Should We Bail Out Detroit??

Or maybe the question should be:
"Should We Bail Out The United Auto Workers Union?"


It has been a while since Ford, GM, and Chrysler CEOs flew to Washington, tin cups in hand, asking for $25,000,000,000.00 (that's what $25 billion looks like when spelled out). They were told by Nancy Pelosi to come back and show us (read that as US Tax Payers) a plan before we show you the money. Tell us why you won't be back in three to six months asking for another handout.

But the lingering questions are why do they need the money? Who will it really benefit?

A recent republished article in the business section of the Austin (TX) American-Statesman addressed "6 myths about the Detroit 3" which showed that Detroit is holding their own in terms of volume, quality, fuel efficiency, and hybrids.

What is the difference that is causing the problems? The major difference between the Detroit auto makers and the foreign auto makers is the UNION. In Detroit the UAW workforce and the Corporations have an adversarial relationship. With foreign auto makers, the workforce works for the company and work hard to see it succeed. They are a stakeholder.

Another item is the wages paid the UAW workforce vs the workforce for foreign auto companies. It is roughly stated as $70/hr on average for union work verse $40/hr for non-union. There seems to be a lot of controversy about this. Most of the arguments state the pay for the fully employed worker is roughly the same including wages, benefits, vacation, etc. But the way Detroit figures their hourly wage average includes all benefits for retirees (pension and health care) divided by the number of full time workers. So it would again seem that wages are about the same except Detroit carries a greater load for benefits for retired UNION workers.

All things being equal, it looks like the real root cause is the United Auto Workers Union. I believe that if the Big Three were allowed to get rid of the UAW that they would become more competitive in the world market. As proof text here is a video from detnews.com (The Detroit News) on how Ford's most advanced assembly plant operates in rural Brazil.

So back to the questions of should we bail out the Big Three and the UAW. I strongly recommend against a bailout. The best way for Detroit to get going again is to file for Chapter 11 bankruptcy. All the pundits scream "no-one will buy a vehicle from a company that is in bankruptcy". Well, to that I say HOGWASH. Anyone who wouldn't buy a vehicle from a company in Chapter 11 most likely would not have bought a vehicle from them anyway. Chapter 11 will allow Ford, GM, and Chrysler to reorganize/restructure under court supervision. One of the main benefits would be breaking with the UAW and dumping/reducing benefits for workers, including retirees.

Where's My Money??

Congressman Barney Frank
Chairman of the House Financial Services Committee
2252 Rayburn Building
Washington, DC 20515

Subject: Financial assistance for my home enterprise

Dear Congressman,

I am seeking $2,000,000.00 in financial assistance for my home enterprise. I am retired and have my financial resources invested in the stock market to support my retirement. In addition I receive an income form social security and a pension. So you may say that my home enterprise is managing my investments which qualify me as a financial manager.

With the ongoing financial crisis I have lost a substantial amount of money and fear my enterprise will fail without this assistance. Please note that this is not a bailout but more of a loan. Following is my business plan (something the Detroit Big Three forgot back at the ranch) showing how the US Government will be repaid.

1. The $2 million immediately sent to the US Treasury Internal Revenue Service as a estimated tax payment. Thus the government will have full use of this money until I file a tax return.
2. The after tax, including alternate minimum tax, refund will then be placed into the now depressed stock market, investing in a balanced portfolio (well maybe not the Big Three).
3. As this portfolio grows over the next ten to fifteen years I will be cashing in stocks and paying capital gains tax, most certainly at a higher rate that the current 15% for long term investment. This capital gains tax will be the basis of loan repayment.

This is money that the US Government would not have made from me otherwise. I look at this as a win-win situation for both the Government and myself.

I look forward to receiving the $2 million check at my business address.