As IF Times

link UAW’s King Says Workers Must Share in Auto Turnaround Update1 – Bloomberg.com.

There’s a Yiddish word, chutzpah, which is best described by the famous anecdote.  A boy kills his parents and then throws himself at the mercy of the court because he’s an orphan.   This word so aptly describes the latest bleat from Bob King,  the head of the UAW, because unmitigated gall doesn’t really describe it.   According to Mr. King:

“…union members’ sacrifices allowed U.S. automakers to survive and that workers deserve to share in the industry’s new prosperity.  All the sacrifices that our members made to turn these companies around were part of the process that’s really led to this amazing turnaround,” King said in a telephone interview yesterday. “We want our membership to share in a very meaningful way in the upside of these companies…”

Uh, no Bob.  The reason the companies were in trouble in the first place was largely in part due to the laughable compensation packages doled out to union employees.  Secondly, the public were the ones who got nailed on the bankruptcy of GM since all their equity went to zero.

While management can more than take it’s share of blame for the demise of the automobile business in the U.S. with poorly executed products and a history of concessionary labor agreements, the cause of the demise can rest squarely on the cost disadvantage that American manufacturers faced versus their international competitors.  If it was just a case of making the best widgets for the least money, it would be easy.  However, auto manufacturing is probably the most political of industries.  Governments at all levels try to exact their influence and extract their pound of flesh at every step of the manufacturing process.  Auto companies are expected to comply with volumes of regulatory red tape and restrictions.  In addition, labor contracts are typically full of quid pro quo so that over the years, untenable long term compensation was traded for short term sales numbers.

Globalization is a buzzword we hear all the time, but its effects are nowhere more influential than in the automotive market.  To be competitive, automakers had to outsource supply and manufacturing to areas of the world most facilitative to costs and efficiencies.  Even Daimler Benz and BMW opened up operations in the U.S. deep south as part of  their push to be competitive.  GM, Ford and Chrysler were saddled with compensation structures that priced them out of the business.  GM for example operated for decades with a cost disadvantage of $2000 per car as compared to their Japanese rivals.  It became a running joke that GM was a health care company which happened to make cars.

All of this came to a head late in 2008 as the auto manufacturers finally succumbed and had to receive government bailouts to survive.  After a restructuring which cast off billions of dollars in debt and legacy health obligations into a separate entity, the US manufacturers are arguably on the comeback.  Now, without the previous encumbrances, they appear to be competitive again.  The most interesting part of the recovery is now upon us.  Unions want in on the ‘success’.  Well actually, they are now shareholders in GM and Chrysler so it will be amusing to see how they balance the needs of corporate profitability with the demands of their labor ranks.   As far as ‘share in a meaningful way in the upside of the companie’, they will, as risk taking shareholders like every one else.

This notion is likely lost on Mr. King  since the real intent is betrayed by his last comment:

“…You’re going to see the UAW membership grow because the industry is coming back,” King said. “As it’s been a long decline, hopefully it will be a long incline…”

As if.

link UPDATE 1-GM to acquire AmeriCredit for $3.5 bln | Reuters.

Unless you happen to be paying attention, this news item would be just another of those boring finance stories.  If you whittle the story down to the basic elements, then an amusing scenario becomes more obvious. 

As some may recall, not too long ago, General Motors wound up in a bit of a financial pickle.  The short story is, they were not selling enough cars at  prices that people were willing  to pay for their products.  Not that they didn’t make good products, it was just that for a similar amount of  money, many other manufacturers offered arguably better products.  General Motors was saddled with a legacy of costs that eventually overwhelmed the company.  Principally, the main culprits were the very generous pay and benefits packages given to working and retired employees.   You would often hear the joke that GM was more of an extended care and benefits company than an automobile company.

So along with large debt payments to bondholders, GM was unable to pay it’s bills with the income from car sales.  Luckily, the federal government  decided that the fate of GM was tied to the fate of many workers and therefore America.  They would be bailed out of their financial woes.  The amount of money involved was so big that only governments had the might to write the big cheque.  Ultimately with all of the restructuring, the government OWNS GM.  So now, GM is now Government Motors, or the people’s car company.  This solved a short term debt problem, but the company still had to sell cars. 

Since the economy overall is still not as robust as the administration would have you believe with unemployment still ratcheting upwards, people didn’t have the capacity to finance car purchases.  Ironically, many of the unemployed became that way because GM and Chrysler were forced to close down hundreds of car dealers throwing those people out of work.  Todays’ news is that GM will spend $3.5 billion dollars to buy a company involved in the financing of cars.   Not just anybody, but particularly people with ‘subprime’ credit.  Hmm, this sounds oddly familiar.  In case anyone noticed, the money used to purchase AmeriCredit is actually government money, or public money.  So in essence, the public is subsidizing other people to buy cars that they otherwise couldn’t afford with their own money.  I think in real life, that’s called a circle jerk.  Nevertheless, the UAW union at GM, also a major stakeholder post restructuring, have managed to keep their members employed albeit at the expense of everyone else.  Bernie Madoff in his ponzi schemes at least bilked the rich.  In this latest government scheme, the people who can least afford to pay are getting roped in.

This is but the first of these types of ingenious rescue schemes to see the light of day.  In scenarios throughout the country, the same dilemna will surface again as public pensions for teachers,postal workers, firemen, police etc have to be funded.  An agency will have to be established in order to offer financing to people who cannot otherwise afford teachers, fire or police protection: some means of allowing people to pay money regularly in order to recieve these services…hmm how to do that…if only there was a way…