George Will: The Road to Bankruptcy

[Steel4ring]

The Road to Bankruptcy

By George F. Will--Washington Post
Thursday, April 13, 2006; A21


It is better to be fired by General Motors than it is to be hired by most companies. Remember this when you are rightly ridiculing the riotous French who have successfully insisted that even workers under 26 should have property rights to their jobs. Remember because the accelerating crisis of private-sector welfare states such as GM prefigures the coming crisis of the public sector's entitlements.
France has been convulsed by young people whose sense of entitlement was affronted by a law -- now withdrawn in a triumph of mob rule -- that would have allowed employers to fire a young worker in the first two years of employment. Detroit's crisis also involves an entitlement mentality.
Under contracts negotiated, beginning in 1984, with the United Auto Workers (UAW), there are about 14,700 laid-off autoworkers in the "Jobs Bank." About 7,500 of them are from GM. They get paid most of their wages and benefits -- between $100,000 and $130,000 a year, for an annual cost to GM of $750 million to $900 million.
The former workers -- expected to be 17,000 by next year -- are required to do nothing that adds value to the auto companies. Some attend classes given by GM. The Wall Street Journal reports that one worker took a class in which he learned how to play Trivial Pursuit.
The French idea that a worker should have a property right in a job is a product of statism and scarcity: Government supposedly is responsible for allocating jobs, which, in a collectivist society disdainful of capitalism, are presumed to be permanently scarce. That presumption is self-fulfilling: The more difficult it is to fire an employee, the more reluctant employers are to hire.
Detroit's Jobs Bank, which was GM's idea, is a product of an oligopoly's -- the Big Three domestic automakers still were such in 1984 -- misplaced sense of permanent abundance: They assumed that layoffs, if any, would be brief because expansion of demand for their products would generally be automatic. This mentality was self-defeating. It caused management to focus not on producing desirable products but on running private-sector welfare states, allocating much of the supposedly ensured cash flow to fund employees' benefits. And labor's myopic focus was on extracting benefits from the corporation-as-welfare-state, not on the long-term vitality of the corporate employer.
The crisis engulfing the UAW and the companies entered a new stage with last year's bankruptcy of Delphi, the nation's largest manufacturer of automobile parts. That was the pebble that presaged an avalanche.
The avalanche may mean two large things; it certainly means one. Perhaps it means the bankruptcy of GM. Certainly it means, for the UAW and for organized labor generally, the worst crisis since the National Labor Relations Act of 1935 enabled private-sector unionization. In 1969 the UAW's active membership peaked at 1.53 million. Today it is 640,000 and, depending on the success of the buyout incentives and continuing failure to stabilize the domestic automakers' market share, might dip below 600,000.
A current GM commercial, featuring cars from the 1950s, 1960s and today, ends with three words on the television screen: "Then. Now. Always." The third word is the commercial's point. It aims to reassure customers that GM will always be here. The message is: Do not be deterred when the word "bankruptcy" is bandied.
Simultaneously, however, GM is hoping that more than 40,000 of its employees -- and Delphi's; GM owned Delphi until 1999 and still has obligations to many Delphi workers -- will accept buyouts ranging from $35,000 to $140,000. But for most employees, the buyout proposals make economic sense only if they believe there is a likelihood of something worse: bankruptcy, which would terminate their entitlements.
Were GM to use bankruptcy to end contracts and lower compensation costs, what would become of Ford, whose costs are now similar to GM's? Jay Palmer of Barron's says Ford cannot win concessions from workers by credibly threatening bankruptcy because "CEO Bill Ford and other descendants of founder Henry Ford own roughly 40% of the company's voting equity. A bankruptcy would in one stroke eliminate a huge chunk of their fortune and effectively sever the family's ties with the company."
Bankruptcy -- seeking judicial permission to shred contracts improvidently entered into -- should be so costly that it cannot become a routine management tool for private-sector welfare states. And America's welfare state cannot seek what is called "bankruptcy protection." Detroit today is having what Washington will eventually have -- a wrenching rendezvous with promises that seemed compassionate, or at least convenient, when originally made but that cannot be kept without ruinous consequences.

[MNdudeswitz]

If I read one more freaking bankruptcy article im going to scream!!!!!!!! I mean its getting really really old, its not going to happen........look at the new products and especially important in my opinion the easing off on fleet sales!!!!!!!!!!

[Gm_Tooler]

I'm not a big George Will fan, but I think this article is fair assessment.
.

[wolverine]

Haven't we heard all of this before and someone just put George Will's name as the author? It really is getting tiring to read this crap.

[goblue]

So if GM goes for bankrupcy and drops their costs, and they survive - Ford is done. However, if GM doesn't survive bankrupcy, Ford is in a much better position. Well, at least we'll have 1 american company left.

[69Firebird400]

A good article to read.

I think this one is true, and it scares me:

Originally Posted by Steel4ring

Detroit today is having what Washington will eventually have -- a wrenching rendezvous with promises that seemed compassionate, or at least convenient, when originally made but that cannot be kept without ruinous consequences.

We're not talking only about the Social Security or Medicare trust funds here, either. If we don't do something to eliminate budget deficits - I don't care really if it's by slashing spending or raising taxes a few percentage points - the US government will be in a world of hurt years from now. I am so annoyed that the generation in power right now is mortgaging my future - and that of my son - solely so they can look like they're having it both ways - low taxes and plenty of pork barrel spending. Talk about an idiotic, myopic point of view!!

[GM_Guy81]

It seems more like he is making a case for why GM should file rather than that they will.

[importedtuna]

I don't read this as a "GM's in trouble and gonna go bankrupt!" so much as a commentary on what has taken GM to the brink. The real test will be how the UAW and its most vocal neo-Socialist members react when GM tries for contracts that make GM able to compete within the US with non-Union transplants that have set up shop here in the US (Toyota, Nissan, Hyundai, Honda) without the crippling presence of a strike-threatening Union with its mindset still in the 60's when the Detroit 3 were everything. Until they wake up and realize that they are no more "entitled" to better compensation than a Nissan worker in Louisiana, they, and GM are indeed doomed.

But it doesn't have to be that way. Not if the UAW can wake up and act more like the CAW, which is more reasonable by far from what I've seen.

http://www.thecarconnection.com/Auto...75.A10137.html

Late last week, the workers at Oshawa voted in favor of what CAW officials described as a cost-saving agreement demanded by GM. The production members of CAW Local 222 voted 74 percent to support the proposal, while skilled trades voted 70 percent. With the union's acceptance of GM's demands, GM Canada management should now be in a position to make its pitch for future product allocation from Detroit, said Chris Buckley, president of CAW Local 222.



"Some very difficult decisions have been made, not only by the union leadership, but by our members as well. Without a doubt, this has been a very emotional event."



The changes will not affect the wages, benefits, pensions, or time off the job for CAW members. However, union officials said that the agreement does make room for as many as 2500 CAW members, nearing retirement age, to leave the GM payroll early.



The changes in the agreement are designed to make the Oshawa facility more competitive in the global market. The complex currently has about 11,000 employees who staff three different assembly plants and other units.




GM said last November that one of the assembly plants in Oshawa will close in 2008 as part of cost-cutting initiatives. Targeted for shutdown is the Oshawa No. 2 plant, which currently builds the Pontiac Grand Prix and Buick LaCrosse/Allure. The No. 1 plant is set to lose assembly of its Chevrolet Monte Carlo and Impala models in 2009 and would pick up the rear-wheel-drive Camaro along with other models under the proposal approved by the CAW. The Monte Carlo and Impala would likely become all-wheel drive.

[GMFreak8]

Another "journalist" that thinks he's an expert and should be running GM.

[mikesright]

Ford's in worse shape than GM. They replaced most of their model lineup already, and it hasn't met their expectations BY FAR. GM, on the other hand, is undergoing a product blitz right now, which has met and in some cases, exceeded expectations. Remember, the profits and volume are coming from the GMT-900's, which are doing extremely well and more are on the way. They should also make some good money on the GMT-360's next round. Ford's future now depends on whether a brand new crossover lineup succeeds, GM's future depends on how well they can improve their existing model lineup right now.

[mikesright]

Agreed, GMFREAK.

[Lewie]

It would be a tough decision to make. Buyout or Jobs Bank?

[JVal14]

Wow. If everyone could remove the chip of defensiveness from your shoulder, you might come to the realization that the article is not condemning GM to bankruptcy, but merely offering insight socio-economic foolishness that brought the company to their present position. In the process, he also manages to draw a parallel to America's socio-economic structure which is seeing aspects of deterioration thanks to the same shortsightedness that put GM in a hole; all while managing to poke fun at the ridiculous mentality or the French (which is always fun). If you open your minds for a moment, you just might learn something.

[JVal14]

Originally Posted by 69Firebird400

A good article to read.

I think this one is true, and it scares me:
We're not talking only about the Social Security or Medicare trust funds here, either. If we don't do something to eliminate budget deficits - I don't care really if it's by slashing spending or raising taxes a few percentage points - the US government will be in a world of hurt years from now. I am so annoyed that the generation in power right now is mortgaging my future - and that of my son - solely so they can look like they're having it both ways - low taxes and plenty of pork barrel spending. Talk about an idiotic, myopic point of view!!

PREACH IT!!

[Whirling_Dervish]

Originally Posted by 69Firebird400

A good article to read.

I think this one is true, and it scares me:
We're not talking only about the Social Security or Medicare trust funds here, either. If we don't do something to eliminate budget deficits - I don't care really if it's by slashing spending or raising taxes a few percentage points - the US government will be in a world of hurt years from now. I am so annoyed that the generation in power right now is mortgaging my future - and that of my son - solely so they can look like they're having it both ways - low taxes and plenty of pork barrel spending. Talk about an idiotic, myopic point of view!!

Amen. History will rmember George Bush as one of the most ruinous figures in our history. Every aspect of this country for sale to friend and foe because these @ssclowns won't have to bare the consequence of running debt out into infiniti.