Congress Plays Goldilocks as UAW Concedes
Source: http://feeds.feedburner.com/~r/InvestmentU/~3/474795103/congress-plays-goldilocks.htmlPosted on Thursday, December 4th, 2008 | In Contrarian Perspectives
Congress Plays Goldilocks as UAW Concedes
Today, executives from General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler are returning to Washington to seek bailout funds, loans and assistance. It remains to be seen if they will get the help they need. Sixty-one percent of Americans don’t believe they should.
It’s playing out like a twisted fairytale on Capital Hill as request amounts near $34 billion. One automaker needs a little more, one needs less, and one is about right.
The problem is that Congress is playing the role of Goldilocks - it has all the gold. And it’s risking being mauled by bears.
It’s torn between letting the auto industry die (or reform itself) with dignity, bail out failing automakers and undermine the essence of capitalism, or risk impacting one in 10 U.S. jobs. None of these choices are easy, or popular.
Yesterday, the UAW union said it would make major concessions to help the ailing automakers with whatever help they need to get federal aid.
What’s interesting is that they had no concessions: to make the automakers profitable, to produce products Americans want to buy, or ease up on crippling labor demands. The unions have severely handicapped American automakers and it’s only on their deathbed that they are willing to make minimal efforts to keep their host alive.
GM pays over $1,600 per vehicle in healthcare costs for current and retired employees, compared with about $200 at Toyota (NYSE: TM). In fact, American automakers earn $2,900 less per vehicle than their Japanese counterparts - primarily from labor expenses.
Traditionally, the easiest way for a company to cut its costs is through layoffs. It’s allowed American companies to survive downturns by cutting their largest expense.
Unfortunately, even if GM wanted to close a plant, it would need to pay employees 95% of their salary, regardless of whether they worked - an indication of the financial handcuffs these companies have.
Companies mentioned in this article: GM, F and TM.
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