A Prediction For The Auto Industry...And A Question

[Guest]

Here's a prediction for what is likely to happen to the U.S. auto industry and why it will happen...

The car companies and probably most of the auto parts suppliers will wind up under the protection of the bankruptcy courts. But they will remain there, with the taxpayers funding their negative cash flows as debtor-in-possession lender of last resort, until economic conditions result in increased sales and earnings enough for them to come out of bankruptcy. The creditors committees in those bankruptcies will never successfully negotiate a Plan of Reorganization in order for the bankruptcy judge to finally adjudicate the bankruptcy. The participant on those committees who will be most at fault will be the UAW, who will not agree to any substantial give-backs to their wages, benefits or work rules. As the result, none of the other creditors will be motivated to take a haircut on what is owed them either. Of course, it is not the role of the bankruptcy referee to dictate the plan to the creditors--that's why he's officially called a "referee". It's up to the creditors to negotiate a mutually acceptable plan. If the UAW is involved, they won't.

The UAW has said publicly that they will not give back the wages, benefits and work rules that they negotiated so hard for over almost 75 years. And they haven't. The threat of bankruptcy to the auto companies and suppliers is nothing new. Everyone knew it was probably inevitable for several years now. Everyone also knows what has to happen in order for the car companies to be able to survive. But has the UAW given up anything? Not that I know of. They've "agreed to discuss" or "are in the process of negotiating" lots of such things. But they never seem to finally agree to anything, even when threatened with deadlines. The government has laid down two deadlines just in the last three months--the UAW has ignored them both.

Notwithstanding all the tough talk by the President yesterday, it's pretty clear that the government is not going to let the car companies or the suppliers fail. The last Congress didn't, this one won't, nor will any future Congress vote to abandon an entire industry, putting 2-3 million people out of work almost instantaneously. That's so clear that on CNBC this morning the financial experts were opining just that and discussing ways that investments could be made in GM which would result in a cheap price for their stock when this is all over. Do you think the UAW, with their decades of expertise in negotiation, hasn't reached the same conclusion? They feel very little threat to the actual demise of the car companies or suppliers and as the result are unlikely to seriously discuss substantive changes to their wages, benefits or work rules. Would you?

If you want an example of what is likely to happen to GM, Chrysler and a bunch of suppliers, consider the history of Delphi Corporation. Delphi is the former Delco Remy Parts Division of GM. It was spun off in a public offering of stock in 1999. At the time there was some criticism that the company was undercapitalized by GM, but the stock market was strong enough that the investment bankers were able to peddle the IPO shares quite easily. Delphi's bankruptcy filing in 2005 was almost predictable. And since then the creditors committee has been discussing and negotiating a Plan of Reorganization. In four years, not much progress has been made. A key player on the committee is the UAW, of course. And as long as they refuse to agree to give-backs, the other creditors aren't too motivated to take a haircut either. Now that the government has announced that it has carved out several billion dollars to "save the suppliers", how motivated do your think the UAW or any of the other Delphi creditors will be to seriously consider negotiating a plan that will actually result in any of them taking a haircut?

Taxpayers already own more than the market value of all three car companies. We're getting ready to buy the suppliers, as well. And when they all declare bankruptcy, the taxpayers will become the D-I-P lender of last resort, funding the negative cash flows for as long as it takes. Everyone can get ready to hold a seat--albeit a small one--on the board of directors of an entire industry.

All this leads to an interesting question..if you had the decisive vote in Congress, up or down, to crater the U.S. car industry or not, put 2-3 million people out of work or not, experience the ripple effect in the economy that such a decision would produce or not, produce an economic downturn that may take us a decade or more to recover from or not, make a decision that might actually cost the taxpayers more in unemployment payments, pension guarantees, Medicare, Medicaid, increased school and municipal taxes, etc. or not--how would you vote?

[Guest]

]"The creditors committees in those bankruptcies will never successfully negotiate a Plan of Reorganization..."
"UAW will not agree to any substantial give-backs to their wages, benefits ..."
"none of the other creditors will be motivated to take a haircut on what is owed them either ...."
"when they all declare bankruptcy, the taxpayers will become the D-I-P lender of last resort, funding the negative cash flows for as long as it takes ...."
"the UAW, of course. And as long as they refuse to agree to give-backs, the other creditors aren't too motivated to take a haircut either ..."[/COLOR]

All this leads to an interesting question..if you had the decisive vote in Congress, up or down, t-how would you vote?

"I'm thinking .. I'm thinking ......!"

Well, the above scenario is just one of many that 'could' occur. Today's events represent uncharted waters for a capitalistic society. There is no clear roadmap to identify direction. What the real fear, that we all may have to face, is a resulting 'civil unrest' that could arise in one of the larger urban areas and then spread dramatically throughout the country.

[Guest]

UAW needs to share in the pain just like auto management and 2ND tier supplier are experiencing. Is it not better to have some of the pie than no pie at all?

[Guest]

Pay now or pay later. Which will cost the most in the long run.

Being a Chrysler mid management retiree who, prior to all of this, has lost his health care, life insurance, and executive lease car, has a very hard time swallowing the unions statement they have given up soo much already.

I was a union VP in the 70's and saw first hand what goes on = = = I worked butt off to work up to low exec position. NO I never got the big bonus I was not that high, no I didn't get paid for overtime, no I don't get increases in my retirement pay and yes if company goes under I could lose more of my pension. Government only covers a certain percent of the BASE pension.

After 42 years of service, I will lose all in time if they make it or not. But the bailout will cost me over and above for the rest of my life.

Villages was a dream but this bail out will end that for most of the current retirees.

[Guest]

There's no question that the UAW should "share the pain" by reducing its hourly wages, reducing benefits or making members pay for them, and reducing or eliminating some of the "cushiest" pension benefits among American hourly workers. But how do you make them do that?

In a country which runs by the rule of law there really isn't anyone, including a bankruptcy referee or even the U.S. Congress that can force the UAW to modify its labor contract. In bankruptcy, even the referee cannot unilaterally abrogate union contracts (or any contract, for that matter). The bankrupt company can state its intention to abrogate a union contract, but the bankruptcy referee must approve that step. The company would have to prove the need to take such a step and the union could defend against the proposal. The union could and almost certainly would litigate what they feel would be an improper abrogation of their contract.

Typically the terms of the union contract are a subject for negotiation within the creditor's committee of the bankrupt company. The union might be asked to modify its contract in exchange for a secured creditor forgiving all or part of his debt, or in exchange for the modification of the contracts between the company and any of its creditors. All those negotiations are then reflected in a "plan of reorganization" which must be submitted to the bankruptcy referee for approval. If the committee doesn't negotiate sufficient reductions in costs or forgiveness of debt for the referee to clearly see that the bankrupt company can emerge from bankruptcy and survive, he will not approve it.

So, in this case the UAW is simply using its negotiating skill and experience to achieve it's objectives--not to "give back"any wages or benefits which they won in negotiations over the years. The oft-asked question of whether a job with lower wages is better than no job at all is moot because the UAW believes that there is almost no risk that the government will stop funding the car companies, forcing them into liquidation, and eliminating all the union jobs.

But that raises another interesting question...if the government acts as the UAW believes it will and continues to fund the negative cash flows of the car companies, either in or out of bankruptcy, how will the rest of the American public feel when they find out how the UAW is simply refusing to negotiate the obviously needed wage and benefit reductions in good faith. How will those that are out of work, or working with much lower wages than UAW workers, or having no health insurance when the UAW continues to have free and extensive coverage, or working with no retirement plan at all when retired UAW workers actually get more in retirement benefits than many other workers do working full-time?

When the press starts beating on that drum, the pressure will really begin to build on Congress to re-think continued funding of the car companies. Then the question will re-emerge on whether the UAW will actually begin to "give a little" if the threat of liquidation becomes real enough.

But there is no one in this country that can unilaterally abrogate the UAW's labor contracts or even force the union to negotiate in good faith. It's just that the UAW is smarter and more experienced in these situations than those of us that are paying for their inflated wages and benefits.

[Guest]

So, Chapter 11 (or 7) is the only answer!

The end game is still the same - if nobody is buying the product, to continue making more of the product is downright stupid. Dumber still is to fund the making of more inventory which ends up as toxic waste in its own right.

If the economy requires (though I still can't see why) the Bloated Three to continue without traditional reform, instead of giving money to the company, buy the product and find a use for it. I don't care if the product serves no purpose other than as targets at Fort Irwin or Twenty-Nine Palms.

Again, we are trying to make a simple issue be complicated for no reason other than political contributions and those who make them are involved.

[Guest]

UAW needs to share in the pain just like auto management and 2ND tier supplier are experiencing. Is it not better to have some of the pie than no pie at all?

Maybe they could share the pain of a $20 million retirement package, why should Rick suffer alone?:pepper2:

[Guest]

I just thought I would throw this link in here in case anyone would like to listen to it. It is the Diane Rehm Show today, on the topic at hand. I realize that some may feel like they are on information overload these days, but for what it's worth, here's the radio show.

http://wamu.org/programs/dr/09/03/31.php#24974

Boomer

[Guest]

UAW needs to share in the pain just like auto management and 2ND tier supplier are experiencing. Is it not better to have some of the pie than no pie at all?

Good Point :shrug:

[Guest]

market share they hold will be filled by "some auto company". The volume of cars needed is not going away! That void will be filled by either the newly formed/organized company or a non US auto maker manufacturing here in the USA. Hence the millions of jobs will not just go away as new capacity will be required to meet the new market share volumes.

I say thumbs down. As I have maintained all along there will be a reorganization under the guidance of the courts. It may be the only way to break the back of the unions. When I read they (unions) are reluctant to give back what they have earned over the last 75 years they make me laugh:1rotfl:
Now just how many jobs have been lost to either foreign auto makers that relocated to the USA and their suppliers over the past 75 years? Jobs lost earned by unions over the last 75 years. With the unions in the scenario there will be no gain. Organized labor....an oxymoron if there ever was one!!! Therefore do what ever it takes to give the new company an enema and flush out all the bad stuff....unions and ALL other non value adding positions. Pull the plug and start over. Yes it will be painful for some but beneficial for most....just like major surgery...painful with the promise of better days in the not so distant future.

All they have to do is look at the non US auto manufacturers and do it.

BTK

[Guest]

are now talking about a "controlled" bankruptcy!!! What is a Controlled" bankruptcy. Some say it is some where between a pre pack bankruptcy and a "regular " bankruptcy. And what might the difference(s) be?
How about the notion that in the "controlled" bankruptcy the unions do not get hurt!!!!!

If this in fact turns out to be the case, then there is a new level of corruption being defined....that which has the current administrations blessings.

And if it is a fact, then get ready for a guaranteed future failure as a result of the same high cost, poor attitudes and resultant non attainable world class quality cars and service.

How criminally sad this will be.

So....."controlled" bankruptcy waiting to be defined......I do hope the conclusion is wrong.

BTK

[Guest]

are now talking about a "controlled" bankruptcy!!! What is a Controlled" bankruptcy. Some say it is some where between a pre pack bankruptcy and a "regular " bankruptcy. And what might the difference(s) be?
How about the notion that in the "controlled" bankruptcy the unions do not get hurt!!!!!

If this in fact turns out to be the case, then there is a new level of corruption being defined....that which has the current administrations blessings.

And if it is a fact, then get ready for a guaranteed future failure as a result of the same high cost, poor attitudes and resultant non attainable world class quality cars and service.

How criminally sad this will be.

So....."controlled" bankruptcy waiting to be defined......I do hope the conclusion is wrong.

BTK

The bankruptcy laws are what they are, and the administration cannot arbitrarily change the laws. Neither can the courts. Congress can write whatever it wants, including a special bankruptcy law, and that's the only way the courts can provide some relief other than what is already on the books.

[Guest]

There's no question that the UAW should "share the pain" by reducing its hourly wages, reducing benefits or making members pay for them, and reducing or eliminating some of the "cushiest" pension benefits among American hourly workers. But how do you make them do that?

In a country which runs by the rule of law there really isn't anyone, including a bankruptcy referee or even the U.S. Congress that can force the UAW to modify its labor contract. In bankruptcy, even the referee cannot unilaterally abrogate union contracts (or any contract, for that matter). The bankrupt company can state its intention to abrogate a union contract, but the bankruptcy referee must approve that step. The company would have to prove the need to take such a step and the union could defend against the proposal. The union could and almost certainly would litigate what they feel would be an improper abrogation of their contract.

Typically the terms of the union contract are a subject for negotiation within the creditor's committee of the bankrupt company. The union might be asked to modify its contract in exchange for a secured creditor forgiving all or part of his debt, or in exchange for the modification of the contracts between the company and any of its creditors. All those negotiations are then reflected in a "plan of reorganization" which must be submitted to the bankruptcy referee for approval. If the committee doesn't negotiate sufficient reductions in costs or forgiveness of debt for the referee to clearly see that the bankrupt company can emerge from bankruptcy and survive, he will not approve it.

So, in this case the UAW is simply using its negotiating skill and experience to achieve it's objectives--not to "give back"any wages or benefits which they won in negotiations over the years. The oft-asked question of whether a job with lower wages is better than no job at all is moot because the UAW believes that there is almost no risk that the government will stop funding the car companies, forcing them into liquidation, and eliminating all the union jobs.

[But that raises another interesting question...if the government acts as the UAW believes it will and continues to fund the negative cash flows of the car companies, either in or out of bankruptcy, how will the rest of the American public feel when they find out how the UAW is simply refusing to negotiate the obviously needed wage and benefit reductions in good faith.How will those that are out of work, or working with much lower wages than UAW workers, or having no health insurance when the UAW continues to have free and extensive coverage, or working with no retirement plan at all when retired UAW workers actually get more in retirement benefits than many other workers do working full-time?

When the press starts beating on that drum, the pressure will really begin to build on Congress to re-think continued funding of the car companies. Then the question will re-emerge on whether the UAW will actually begin to "give a little" if the threat of liquidation becomes real enough.

But there is no one in this country that can unilaterally abrogate the UAW's labor contracts or even force the union to negotiate in good faith. It's just that the UAW is smarter and more experienced in these situations than those of us that are paying for their inflated wages and benefits.If the UAW digs in their heels and acts completely inflexible , I fear the American public will become so furious that they will avoid buying GM products just for spite.

[Guest]

If the UAW digs in their heels and acts completely inflexible , I fear the American public will become so furious that they will avoid buying GM products just for spite.

Just walk through your house (and garage/carport/driveway) and add up all the things that are US-made and those foreign-made. The US has been losing US-made on a continuing basis, product after product, yet now that it involves the auto industry to the point of evaporation has anyone taken notice other than the folks who lost jobs in the shoe, textile, ceramics, electronics, appliance, toy and other such industries.

We buy - the rest of the world makes. That's what we've gotten to. And since we cannot even produce all tthat we need to defend ourselves in a conventional way, we're setting ourselves up for a future that involves either surrender or nuclear response.

There's more to all of this than the logo on a hood ornament.

[Guest]

Just walk through your house (and garage/carport/driveway) and add up all the things that are US-made and those foreign-made. The US has been losing US-made on a continuing basis, product after product, yet now that it involves the auto industry to the point of evaporation has anyone taken notice other than the folks who lost jobs in the shoe, textile, ceramics, electronics, appliance, toy and other such industries.

We buy - the rest of the world makes. That's what we've gotten to. And since we cannot even produce all tthat we need to defend ourselves in a conventional way, we're setting ourselves up for a future that involves either surrender or nuclear response.

There's more to all of this than the logo on a hood ornament.Why can't/don't we become the world manufacturer of solar panels, wind-mill blades and turbines, lithium batteries, sea turbines ??? Can you imagine what it would do to our Nation's economy if we became the leading world manufacturer of economical alternatives to fossil fuel? (Centuries ago the Netherland became a world power when thay a)harnased the wind and b) harnesed the sea with ther dike system. Then England discovered they were sitting on a giant lump of coal and the power shift began. Then oil bubbled up in Titusville... The history is clear.... the nation that controls the power has the power.

[Guest]

Why can't/don't we become the world manufacturer of solar panels, wind-mill blades and turbines, lithium batteries, sea turbines ??? Can you imagine what it would do to our Nation's economy if we became the leading world manufacturer of economical alternatives to fossil fuel? (Centuries ago the Netherland became a world power when thay a)harnased the wind and b) harnesed the sea with ther dike system. Then England discovered they were sitting on a giant lump of coal and the power shift began. Then oil bubbled up in Titusville... The history is clear.... the nation that controls the power has the power.
When one is dealing with natural resources (which ar in a fixed location), it is easier to monopolize and control. The problem with manufacturing is that, unless the product requires a natural resource you control within its manufacture, it is easily copied anywhere you can set up a production line, patent law be darned.

Again, there is more here than the economy. Unless a nation maintains the manufacturing prowess to supply its defense forces, the nation is easily strangled from the outside via boycott. History is filled with such examples where nations have been defeated via stranglehold, and where nations have weathered all kinds of attacks based on the nation's capacity to euphenistically turn plowshares into swords.

The Bloated Three bailout without a Chapter 11 reorganization to turn those companies into businesses with a future is utter lunacy, mainly because we need a successful auto manufacturing capacity as a part of the national critical infrastructure. I hate throwing money away for nothing, and just throwing money at the Bloated Three so they have time to sell off their assets to foreign entities weakens the nation.

Like it or not, the US market really needs to look at raising tariffs, despite the threats of trade wars from those nations who enjoy a balance-of-payments advantage with us. We cannot buy our future freedom and national security with stimulus dollars - that takes muscle, and we are fast losing ours.