Tuesday, November 25, 2008

Let Detroit Go Bankrupt sounds cruel but ....

[Editor: It seems like a heartless thing to say knowing how many people are affected by the auto industry in North America. However when finances in a family, are not equal to expenses, then the family MUST do a make-over and start fresh.
  • New budgets need to be drawn up
  • Expenses need to be cut
  • "Needs" have to be prioritized over "Wants"
The American auto-makers are in that situation after being priced out of the market compared to better-made Japanese cars, yes the ones made in North America!

If the average North Big-3 auto-worker gets $77.53 per hour including benefits and the Japanese automakers in North America get $47.50 per hour, there can be NO competition. Unfortunately the NA unions have priced their workers out of their jobs.

Think about it for a minute: is one factory worker worth $30 more per hour than the other? Which cars top the lists for reliability and durability? Is it Japanese or North American? According to Consumer Reports, it is the Japanese that have had those two records for years now. While it is true that NA cars have improved due to the competition, they have had the albatross hanging around their necks of paying out about $240 more per worker per day!

Concessions by unions and a complete change of the top executives seems to be needed to condense the NA car industry into a competitive one. When cars first were being manufactured and buggy-manufacturers were losing business, did the government of the day bail out the buggy-makers? Mitt Romney has it right.]

From the New York Times .....
November 19, 2008 -Op-Ed Contributor

Mitt Romney writes in the NY times to

"Let Detroit Go Bankrupt"

Boston

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

Copyright 2008 The New York Times Company

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VIDEO:Canada Human Rights

VIDEO of CTV PowerPlay Canada Human? Rights Commission?

Iranian S-Elections?

Evolution / Intelligent Design

Legitimate Questions Should Be Discussed

I am reminded of how established "science" has been wrong many times before such as in the case of Piltdown man. So could it be wrong now? Or has it been perfected? Should not reasonable arguments be considered?

We have become a nation of beggars

Terence Corcoran reports in the National Post on Friday, January 16, 2009 that the STIMULUS everyone is yelling for may only work over a short period and may actually MAKE THE ECONOMY WORSE over longer periods.

[Read the article below for the researchers who studied this phenomenon.]

POINTS

- "What if, as a wide and growing school of economists now suspect, the government spending and stimulus theory is a crock that is shovel-ready to be heaved out into the barnyard of economic waste?"

- Even disciples of Keynes, such as Harvard's Greg Mankiw, recently highlighted economic studies that show government spending binges -- shocks, they are sometimes called -- don't seem to help the economy grow. They might even make it worse.

-One of the studies cited by Mr. Mankiw was by two European economists (Andrew Mountford and Harald Uhlig), titled "What are the Effects of Fiscal Shocks?" It looked at big deficit-financed spending increases and found that they stimulate the economy for the first year, but "only weakly" compared with a deficit financed tax cut. The overriding problem is that the deficits crowd out private investment and, over the long run, may make the economy worse. "The resulting higher debt burdens may have long-term consequences which are far worse than the short-term increase in GDP."

-A paper by two economists, including the current chief economist at the International Monetary Fund, Olivier Blanchard, concluded that increased taxes and "increases in government spending have a strong negative effect on private investment spending."

-Roberto Perotti, an Italian economist with links to Columbia University, in "Estimating the Effects of Fiscal Policy in OECD Countries," found nothing but bad news for Keynesians. Economic growth is little changed after big increases in government spending, but there are signs of weakening private investment.

- What we all might logically intuit to be true -- spend government money, especially borrowed money, and you stimulate growth -- has long been thought to be a fallacy by some economists. That thought is now spreading. British economist William Buiter said the massive Obama fiscal stimulus proposals "are afflicted by the Keynesian fallacy on steroids."

The whole article by Terrance Corcoran follows:

Are you "shovel-ready," poised to hit the ground running, or merely desperate for cheap cash to get through the recession? If so, here's your last chance to apply to Ottawa for a piece of the massive government spending-bailout-infrastructure-stimulus operation now being prepared for Finance Minister Jim Flaherty's Jan. 27 budget extravaganza.

To get you going, the National Post has created an all-purpose Stimulus Canada application document. Simply make sure your company/institution fills out the form here to get in on the action.

We're just kidding, of course, or at least we were until our satirical Stimulus Canada General Application Form was mugged by reality, which is rapidly turning out to be funnier than the fanciful idea of a government department called Stimulus Canada. To all intents and purposes, Stimulus Canada already exists.

Government money to flow, the taps are opening, deficits are no problem. The spending, as Stephen Harper said after a meeting with the premiers on Friday, will be "very significant" and there will be "very significant deficits." That could mean new spending of $20-billion and deficits of $40-billion.

Industry groups, corporate opportunists, charities, municipal politicians, arts groups, provincial premiers, tech firms, mining companies, forestry operators, banks, money lenders -- in fact, just about everybody has come forward to get in on Canada's portion of what is turning out to be a mad global government stimulus pandemic.

Each claims to have a plan or an idea that they say would produce jobs, spending, investment and activity that would get Canada through the recession and stimulate the economy.

At some point, though, the clamour of claims and calls becomes absurd, and that point looks to have been crossed the other day in the United States when porn merchant Larry Flint said the U.S. sex industry was falling on hard times, business was down 25%, and it needed a $5-billion slice of the $1.2-billion U.S. stimulus program.

And why not?

Mr. Flint has a point. It is not totally illogical for anyone to think that way. If you spend a dollar somewhere -- whether building a bridge or operating a forest company or buying a car -- it generates activity. And, after all, it's a grand old economic theory, created by John Maynard Keynes, that spending, especially government spending, rolls through the economy on a giant multiplier, piling jobs on jobs, growth on growth.

Except for one problem: What if it's not true? What if, as a wide and growing school of economists now suspect, the government spending and stimulus theory is a crock that is shovel-ready to be heaved out into the barnyard of economic waste?

The Prime Minister, in his comments on Friday, seemed to be riding right into the barnyard. He said the government would be simply "borrowing money that is not being used" and "that business is afraid to invest." By borrowing that money, and turning it over to all the groups and interests looking for part of the stimulus spending, he would be jump-starting activity while the private sector got its legs back.

Even disciples of Keynes, such as Harvard's Greg Mankiw, recently highlighted economic studies that show government spending binges -- shocks, they are sometimes called -- don't seem to help the economy grow. They might even make it worse.

One of the studies cited by Mr. Mankiw was by two European economists (Andrew Mountford and Harald Uhlig), titled "What are the Effects of Fiscal Shocks?" It looked at big deficit-financed spending increases and found that they stimulate the economy for the first year, but "only weakly" compared with a deficit financed tax cut. The overriding problem is that the deficits crowd out private investment and, over the long run, may make the economy worse. "The resulting higher debt burdens may have long-term consequences which are far worse than the short-term increase in GDP."

Two other studies point in the same direction. A paper by two economists, including the current chief economist at the International Monetary Fund, Olivier Blanchard, concluded that increased taxes and "increases in government spending have a strong negative effect on private investment spending."

Roberto Perotti, an Italian economist with links to Columbia University, in "Estimating the Effects of Fiscal Policy in OECD Countries," found nothing but bad news for Keynesians. Economic growth is little changed after big increases in government spending, but there are signs of weakening private investment.

What we all might logically intuit to be true -- spend government money, especially borrowed money, and you stimulate growth -- has long been thought to be a fallacy by some economists. That thought is now spreading. British economist William Buiter said the massive Obama fiscal stimulus proposals "are afflicted by the Keynesian fallacy on steroids."

Over at Stimulus Canada, Mr. Harper's plan looks somewhat more modest and Canada is not in the same fiscal fix as the United States. But Ottawa and the provinces are clearly ready to borrow big wads of money from the future to stimulate the economy today. It's money that is supposedly sitting out there in the timid hands of investors who will be repaid with tax dollars later.

But if that stimulus spending does not generate much fresh economic growth, and the borrowing chews up money that private investors could invest in the future, the shovel-ready brigades who get the cash today will produce only short term gains at the expense of the long term health of the economy.

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