car buffs were mystified by a recent New York Times review of the new US model Ford Focus, which protested its use of drum brakes. This car which is based on the outstanding Ford Focus II, which in Europe received 5 stars from Jeremy Clarkson, a very harsh reviewer, had all-round disk brakes when originally launched in Europe a decade ago! Why does the US version have drum brakes? The biggest problem that effects the US manufacturers is a mentality (they share with Republicans) of in general, building down to a price, rather than up to a standard. This is how you see a very good European model turned into frankly crap for sale in the US. This is why you see GM build a PoS like the Chevy Chevette to compete with the Volkswagen Rabbit and Jetta -- did GM management remotely realize that the Chevette was so much worse, my family had one of each at the same time! (By the way in law school I posited a question vis-รก-vis these two cars (normalized fatality rate for the Jetta 0.35, for the Chevette 2.1, does that mean that in any fatal accident for a Chevette, GM is 6/7th liable?))
Can the Big 3 produce good cars -- why not? Skoda produces great cars, but was the butt of jokes only a few years ago; Fiat is very healthy even now, but 4-5 years ago every though it was dying, too sclerotic, with poor products. Ford has actually made Volvos much better cars, with better engines, aerodynamics (they used to be as aerodynamic as a low-flying brick) and comfort and indeed more economical (the XC90 in Europe does not come with the ludicrous 4 cylinder V8, but rather a seriously good 5 cylinder 2.5 liter CDI diesel.) Even Opels/Vauxhaul are not that bad (or at least better than anything GM sells in the US.) GM spent decades without creating an all new engine, European companies and the Japanese replace their engines every few years.)
Frankly, from Europe (where I am sitting this week) the view is that the Republicans are insane, and Europe has a fairly healthy auto industry right now, including Renault (largely owned by the French state, which took over effective control of Nissan a few years back), Volkswagen (where a German lander owns a big chunk) and others. Certainly British Leyland/Rover was decades long fiasco, but many other rescues across Europe have not been the mess that BL was. Most sensible economic commentators take the view that what doomed BL was the UK's antitrust authorities allowing of the formation of its private monopoly predecessor BMC, while France, Germany and Sweden blocked such combinations.
Finally, Republicans like the shibboleth that government never came up with anything good -- really? What about the jet engine, nuclear reactor, Penicillin, GPS, etc., etc. Most of the modern world was built by direct government investment or by government sponsored projects. I see no reason why government can, give competence (and as recent years have proven the Democrats have a monopoly of competence in government (we don't know if governmental incompetence is a Republican monopoly, but it sure looks that way)) run a bailout that also drives the US auto-industry to massively reduce US dependence on oil.
Much of the initial coverage about Fort Hood turned out to be wrong. Is there anything wrong with that?
The accountability imposed by another country for the CIA's kidnapping and torture reveals much about our own.
Fox News' morning show plays to type, talking about whether Muslims in the Army should face "special debriefings"
The survivor and author is upset about comparisons some on the right are making to genocide
Once seen as a lunatic fringe, reactionary anti-women groups are courting respectability
Salon headlines in your mailbox
