As GM slides toward Chrysler-style bankruptcy it is brutally obvious that we lack a national industrial policy. There is no debate that we need one. The screaming lack of any coherent macroeconomic plan is obscured by face-offs that pit union fans against bond holder rights advocates. The national media debate is staffed by 'Obama is always right and working for the little guy' people screaming back and forth with 'Obama is always wrong people'. In these confrontations ratings are the focus and understanding becomes the first casualty of cable news. The death of America's manufacturing economy, large swaths of the upper Midwest and a way of life demands closer attention. GM and Chrysler will produce far fewer cars in the future. Wages and benefits are being slashed. Over 100,000 people are likely to directly lose their jobs as a result of Chrysler and GM bankruptcies with an addition 200,000-300,000 likely to indirectly lose work.
The deal the U.S. government offered Chrysler bondholders, like the deal being offered to GM bondholders, is terrible. The terms and conditions offered make clear that the Federal Government wants -- or can live with -- Chapter 11 filings. Chrysler bondholders were offered 29 cents on the dollar with greater offers being made to the UAW employee trust despite its being a lesser creditor in standard Chapter 11 proceedings. Thus, this group had nothing to lose but Obama tongue-lashing if they refused the deal. They did refuse and the tongue-lashing came full of statements about those unwilling to make sacrifice. The political game is to blame another party -- perhaps with good reason -- for the ultimate bankruptcy. Public relations theater has gotten all the attention. We should be looking at the destruction of a region, an industry and the shocking lack of industrial policy. This matters. Who may or may not be at fault for the closing act in this tragedy is not of vital or lasting import. The terms and conditions for the UAW and workers are terrible. The impacts on communities -- already in dire straights -- will be cataclysmic.
At least 800 Chrysler dealerships and 2600 GM dealerships will be closed. Urban areas and the Midwest are likely to be particularly hard hit. Losses will run above 100,000 total jobs and be spread far and wide. Likely there were too many dealerships and some needed to be shuttered. Rapid geography-based mass closures risk lash-back, further damage to the brands and will spill hundreds of thousands more cars out into markets defined by lack of demand. The "summer breaks," lay-offs and closings are an expensive commitment to having a much smaller US auto industry. We are actively choosing rising importation of parts, growing market share for foreign makers and carnage in the industrial heartland. We so completely lack an industrial policy that we are presently working to spend money to maintain our car market while decimating US domestic car producers. Perhaps the goal is to be the first developed country with neither significant American car production nor, public transit?
Subsidizing, choosing sides and failing to plan are not the stuff that phoenix-like recoveries are made of. We have used billions in public funds to preside over the aggressive downsizing of GM and Chrysler. Much of these billions have vanished. We are thus paying to fire tens of thousands of Americans, de-industrialize the country and smash lives and communities throughout the nation. It is very true that real trouble has been long in the offing and the Obama Administration faced few palatable choices. They were handed a thankless job at the worst of times. They have not performed well. Every other major developed country offering assistance does so with stricter job retention demands. Every other state seems more concerned not to damage production capacity and subsidize foreign rivals. Maybe the rest of the world is not wrong?
Chrysler received $7.2billion in direct assistance over the last year. None of this will be paid back. The US government will retain an 8% interest in the firm. The Canadian Government will get the balance of the equity against the loans it has made. Thus, when Chrysler/Fiat becomes a $90billion company, the US government will break even less inflation and transaction fees. The UAW President has already pledged to sell into stock strength to fund the now speculative employee trust fund that traded cash for stock. What do we get? A lot less than Fiat. We get Fiat's small and gas efficient technology. We hope that Fiat will do well and Americans will want to buy small, fuel efficient cars made for other markets. Fiat will get 20% ownership and $500 million at no direct out-of-pocket cost with incentive options that allow Fiat to possibly own 35% of the new Chrysler at no direct cost. Fiat can raise its stake to 51%. What do we lose? The UAW employee trust will own 55% of Chrysler/Fiat when the dust settles. They will pay roughly a dollar a share from the employee fund. They need the firm to be worth $10 billion in short order -- that sounds really bad until you recall Uncle Sam is betting it will be worth almost 9 times as much! This calls into question the $15billion lent to GM. Employees are giving up security in the retirement fund, dental care, eye care and risking the future. Job banking will be drastically reduced or removed and the UAW has pledged not to strike before 2015. The UAW employee benefit association will own 55% of The New Chrysler/Fiat but have only 1 of 9 seats on its new board of directors. In addition, it is not free to vote its 1 share against the majority of the board's independent directors.
GM is poised to announce similar deals with the UAW, creditors and the Government in the very near future. $1billion in hourly wage savings are likely to be announced as GM closes 16 of 47 assembly plants in the U.S. and reduces its labor force from 61,000 to 38,000. GM agreed to fund a UAW employee benefit association with $35 billion. It will now get $15 billion to $20 billion topped off with up to 39% of the shares in a new company. Common share holders will get 1% of the new company -- in other words close to nothing. Bond holders will be offered cents on the dollar. We will wait as angry voices deride Obama as a socialist for taking a large ownership position in GM. Many will claim the UAW has done well. Meanwhile, workers present and retired will suffer. Communities will lose jobs, tax bases and hope. Dealerships will close, towns will find rising demands for assistance and falling revenues. All of this will go on until we devise and implement a national industrial policy. It is a choice between carnage and policy.
There has long been a consensus that completely free markets are the best way to go. Each country would specialize on its natural strengths. It is a delusion that was affordable when the USA was unrivaled a few decades ago.
Look at Volkswagen. 20% owned by Lower Saxony for ages and very successful.
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According to this position that you mention, the US should specialise in paper-shuffling, financial speculation and Wal-Mart shopping.
No way !!! lets have manufacturing, and for this we need new political parties.
Dems =GOP = obsolete
the American population is naturally gifted for manufacturing. What has prevented the advancement of American manufacturing is bad politics. We have to remove these obstacles so that the US can go back to making the beautiful great things it once made.
Cheers and my best hopes for NEW POLITICAL PARTIES that make it happen !
The evidence (besides the growing and unsustainable trade deficit) is in that the so called "high tech" industries that were supposed to replace the grunt labor jobs are being outsourced at faster rates than the labor related jobs - industries such as semicon, electronics, aerospace, IT, medical devices and services advance automotive mfr - all the very definition of high tech.
No reason not to do it here.
Lower Saxony uses its ownership share to ensure that decisions are made for the long term health of the company and the local workers, not some brief share price blip.
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Rattner is known as the DNC's ATM machine because he is so good at cashing in influence.
there is an ancient chinese curse "May You Live In Interesting Times." we are living in interesting times...
We need to build a mass transit infrastructure that will eliminate the need to own a car - now that the average American can no longer afford to pay for a car that makes a profit for Detroit.
Build light rail, street cars and get Americans out of their cars. This will stimulate the economy by direct investment, revive consumer spending because the money spent on car payments, insurance, repairs and gasoline will go straight into the economy.
And the energy problem will be history.
That's the industrial policy we need.
Wall Street control of our government is the problem. They brought us wild fluctuations in gas prices that disrupted car sales. They froze the credit market which further disrupted car sales & prevented car companies from raising cash & brought the country into a Recession. All these conditions were created by Wall Street corruption and they destroyed our auto industry.
Worst of all, Wall Street has forced unfair, unbalanced trade down America's throat. This is destroying all US manufacturers. Last month Geithner said China is not manipulating their currency. Sommers who Obama picked as his chief financial advisor, help engineer the removal of regulations & restrictions over Wall Street and is the biggest proponent of "free trade".
Obama inhereted a Recession. But Obama is responsible for creating the Depression because of his Wall Street Bankster Administration.
Without planning and looking ahead at least 5 or 10 years into the future, the only thing you can do is come to the rescue with emergency measures like we have now.
If there is no manufacturibg in the US in the future, how is the country going to make a living ?
A Secretary of Industrial Policy is the most important position in government.
I have kind of given up on the Dems, and hope that 2012 will bring new political parties that will look after our manufacturing. I am not voting for Obama again.
I feel the same sense of betryal I did when Clinton signed Nafta - which we all called back then "No American Factories Taking Applications" and proved alll to true
Perot warned us of the "big sucking sound" of jobs going overseas - I am surprised the Perot-ites are so strangely silent on this issue today?
- Turn them into auto design firms with small test manufacturing facilities.
- Offer loans to groups of skilled workers and management who form as employee-owned, publicly-traded entities.
- Create state and federal incentives for small manufacturing plants to set up in every region of the country.
- Allow these entities to license manufacturing rights from the design firms.
The employees will do a better job of managing their facilities because they are beholden to themselves, first. They will take greater pride in their business and will always vote in their best interests. Regional manufacturers will make cars based on the demand of the area and can manufacture specialized equipment beyond that.
While the auto companies labor, debtholders and equity holders take losses through U.S. Government's policy of forced bankruptcy, the National Financial Policy continues which protects the much more expensive labor found in financial companies, and their debtholders. Company failure is the same in financial firms as in industrial. The costs exceed the revenue. The results of company failure are about the same too.
When the U.S. Govt pumps billions into the banks, protect the AIG counterparties, and all of their debtholders 100%, and forces the auto companies into bankrutcy they are being amazingly inconsistent. The justification was to prevent the economy from collapse. But I suspect that it had a lot more to do with the Treasury and Federal Reserve people in both adminstrations having much closer ties with people in Finance.