Saturday, December 20, 2008

The GM, Chrysler, UAW bailout out is doomed to fail

The UAW bailout is underway now. The Bush administration has decided to loan billions to GM and Chrysler to keep them afloat for a few more months. By some estimates, this money will run out by the end of March. They are supposed to become financially viable by March 31. They have been instructed to negotiate with debt holders, suppliers and the UAW. I believe the debt holders will play ball. The supply base has already been wrung dry by years of cost reduction demands. They have little to bring to the table. The UAW is already squealing about this plan being unfair to them.
And while the United Auto Workers said the plan would keep factories running, the union said it was upset by loan conditions "singling out workers."

"We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed," said Ron Gettelfinger, president of the UAW.
Gettelfinger is upset about the Bush administration's direction for wages to be brought in line with the transplants by 2009 year end. He is counting on Obama and a Democratic Congress to protect him. He is probably correct. The Obama administration will throw another 30~50 billion at the Big Three and refuse to force the UAW to get serious about helping cut costs. They will attach a bunch of environmental rules to force GM and Chrysler to build small fuel efficient vehicles in a market where gas is $1.49 a gallon.

Green Cars for Cheap Gas?
December 14, 2008
by Dennis Avery

Now we're going to give Ford, GM and Chrysler billions of dollars so the Feds can order them to build more "green" cars-with gas
now costing $1.49 per gallon. How many Americans will pay $30,000 for one of these new high-mileage lightweights instead of getting a family-protective SUV for the same bucks? Or a pickup to pull the boat? At $1.49 per gallon, not many. So Detroit will go broke again, unless the Feds slap on another $3 per gallon in gas tax.

Haven't we just been there? And we didn't like it much. We demanded, "Drill, baby, drill." We forced a liberal Democratic Congress that hates oil to end the drilling ban on public lands. Thus, we could pump more domestic gas and oil and bring down the price-so Detroit's old lineup of SUVs and big pickups would sell again.

Which way are we going? And why?

My sister is a GM widow in Michigan; I understand the problem of Big Three pensions and medical insurance. But that doesn't really have much to do with the sort of cars we build. The costs the United Auto Workers saddled onto the Big Three years ago makes their cars non-competitive today no matter how tiny and fuel-efficient they get. Link here.
The big winner in this bailout may be Ford. They could get a piece of any cost reductions that take place and they won't be bound by any of the restrictions placed on the companies that took bailout money. If gas prices stay low, people will start buying more trucks and SUV's. Those products are Ford's bread and butter.

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