Why you should oppose an auto-sector bailout.
1) The big 3 could have been competitive, and should have been competitive but they aren’t. Other car manufacturers in America are competitive like BMW, Toyota, Honda, etc. Let’s look at why:
a. The Big 3 labor costs don't allow them to compete.
This graph is curtousy of Dr. Mark Perry of Carpe Diem…. Why are the labor costs so high for the big three? Ladies and gentlemen get to know your UAW – the United of Auto Workers. They make car prices higher, cause GM to lose profits, and have handcuffed the direction the big 3 needs to take to advance. The UAW don’t work in the Toyota plants, or the BMW plants, or the Honda or Nissan plants. Now I have a question for y’all? Who produces better quality cars with high resale value? The automakers who deal with the UAW, the union who is supposed to make great cars, or Toyota, Honda… et al? We all know the answer to that one – and that was just one of the many reasons my wife and I bought and LOVE our Toyota Rav 4. (First “foreign” car she purchased – Starla is a recovering Chevyholic.)
b. Business Model of big 3 was terrible. Let me first say that the union didn’t help. It wasn’t solely the Big 3’s fault that they couldn’t produce small fuel efficient cars without losing money on each car produced. Yes that’s right… losing money almost $870.00 per car produced. The smaller and cheaper the car produced the larger the loss for the auto’s. The big 3 rely on profits from big gas guzzlers, and big gas guzzling expensive cars, trucks and SUVs. Only too late did they change their business strategy to shift towards a smaller fleet. And even then they keep losing market share. Again – the quality of their competition > their quality. But most importantly while other auto-makers either went fuel-efficient and bang-for-your-buck i.e. Toyota, and/or specialty high quality luxurious vehicles ala BMW + Mercedes, GM didn’t adapt to the market. They failed. They didn’t produce enough small cars fast, they didn’t create cars that would retain their market share… to pardon an analogy but they tried to be a jack of all trades, in a market where individuals demand did not support that strategy. And btw – they’ve been dying for years.
c. Their management fought the UAW too little too late and the UAW still pays at least 12,000 workers not to work via job banks. At 73.29 dollars an hour that is a yearly cost of $1,829,318,400.00 to pay workers not to work. Yes last year the UAW and the Big 3 talked and the UAW made some significant cuts – but even in 2010 (when the majority of cuts go into play and avg. compensation supposedly goes to 50.50 an hour) they won’t be competitive as they will be at least $3-10 dollars more expensive than non union labor.
d. Why reward a mass failure? They are going to take your money – keep prices high, keep producing cars no one wants… why bail them out?
e. For those worried about the job losses… here’s the deal – what’s worse… keeping inefficient companies alive whose jobs are either unproductive or inefficient (yep used it twice) and who will need more and more and more and more of our money later because they run a LARGE crappy business that happens to also provide jobs in other sectors dependent on their perpetual failure? Also – Chapter 11 doesn’t mean they go byebye forever! They get to restructure their contracts, which means they can get out of bad contracts with labor, parts suppliers etc. If they don’t come out Chapter 11 (a possibility albeit imo a small one) then the other US auto industries who are foreign owned will increase production and save the former big 3 suppliers. Job losses will occur, but not be as catastrophic as some shrill econ forecasters have predicted.
f. A bailout of the Big 3 is a bailout of the UAW and corporate management all of whom have been terrible. Do they deserve our tax dollars? Not a chance.
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