Monday, March 30, 2009

The US Manufacturing Rescue Act of 2009

Events are proceeding quickly now, don't you think? The Federal government has seized GM and Chrysler. The Feds have effectively bought the automotive supply chain. Coming next: Complete government reorganization of the entire U.S. automobile sector, but with a slight twist. This is when full-scale nationalization of the U.S. medical system occurs. All part of a massive bill that I think is being quickly formulated behind closed doors. Call it the US Manufacturing Rescue Act of 2009.

This can't continue. So what better time? People are frightened. We are shell shocked and facing the ultimate economic disaster, so now is the time to act.

GM and Chrysler are seized, management is canned, bankruptcy follows. Labor contracts are torn up, pensions are revoked all up and down the supply chain. In exchange for massive wage and pension cuts, labor gets taxpayer-funded medical insurance and part of their pensions via government programs.

As an aside, people don't get why Fiat would want Chrysler. Maybe the existing dealer network and manufacturing plants that will give them the chance to compete in the largest automobile market in the world? With much lower labor costs and no medical insurance or pensions to pay for, it could very well be a lucrative move.

Update: Looks like Ford will have no choice but to ask for bailout money.

(Thanks, Glenn. And cool, a Wizbank link.)

19 comments:

Anonymous said...

Paul writes,

Bad companies drive out good. Ford will have to cave in too, on the taxpayers dime. My guess, Big 3, pensions, supply chains, assistance to three states, dealers...let's call it a half a trillion.

On the plus side, this can drag on for a couple of decades.

I was thinking today of Walter Chrysler who started off as a worker in a train shed, became a master mechanic, made his own tools which he kept all his life. He bought a new car and took it apart and put it back together twice before he ever drove it. Later he went on to be such a whiz at GM that private money guys backed him in his own company. He built the Chrysler Building in a year and it was profitable in the Depression. Now Chrysler and everything is run by Harvard MBAs. Managers. Administrators. Lawyers.

The tics have consumed the host.

Chris said...

The federal government hasn't seized GM and Chrysler yet, but they've certainly got them by the balls now. I am responsible for analyzing GM and Ford at work, so it's never a dull moment.

They can't revoke the pensions either. Freeze, possibly. Revoke? Not possible. ERISA protects accrued benefits, and the PBGC guarantees most of the pensions if they are ever terminated. If the GM plans were ever terminated, it would double the size of the PBGC almost overnight. Eventually the money would run out and the taxpayers would bail out PBGC, but it would take 10-15 years to get there.

Lou Minatti said...

Chris, there are lots of things the government has done lately that they "can't" do. Like throwing contract law out the window by allowing judges to re-write mortgage agreements. Contracts between two willing parties used to be sacrosanct.

If a U.S. politician can force out the CEO of a company, I think that company has been effectively seized by the government.

Cosmo said...

It's interesting to consider possible ripple effects from what is occurring in the auto industry.

- A taxpayer-subsidized redoubt for big labor

- Uunpopular green 'Trabants' mandated by environmental agency bureaucrats

- A blizzard of regulations which form a de facto tariff aimed at making more attractive foreign alternatives either hideously expensive or impossible.

Bingo, U.S. 'carbon footprint' reduced.

Should this come to pass, my next car purchase will likely be my last.

Anonymous said...

Never let a crises go unused.

O is a socialist, everyone knows it, just some don't want to admit it. Look to France and Mexico for your models..French autos and Mexican oil...run by government to ensure votes and to obtain wealth/power for themselves. A workers paradise just a hair away from Russian model.

They will wrap it in sugar and tears...but it is what it is. IMHO

Salty said...

For the first time in my life, I am ashamed of my country . . .
I must be a racist.

Rorschach said...

Ford Motor Co. = Reardon Steel

Who is John Galt?

Funny Circus Bears said...

UAW = U Aint Workin'!

Dave Cornutt said...

I think the Bloomberg article is overly optimistic about how much improvement in costs GM and Chrysler can achieve, even with government backing. There are huge modernizations in technologies, model lines, and manufacturing facilities that GM and Chrysler need to undertake to get competitive again; those things simply can't be done overnight, and capital investment will be required. And besides, the Administration has made it pretty clear through the statements of various officials that their main interest is in using the companies to make political points; building products that customers actually want is secondary.

If I'm Ford, I'm keeping an eye on things, but I'm not too worried right now. Yes, GM and Chrysler could be reorganized into lean, mean competitive threats. But it's far more likely that in the future, Ford's domestic competition will be Lada-dee and Lada-dum.

JohnMc said...

Chris said...

They can't revoke the pensions either. Freeze, possibly. Revoke? Not possible. ERISA protects accrued benefits, and the PBGC guarantees most of the pensions if they are ever terminated.

-----------------------------------

Chris, in case you have not noted, there is a observation going around that the PBGC may have up to 40% of it portfolio in stocks that cratered. So there is no guarantee that PBGC would be able to back 100% the accrued pensions of the UAW.

Anonymous said...

If GM and Chrysler were allowed to go bankrupt normally, Ford would probably benefit because it's in better shape and could pick up some of Chrysler's and GM's market share. But if the government props up GM and Chrysler by breaking their union contracts and relieving them of their liabilities towards their workers, then Ford is screwed because they will still be burdened with their contracts and liabilities. So once again, government "help" will serve to prop up the failures and to screw over the more capable.

Penny said...

John Mc, I picked up this link at Instapundit about PBGC investment rumors, laying some of them to rest...for now...maybe. We hope...

http://justoneminute.typepad.com/main/2009/03/we-get-pensive-on-pensions.html

Anonymous said...

The pension guarantee that uncle provides is a fraction of what these people are getting, plus the health care would be 100% not covered....ask the pilot unions what the benefits are like under the guarantee from uncle....I suspect that the pensions assets might provide full coverage under the amount of the guarantee, just not the wish for benefit that the unions have in the contracts.

Anonymous said...

The "largest automobile market in the world" is now China, not the US. Try to keep up, Lou ;-)

Bill in NC said...

If the PBGC caps the maximum at $2,500/month I bet they can stretch their funds a lot further.

The guys retired from the line weren't gonna get much more than that anyway, so the current administration can just say retired management is reaping what it sowed.

Lou Minatti said...

The "largest automobile market in the world" is now China, not the US. Try to keep up, Lou ;-)

True to an extent, but in the current economic climate I think that is a moveable target. We don't actually know what is going on in China right now.

Chris said...

"Chris, in case you have not noted, there is a observation going around that the PBGC may have up to 40% of it portfolio in stocks that cratered. So there is no guarantee that PBGC would be able to back 100% the accrued pensions of the UAW."

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As others have said, PBGC wouldn't fully guarantee some of those workers' pensions anyway, but I'm using the word "revoke" in terms of ERISA law. And if the PBGC eventually runs out of money, it would be political suicide for the federal government to reduce or halt benefit payments to retirees who are living on a fixed income. It would mean...yes, I'm afraid to say it...another bailout.

Chris said...

"Chris, there are lots of things the government has done lately that they "can't" do. Like throwing contract law out the window by allowing judges to re-write mortgage agreements. Contracts between two willing parties used to be sacrosanct."

I understand what you're saying, but I think we're a long way from anyone having enough political capital to take away accrued benefits covered in ERISA from pension participants. However, PBGC could stop increasing the maximum benefit guarantee or employ other measures to make it more difficult for participants to collect their full benefits.

"If a U.S. politician can force out the CEO of a company, I think that company has been effectively seized by the government."

My terminology is a bit more literal than yours, but again, I understand what you're saying. The government now has $13.4 billion of secured debt against GM (it was about $5 billion of secured debt against GM before the government stepped in), so they're calling the shots.

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