December 21, 2008

It's Deja Vu Again

Outgoing president George W. Bush and president-elect Barack Obama agree that a genuine, wide-wasting, foot-stomping calamity hovers on possible collapse of the United States’ automobile industry threatened by high taxes, profligate salaries and highest labor costs in the industry.

President Bush last Friday granted General Motors and Chrysler $17.4 billion immediately from a $700 billion financial rescue fund.

He said:

“These are not ordinary circumstances. In the midst of a financial crisis-- and a recession -- allowing the U.S. auto industry to collapse is not a responsible course of action.

“There’s too great a risk that bankruptcy now would lead to a disorderly collapse of American auto companies. This would be a blow to workers far beyond the auto industry.”

“It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession.”

OBAMA RESPONSE

Obama responded:

“The American people’s patience is running out. The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry.”

The statements by Bush and Obama are great examples of “mug wump” that is dear to politicians – their mugs on one side of the political fence and their wumps on the other.

CONGRESS TINKERS

Congress – worried that it would be blamed for bankruptcy of a crucial industry – tinkers with a rescue package.

House Speaker Nancy Pelosi (D-Calif.) proposes $500 billion in an automobile industry save. Some economists and Senate democrats assert larger amounts approaching a trillion dollars are needed.

The U.S. Bureau of Statistics – also on Friday – reported that 533,000 jobs were eliminated in November. This raised the unemployment rate to 6.7 percent.

The average unemployment rate -- since President Truman concocted it -- is 6.6 percent.

STATE GOVERNORS LIKE PLAN

State governors met last week in Philadelphia to compile a laundry list of local projects “ready to go” -- costing $136 billion --waiting for infusions of federal government cash.

Obama’s economic advisers are working with congressional leaders to have legislation ready for presidential signature on Inauguration Day, January 20.

Congress, now in recess, will return to work January 6. However, it is not likely that such far-reaching legislation can be crafted that soon.

Pennsylvania Gov. Edward G. Rendell, (Democrat), chairman of the National Governors Association, says Obama’s rescue package will be substantial. “However, Mr. Obama did not blink an eye when we talked about $136 billion.”

REPUBLICANS SKEPTICAL

Republicans in the House are skeptical about Obama’s plan. Minority Leader John A. Boehner issued a warning statement: “Any one who has talked to the American people knows that while they are hurting, they don’t believe more Washington spending is the answer.”

In the Senate, Republicans hold 58 seats -- enough with a couple of blue-dog Democrats to filibuster any spending bill they consider irresponsible.

Some Senate Republicans say it would be better to let a failing auto company take bankruptcy to wipe out debts and reorganize.

President Bush says bankruptcy of the big-three automakers is not a realistic option. That would scare off buyers worried about after-sale warranties.

LIQUIDATION PROBLEMS

Liquidation of the Big Three would jeopardize pensions of many thousand retirees.

President Bush stated that conditions for the loans are similar to those arranged by Congress for bailing out banks, insurance companies, and the two congressional grab-bags Fannie Mae and Fannie Mac. (Click here for related article)

Companies accepting the loans would have three months to present plans for structuring themselves into financially secure condition.

The $17.4 federal bail-out loan requires that the wages and benefits for union workers be lowered to “equal” the average of non-union workers such as those at the U.S. plants of Nissan, Toyota and Honda.

This, in effect, wipes out significant differences between union and non-union workers.

UNION APPROVAL

Ron Gettelfinger, president of the United Automobile Workers, said: “The loan will keep the doors of America’s factories open, keep Americans working and prevent the devastating economic consequences for millions of Americans.”

Nonetheless, terms of the bail-out agreement are tough. Wages of all General Motors and Chrysler employees – union and non-union -- and must be equal. Also, work rules must be “competitive” with those at non-union plants.

Wage concessions could force average wages down to $24 an hour from $28.

FOREIGN COMPETITION

Rep. Barney Frank (D-Mass.) -- chairman of the House committee overseeing the government rescue efforts – declares: “I am particularly opposed to the notion.... that in effect could give foreign auto companies the ability to dictate wages for all American auto workers.”

Frank declared that Obama “should take whatever steps necessary to remove any requirements specified by President Bush.”

Despite union concessions from Detroit area auto plants, foreign-owned plants were welcomed by southern U.S. states. Efforts by the UAW to unionize foreign plants in the south are consistently rejected by workers there.

As this column is written, it appears that General Motors and Chrysler will stay afloat. The Ford Motor Company says it has enough cash for another several months, but reserves to right to use the government’s bail out when necessary.

WARNING

Hold onto you hats. The road ahead is bumpy.

By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist