Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Changing the Auto Industry from the Wheels UpWe just posted a new web-only article on the auto industry, by Alejandro Reuss of the D&S collective. Here is the introduction to the article:Changing the Auto Industry from the Wheels Up The problems of the U.S. auto industry call for radical solutions. By Alejandro Reuss | Dollars & Sense | May 13, 2009 The "Big Three" U.S. auto companies are not facing a crisis – they are facing multiple interrelated crises at once. Chrysler, General Motors, and Ford have posted tens of billions in losses over the last few years. They suffer from chronic overcapacity, producing more cars than they can sell, and have ended up selling cars at a loss. Their cars are widely viewed as lagging behind those of international competitors in quality, styling, and reliability. They have focused on fighting fuel-efficiency standards rather than developing new, fuel-efficient vehicles. They have bet heavily on large, gas-guzzling models and are playing catch-up Toyota and Honda in the development of hybrid cars. They face significant cost disadvantages compared to their main competitors, mainly due to retiree health and pension "legacy costs." And, on top of all this, a deep recession has hammered car sales. Already operating in the red before last year, the Big Three have been burning through billions in cash reserves during the current recession. General Motors, having posted losses every year since 2005, lost over $30 billion in 2008. It has reported that, in the first quarter of 2009, it lost another $6 billion (and depleted its cash reserves by over $10 billion). Ford has posted losses since 2006, including about $15 billion in 2008. Chrysler lost $8 billion last year. With their companies teetering on the edge of bankruptcy, GM and Chrysler executives appeared before Congress last November asking for a government bailout. In December, the Bush administration announced $13.4 billion in loans for GM and $4 billion for Chrysler. (Since then, both companies have asked for billions more.) In April, the Obama administration offered additional loans of one-half billion to Chrysler and up to $5 billion to GM. Lacking private sources of financing, the two companies have managed to stay in business this long thanks only to the government loans. The government has required both companies to submit restructuring plans, including concessions from workers and creditors, as a condition of the bailouts. At the end of March, the Obama administration rejected the submitted plans as inadequate. It gave Chrysler 30 days more to conclude a takeover deal with Italian auto giant Fiat, while GM got 60 days to submit a new restructuring plan. In late April, Chrysler appeared to have a deal with Fiat, with the Italian automaker set to take over operations and receive 20% of the company's stock (with a possible future increase to 35%). A United Auto Workers (UAW) retiree health-care trust would own 55% of the stock. The UAW accepted new concessions on wages and benefits, while the company's major creditors agreed to cancel billions in debt for about a third of its face value (plus less than 10% of the company's stock). When some creditors balked at the plan, however, the company filed for bankruptcy. Meanwhile, GM proposed a restructuring plan in which the federal government would own 50% of the stock (in exchange for the cancellation of about $10 billion in company debt), and the UAW retiree health-care trust nearly 40%, leaving the company's unsecured bondholders with just 10%. The plan included the shutdown of the company's Pontiac division and over 20,000 layoffs. Bondholders could still balk, however, in which case GM would go into bankruptcy as well. No matter what the outcome of the current crisis, the "Big Three" are not likely to return to the heights of their post-World War II heyday. In the 1950s and 1960s, the Big Three dominated the U.S. auto market. As recently as the late 1990s, they accounted for over 70% of total U.S. sales of new cars and light trucks. Now, they account for less than 50%. In the mid 1950s, General Motors alone accounted for over 50% of U.S. new-car sales. Today, the company's market share is about 20%. Under the company's proposed restructuring plan, it would employ less than 40,000 union auto workers, less than one tenth the number the company employed at its peak in 1970. There is no way to put Humpty-Dumpty together again, and it does not seem that any of the major players in this drama—the companies' managements, the leadership of the UAW, or the government—really believe that there is. The real question is whether something new and better will be built from the wreckage of this industry. Read the rest of the article. Labels: auto industry, Chrysler, ford, General Motors, UAW, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UAW/Chrysler: How 55% = 0% (D. Henwood)From Doug Henwood's blog, on the whole Chrysler/UAW/VEBA thing:A friend sent me a copy of a brochure (click here for a copy) that the UAW is circulating to its Chrysler workers, or those of them that remain, offering details on the proposed deal with Fiat and the U.S. government. The pay and benefit cuts are nasty, but hardly a surprise. What is a surprise is that the UAW's equity stake is even less impressive a thing than it seemed on first glance. And the first glance wasn’t all that impressive to start with.(This is the full post.) Labels: Chrysler, Doug Henwood, UAW, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UAW Plans To Dump Chrysler StockIt appears that the worker takeover of what remains of industrial America will be short lived. The other day the Senate shot down the possibility of bankruptcy judges being able to alter the terms of first mortgages, citing the "sanctity of contracts." Considering that the big worry here is how to finance the commitments to retired workers, it will be interesting how much concern these same Senators for the contracts of auto workers.From the wires: STERLING HEIGHTS, Mich. - The United Auto Workers union has no intention of keeping its 55 percent stake in the new Chrysler and will sell the shares to fund a trust that will take over retiree health care costs next year, the union's president said Monday. --d.f. Labels: auto industry, bankruptcy, Chrysler, Daniel Fireside, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Chrysler Deal Would Cause Massive LayoffsAs sales at US automakers continue to fall through the floor, Chrysler and GM are trying desperately to hammer out a merger as their sales and cash reserves evaporate. They are currently seeking $10-12 billion dollars in government support to cover merger-related expenses. It's unclear how the merger of two money-losing companies would combine to make a profitable one.UAW President Ron Gettelfinger has expressed alarm at the deal's potential for massive job losses. The latest estimates are that Chrysler alone would have to cut more than half of its current workforce of 67,000 employees, and an additional 50,000 jobs in related industries would be in danger, according to the consulting firm of Grant Thornton. To complicate matters, the two cash-starved companies are currently facing payments of $7 billion each by 2010 into a the voluntary Employee beneficiary association, or VEBA, a trust fund designed to cover the future health care costs for union retirees. Any changes to the fund resulting from a merger would need union approval. The UAW is trying to reinsert itself as a major player in the talks, and has recently hired top ex-auto industry execs to help with its lobbying efforts. Labels: auto industry, Chrysler, General Motors, GM, Ron Gettelfinger, UAW, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
