Wednesday, February 18, 2009

Freefall: The Circle-Jerk Economy and No More GM

When many people discuss the economy -- especially people who know very little about the causes behind our current economic troubles -- they paint in broad strokes, they toss around financial buzzwords and they happily regurgitate terms and concepts they heard on Sunday morning news programs.

I'm -- happily or otherwise -- not sophisticated enough to confidently -- or accurately -- state what caused these problems per se. I have some ideas, as do many of us; but overall, for me, it starts and stops with two military excursions and an overmortgaged, overleveraged balancing act known as Fanny Mae and Freddie Mac. And those pesky CEO golden parachutes -- coupled with retirement accounts disappearing like Doug Henning's career -- didn't, certainly, help much.

But -- despite knowing a few people whose jobs have been liquidated due to the current economic picture, the reality of the economy doesn't end with the closure of Circuit City, The Sharper Image or Nunzio's Dancing and Scungille.

Where it does -- hopefully -- end is the reality that has set in care of GM.

Based on yesterday's deadline for the Big Three -- Chrysler, Ford and GM -- to submit their viability plans in order to secure current and earmark further bailout funds, there were some pretty interesting results. Some of which were borne of common sense, but -- clearly -- some were surprising in their harsh, in-your-face reality.

Say goodbye to the Chrysler PT Cruiser. Ditto the Dodge Durango. Jeep will keep on truckin', but -- alas -- GM has axed Hummer.

What a shock -- a 4-ton monstrosity that barely can navigate city streets, in these times of green environmental responsibility, is being jettisoned. If it's not sold to a private firm -- Chinese or otherwise -- the Hummer will be no more.

Interestingly, joining Hummer in extinction is -- presumably -- Saturn and Saab.

The biggest surprise of all -- sort of -- is no more Pontiac.

That means that the producers of the cars that made American automobiles what they were -- for better or worse -- will die. Keep in mind that Oldsmobile already disappeared from the American automotive spectrum several years ago (even if they clog the nations suburbs and Midwest with nonchalant obstinacy).

Let's face it; some of these moves are relatively surprising. Saturn? Saab? Others, not so much -- not really. Is it a shock that Hummer's about to head down DeLorean way, especially in today's socio-economic climate? It shouldn't be -- not particularly. However, with the dissolution of some or all of these marques, it still should hit us as a shock similar to the disappearance of The Sharper Image and other "institutions" which were part of the homogeneous American mallscape. Put another way, even if one never had any intention of buying a Hummer or a Pontiac, it will be strange knowing that -- sometime soon -- those car brands will be relegated to the history books.

Perhaps a better way of conveying this quasi-shock is evidenced in
this article by Des Troups, "Yet we’ll mourn these brands even if we won’t miss them."

There's more here as well. But basically, the news is still the same -- just like Bob Dylan once sang, the times they are a-changin'...

What is perhaps most disconcerting -- legitimately so -- is not the issue of cars or car companies vanishing from the American business model -- even if said companies are international icons like GM or Chrysler. What is -- and should, rightfully, be -- our biggest concern is what happens to the employees of all these defunct brands? What happens to the people that sold these cars? Serviced these cars? What about the mechanics that -- due to (let's be honest) shitty quality -- fixed these cars?

We're not talking a few thousand people, incidentally; we're talking hundreds of thousands of people from top to bottom.

And let's also not forget another major consideration: even though Toyota and Honda aren't experiencing this kind of toilet-flush en masse, they will feel the pain, as will we: since many parts that GM and Chrysler installed in these vehicles were produced by the same plants who manufactured parts for (or, in plenty of cases, were identical to parts installed in) the aforementioned Toyotas and Hondas, that means that spare parts will simply be harder to come by. That means the parts will cost more, there will be less of them, and -- therefore -- prices for cars (and fixing them) will also increase.

Add to that there will be throngs of people without jobs over the next 24 months (as if that was a newsflash) and what we have is a bonafide full-on, extended visit to Depressionville.

No, the sky's not falling. The sun will not refuse to shine tomorrow morning, and it will again set in the west as it has done since -- well, for some time. The problem is that when a company -- like GM -- exhibits the sort of irresponsible decline that it has been in for a number of years (if not decades), the eventual thud of the other shoe hitting the floor is that much more significant. However, ten to twenty years ago the writing was on the wall. Japanese and German auto workers are paid less and have far fewer benefits than do their American counterparts. That never made any sense to me, especially given the fact that American auto workers -- and the cars they produce -- were and are considered to be the lowest quality among the three. Yet American auto workers -- the UAW, etc. -- managed to secure so much in the way of benefits for its members that the UAW was able to accomplish the ultimate feat of power -- it put its members before its employer and -- if this week's news is correct -- destroyed one of the largest auto manufacturers.

Whether or not we acknowledge or understand the causes behind these troubles, we should not be surprised by the changes for which we're in over the coming months. If nothing else, with the changes should also come the knowledge that if we don't learn from our past mistakes we will be doomed to repeat them, again and again and again.


The Intellectual Redneck said...

The UAW has failed to give serious concessions to the Big Three as part of a deal to satisfy the terms of the automotive bailout. They have only offered token reductions that will mean very little to Detroit's bottom line. According to the Associated Press the UAW agreed to limit overtime, reduce cash bonuses, forgo cost of living pay increases and limit supplemental pay for laid-off workers. Are they serious? Who in the automotive manufacturing sector is working overtime now? Auto production is down almost 40% this year. Also, they are going to reduce their cash bonuses? How do you get a cash bonus when you have helped drive your company bankrupt? Who do they think they are? Bank executives? No one I know gets supplemental pay from their former employer when they are laid-off. When a company can not afford to pay their current employees, they should not be giving money to laid-off employees. The UAW have refused to take a cut in their base wages. The retiree health care cost issue is still not resolved. The 'Big Three' want the UAW to take half of their 20 billion dollar payment as stock. The UAW only wants to delay the payment, but this issue is still not settled. The CEO's of GM and Chrysler LLC should be embarrassed to beg for another 17 billion in taxpayer dollars. There is something unjust about taking money from a worker struggling by on 20 or 30 thousand dollars a year and using it to save the job of someone with a $70,000 wage and benefit package. The UAW will declare this deal a major concession. The leaders of the 'Big Three" will stay silent because they need more bailout money. The Obama Administration will look the other way and hand over more of our tax dollars.

Boogie said...

I think the way GM, Chrysler and Ford have conducted their businesses over the past thirty years exemplifies why the UAW's posture is as disturbing as it is.

When we bitch and moan about athletes' salaries and how ridiculously high they are, we shouldn't be knocking guys like A-Rod (steroids or no steroids) or any other athlete, because if it were me with a ten- or twenty-year shelf life of eligibility as a pro athlete, I'd push to get every penny I could. Similarly, I can't completely fault the UAW for how they've held the Big Three hostage, to some degree, over the past thirty years.

Having said that, considering that their intractable willingness to bend with their employers rather than break them says a lot about their sense of entitlement as well as their disconnect from reality.

Inasmuch as I think GM and Ford will survive this economy, I -- without a doubt -- think that any future success depends on the UAW understanding that their behavior has contributed in several ways towards the current situation. Not only are they paid far more than their counterparts in other countries, their benefits are excessive in comparison and their job security is beyond credibility. More importantly, as you mentioned, their unwillingness to concede any of these benefits -- even temporarily, in the face of dissolution -- says plenty.

And finally, and of paramount importance, is the fact that their product is among the most inferior of any company's on the road. Aside from China and Russia, this country's carmakers are now among the lowest in terms of quality of output. Since the advent of auto leasing over the past twenty to thirty years, it's clear to me that this lack of quality, coupled with leasing (which hinges on resale value and, therefore, quality) contributed in a big way towards the current situation.

The UAW, in a secondary manner, also contributed to the situation.

The question is now, going forward, how these issues will be resolved, if at all.