Sunday, November 23, 2008

D-Troit becomes F-Troit

'F' is for failed auto deal
Congressional democratic leaders have given the automakers a failing grade, rejecting their plea for money and demanding a new plan be put before them in early December before the three caballeros reappear to grovel for money.

Is this good policy or good politics or good anything?

On the surface it sounds like Congress is toughing up to the problem instead of rolling over and signing checks for more bailout dough. At the same time it is failing to deliver help to needy union member blue state auto workers and that can't play well in Detroit.

The 'lawmakers' seem to be confused by the issues. If they did not want an estimate of Detroit's expected cash flow shortfalls and a request for a bridge loan to finance the gap, they might have made that clear the first time. Now they apparently want a plan for change, not for financing. With the economy so weak and unit auto sales nearly at 10.5mu at an annual rate, it's hard for anyone to give any estimates that are worth a damn. Autos need financing and with banks not lending to credit score-poor car buyers, the automakers could not sell them the best car in the world even if they made it. Clearly there will be funding shortfalls if sales remain anywhere NEAR that weak- an issue that has to do with the economy and bank lending, both factors that are out of the purview of the Big Three. In the midst of all this, asking them to sculpt a recovery plan will just raise the ante for the amount of money they need since change does not come cheap. But change is not only about money, and the lawmakers know it.

Be careful what you wish for...
The lawmakers should realize that the automakers have not made progress on their situation because of well, the law. The UAW has contracts with them that are paralyzing. They cover issues of pay and work rules and restrictions on further plant closing. The dealers that the automakers use to distribute their cars to the public have other contractual agreements that the automakers would like to renegotiate. But renegotiation takes two. Despite its troubles, GM and the others have not been able to cut the kind of cost saving deals they need. Are the Democrats offering the BIG Three assistance in dealing with the unions or its dealers? How are the BIG Three to make progress without leverage?

Leverage= chapter 11 not big bucks from the government
If you have followed this case at all you know that something called chapter 11 lurks as either the white horse to save Detroit or the troll hiding under the bridge that will grind their bones to make its bread. Which is it? Because of the nature of autos as a costly consumer product, the automakers fear bankruptcy (chapter 11) would be the end of them. They cite Chrysler's drop in sales by one-third when it last was rescued. They also contend that consumers will not buy cars with the fate of the company up in the air as car buyers worry about warranty issues and resale value. All this makes sense, but maybe there is a way for a third party or even government to provide guarantees to smooth that over. The reason it might still be worth the risk is that unless there is some collective bargaining miracle it is hard to see how the automakers get union concessions or dealer concessions so necessary to getting the sort of structural change Congress now seems to be seeking. Nancy Pelosi and Harry Reid must have just finished reading Joseph Heller's Catch -22 when they cooked up this idea of having the automakers re-present their case with some real change.

The question is not why don't those Detroit chickens cross the road but rather how could they with the heavy flow of traffic? Are the law makers helping by stopping any traffic here? No. So what do they expect to happen?

Dancing with the morons
At the hearing last week it was clear that the Big Three had met and agreed to make a common front. Everyone was so nice. The union guy was there and no one pointed fingers at anyone. So civil... so contrived. The union guy went out of this way to note how many jobs had been cut back and how new hires are on the rolls at different and lower pay. But no one mentioned the legacy workers who continue to work and get paid -well paid - under the old rules. When the automakers were asked how come they could be profitable in overseas markets but not at home they responded that it was easier to make money in growing markets than when they have to incur the costs of constant downsizing. True enough, but not the whole answer. The auto guys must have promised to be supportive of the union guy, too. They never mentioned work rules or high pay or constraints on closing factories from collective bargaining agreements. The union guy represents workers who are probably 95% democrat voters. So it suited most Congressman to play along. But if they are serious about getting the automakers to submit a plan with real change they also are seriously trying to destroy high-paying blue collar jobs.

Caught in their own trap?
Did the democrats plan ahead for this or just shoot from the hip. Ready! Fire! Aim! This could really come back to haunt them. Or maybe the CEOs will just come back with agreements to cut their own pay more and will apologize and prostrate themselves in front of the great legislative Po Bahs and that will be enough...maybe.

Turncoat or playing the players
No one should think that those multi-hour testimonies put the real issues on the table. The automakers were looking to fund business as usual through the recession. Structural change was not in their plans. It is not clear how much they now can put into in their plans. To offer any significant change is to ask for much more money. But it's not clear that Detroit can get where it wants to go since it is bound by various legal agreements with their dealers and are bound by collective bargaining rules with their workers. Basically the Congress has just shoved Detroit back into the same corner it has been in. Obviously the CEOs do not know how to get out of it. Chapter 11 is a way but they think it is far too dangerous. So now they have this Catch-22 problem to solve with Congress. Indeed, one suspects that the reason the automakers are not more successful in renegotiation is the realization by its counterparties (unions dealers etc) that there WILL BE federal assistance. Auto workers expect the Democrats to go to bat for them. Actually real change required the opposite.

Strategy to nowhere
All I can say is that it should be quite a spectacle. Congress- they are lawmakers after all- should know better. They joke about not wanting a bridge loan to nowhere. But if it is going to make progress something else is going to have to carry the load other than this bridge. It is not clear that they have anything at all in mind other than making the auto executives uncomfortable as possible and making them sweat in public and take money out of their pockets. So how does that help the US economy and the autoworkers? I don't get it. Are the democrats really willing to tamper with THEIR BASE? I doubt that too. So where are they going? It's the strategy to nowhere.