Below are a few highlights from today’s WSJ report on the apparent collapse of the Detroit 3 bailout loan. My ‘take’ and predictions follow …
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Highlights excerpted from WSJ, Rescue Bid for Detroit Collapses in Senate, Dec. 12, 2008
A frantic, last-ditch attempt to forge a relief package for the auto industry collapsed in the U.S. Senate, dealing a giant blow to the immediate hopes of the Big Three.
The talks, which appeared close to a deal several times, broke off due to a sharp partisan dispute over the wages paid to workers at the manufacturing giants.
Republicans demanded the bill be strengthened to exact concessions from the industry. “We simply cannot ask the American taxpayer to subsidize failure”
The initial White House-backed package saying it doesn’t require auto makers and their unions, suppliers, creditors and dealers to make changes needed to return to a sound financial footing.
[Now, both Democrats and the car companies] hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund.
Harry Reid said the Senate would be in recess, and would stand in pro forma session until January, when the new Congress will be convened with stronger Democratic majorities.
After a marathon day of negotiations, top Democrats appeared close to a deal that would toughen the bailout package in a bid to raise Republican support, which had proved an insurmountable stumbling block. The focus of talks was on seeking commitments to restructure the industry’s debt load and bring labor costs in line with wages paid by Toyota and Nissan in the U.S.
But those talks fell apart after Republicans insisted that wages reach parity in 2009. Mr. Reid declared talks at an impasse.
Sen. Christopher Dodd, a Connecticut Democrat, complained that Republicans had attempted to turn the wage issue into a political matter about organized labor, instead of making it an “an economic issue.”
The collapse of the talks represents a major defeat for three companies and an auto union that once wielded immense political clout. Even after two appearances in Washington by the GM, Ford and Chrysler CEOs, and a show of solidarity with the UAW, the auto makers were unable to convince many skeptical lawmakers to change their minds and support a bailout.
GM will also discuss plans for its Saturn division. One option includes putting the division into bankruptcy protection, as it is technically a separate entity.
The collapse of the deal raises the stakes for Chrysler and its majority owner, Cerberus Capital. Lawmakers had called for Cerberus to put more money into the company, but Cerberus maintains it can’t because the bylaw of its investment funds prevents it from putting more than a small percentage of its investors’ funds into any single investment.
Full article:
http://online.wsj.com/article/SB122903816924599853.html?mod=testMod
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Ken’s Take
- There is zero chance that the Detroit 3 can survive with line workers getting $150,000 per year in salary and benefits. Yes, it was weak management (in the 1970s, when business was booming and the UAW was striking) that saddled the companies with the problem. But, there is no imaginable plan that can neutralize a $1,500 to $2,000 per car cost disadvantage. Adding a $5,000 battery to each car doesn’t solve the problem — it only exacerbates it.
- The problem isn’t “wages”. The difference in take-home pay between Detroit and the “transplants” is only a couple of dollars. The problems are gold-plated benefits (about twice as much for the Detroiters, restrictive work rules that limit flexibility to move workers around (within the plants), and “featherbedding” — paying non-workers.
- This is the issue that will really test Prez-O. He campaigned, in part, on “no special interests”. Well, the UAW threw $11 million into his campaign coffers and probably expect some “considerations”. We’ll see …
- My favorite: Cerebus says it can’t throw in more money because of its by-laws. That is being said at a time that there’s pressure to legislate the re-writing of mortgages and practically every other contract in America. B.S. Cerebus knows it’s good money after bad — and they want it to come from taxpayer’s pockets, not their’s.
- The “car czar” idea is frighteningly stupid. Let’s see: the SEC, etc., can’t effectively oversee financial companies, Boards of Directors can’t seem to oversee companies that they’re responsible for …. but, some uber-dude will be able to parachute in, learn a very complex business at warp speed, and — oh yeah — get the UAW in line. Call me cynical, but I don’t think so.
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Ken’s Predictions
- Bush will cave and fund the initial stages of this folly … with few “teeth” in the plan except to make the companies promise to “try hard”.
- Any teeth that are put in will be relaxed or reversed on January 21, 2009. The money will flow from Washington to Detroit, the UAW will prosper, and the Detroit 3 will still be teetering on bankruptcy.
- A car czar will be appointed — the lobbying and politics will be overwhelming — and the poor sap will fail
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