Homework Assignment for the Big Two and a Half: Solve Retirement and Health Care
Nancy and Harry wrote Mulally, Wagoner, and Nardelli with instructions on how they should re-do their homework assignment, to be turned in on December 2.
Congress is prepared to consider additional legislation that would give the assistance you seek, provided that you submit a credible restructuring plan that results in a viable industry, with quality jobs, and economic opportunity for the 21st century while protecting taxpayer investments.
In order for Congress to act in a timely manner, this plan must be presented to Congress by December 2nd, specifically to Senate Banking Committee Chairman Christopher Dodd and Financial Services Committee Chairman Barney Frank.
Most of their instructions are what you’d expect: guarantees of transparency and guarantees that taxpayers won’t get screwed if the companies go under.
Provide a forthright, documented assessment of the auto companies’ current operating cash position, short-term liquidity needs to continue operations as a going-concern, and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability as they retool for the future;
Provide varying estimates of the terms of the loan requested with varying assumptions including that of automobile sales at current rates, at slightly improved rates, and at worse rates;
Provide for specific measures designed to ensure transparency and accountability, including regular reporting to, and information-sharing with, any federal government oversight mechanisms established to safeguard taxpayer investments;
Protect taxpayers by granting the most senior status for any government loans provided, ensuring that taxpayers get paid back first;
Assure that taxpayers benefit as corporate conditions improve and shareholder value increases through the provision of warrants or other mechanisms;
Bar the payment of dividends and excessive executive compensation, including bonuses and golden parachutes by companies receiving taxpayer assistance;
[snip]
Require that government loans be immediately callable if long-term plan benchmarks are not met
There’s the predictable requirement that the car companies meet their CAFE obligations.
Demonstrate the auto companies’ ability to achieve the fuel efficiency requirements set forth in the Energy Independence and Security Act of 2007, and become a long-term global leader in the production of energy-efficient advanced technology vehicles;
And then there’s this requirement, which they don’t really explain, but which speaks volumes.
Include proposals to address the payment of health care and pension obligations;
Ah, the payment of health care and pension obligations. It seems we’ve been talking about those things a bit around here. Funny thing is, through two whole days of hearings on the woes of the auto industry, nobody really wanted to talk about those things. Because, of course, the payment of health care and pension obligations is the one thing–the big thing–that still makes the Big Two and a Half uncompetitive as compared to their competitors. It’s also the thing that separates us from other advanced nations, which subsidize these things and would refuse to allow an entire industry to be wiped out because of these things. And, with the big payments into the UAW’s health care fund coming up, it’s a looming payment that no one seemed to want to talk about at the hearings. Until this homework assignment.
Frankly, I don’t know what Nancy and Harry and Barney and Chris expect to get in response to this particular line item. A proposal for universal health care? An expanded social security system (because, with the stock market down 50% in the last year, we know that 401Ks don’t work as advertised)? A beg for a bailout of these two items? Maybe the demand for a gas tax that would go toward paying off pension benefits?
I’m working on answers to the rest of these questions. But jeebus, how does an industry being killed by its legacy costs propose to fix that?
I’ve always said once the auto industry realizes they can’t pay their employee and retiree obligations,the country will be move rapidly towards some sort of national health care. I didn’t think it would include the auto
industry going belly up.
That is exactly what Congress wishes for under the Xmas tree! And unlikely to get the car manufacturers to bite on.
The promises of the Democrats for universal health care are the rubber that is now going to have to hit the road (a car analogy? Why yes, now that you ask. *g*).
What better situation could have been asked for? /snark
Not saying it will actually get accomplished in the next few sessions, but eventually the Democratic Congresscritters and Administration are finally going to have to put up or shut up on their own promises and look under that hood.
Here’s a rough idea about the cost of the pension issue, from the GM 9/30/08 financials (p.66):
I can’t find anything that tells me how much the pension plan ought to hold to be sure it will have enough to meet its obligations. I understand the $6.3bn loss to be a cash loss. The other 5 items look like non-cash items. They look like future liabilities, so I don’t understand how they impact the balance sheet.
Although any plan would help the Big 2.5 significantly, only single payer really turns the trick ultimately it would seem.
I think signing on to be for universal health care and diluting their stock by sending every taxpayer a share of preferred stock would do a lot to smooth things over.
Everything is coming full circle:
The talking heads were saying today that Health Care will have to wait, while the Obama administration deals with more pressing issues. But it may be that the business plan the Big 2.5 need to succeed must involve national health care in order to succeed. As well as getting the retirement plans off their books– which automaker was it that made the deal with the union for the union to take over the pension fund? Maybe that’s what is needed.
In other words, solving the legacy costs issue might hinge on Federal solutions to health care and pension benefits?
Bob in HI
Two points.
First National Health Care won’t be on the books before the end of 2009 if then. My estimate is that it will take 2 years (end of 2010) at least if it succeeds. In 2 years according to historical trends, the Republicans will be stronger, and the task will be harder from then on.
Second (and I have been working on trying to express this for days, coming along with Marcy’s help) I have shown some problems for GM even if there is a National Health Care Policy. This is below in the thread ”The Difference between GM and Toyota: The Health Care”
To restate it here.
Assume there is no bankruptcy however that is achieved.
Under Obama’s proposed Health Insurance plan (thus far anyway) GM would be required to provide insurance for it’s active employees or if it opts out, to pay a tax which would be used for that insurance. Most probably that insurance will be a step below what has been negotiated in the past with the Union, and I don’t know what the contract would do there, but maybe it would be renegotiated. GM is still not free and clear as some have been thinking, but that medical burden should be somewhat less than before. What that means relative to the $1,500 to $2,000 estimated medical cost per car share, I don’t know. I would guess a few hundred dollars less with the same coverage. Say $300.
GM’s retirees would be treated the same since there is no bankruptcy. GM would be required ”contractually” to provide insurance for the retirees or it could take the opt out and pay a tax, and then by contract law be required to provide the difference between what the Government plan provides and the old retiree contract requires… They don’t seem to be able to readjust those old retirement plans.
Some might think that since the retirees are not working anymore, then GM would be off the hook. This is not the case if no bankruptcy. GM is still their contractual provider.
GM’s obligations would still be very heavy at say $300 dollars less on the cost per car for medical insurance (say $1,200 to $1,700 instead of $1,500 to $2,000) and it would probably perish in a few years much as British Leyland (Triumph) did in 8 years. The economic climate is just too bad.
Now let us look at a scenario where GM wouldn’t be responsible for the retirees medical. Say the contract is broken! Maybe the bankruptcy court put humpty dumpty back together without that retiree medical benefit contract.
As Marcy pointed out, though while making another point, about the large ratio of retirees to active workers, GM is much better off, and would be I think quite viable.
Now the problem is mainly on the retirees. Fortunately the retirees are still getting their pensions though reduced (from the Government Retirement Insurance Plan’s formula), but they would be treated just like the regular non-employed population. They would have to buy insurance on their own to be in the system just like somebody that had never worked for GM. It should be easier to get insurance though.
Of course at 65, everyone is covered by Medicare.
Do you know just how many retirees the big three have? because if the big three go bankrupt the retirees lose their pensions.
That would cause a huge drop in consumer spending. Where are the retirees located red states that are warm and cheap to live in perhaps?
They’re finding out that Florida is still nice and warm but not so cheap to live in anymore. Property taxes continue to rise and those who live in condos are finding their condo fees going up. Two weeks ago whole wheat bread went from $1.69 to $2.79.
I heard South Carolina is cheap.
I admit that I don’t know for sure where the retirees are but everyone in the north dreams of the South in winter. I think the GOP red staters might be surprised about about how many of their voters are from up north.
The big three had a lot more workers in the past who are now retired and I’m pretty sure they are not in Detroit anymore.
Oh, we’re very aware of it. There’s a set portion of property taxes that go to schools because the northern retirees voted against any bond measures for schools because they didn’t have any kids in school. Just one example of their political clout.
I think they will as a group defend pensions.
I had an aunt and uncle who lived in Myrtle Beach. At the time, 1950’s, it was just a sleepy little beach town. Go there now. Big chain hotels and golf courses.
Why does everyone assume that the GM/Ford/Chrysler pensioners should just be dumped in a heap with ‘everyone else’?
You, like a lot of people don’t seem to understand just how those pension funds were set up in the first place – and the health care plans.
Union contracts that were negotiated with these companies are CONTRACTS! In most cases, including the car co’s, union members GIVE UP money on wages and salaries to put into these plans. They also give up current wage increases to get health care paid for after they retire.
Rush Limpballs thinks it’s a crime for people to retire before they are 65. Well I don’t. Most people would like to retire sooner. Many auto workers who do have already put in 30 or more years working for these outfits, giving up current wages and salaries to get the benefits that will carry them through their retirement. This stuff is supposed to be IN ADDITION to Social Security and Medicare.
Buying insurance on the open market? You must be nuts. When people are in their 50s and 60s – they cannot buy insurance. Or the premiums are so high they can’t afford it – even with their pensions. That is the reason for the company-provided health care.
The only thing that will fix the health care thing is Universal, single-payer.
The only thing that will fix the pension mess is for the companies to step up to the plate and realize that they were supposed to keep these funds segregated from their operating budget (which they did not) and unfortunately the ‘deregulators’ allowed them to draw down these ‘trust funds’ for that very purpose. Too bad. These pensions were earned by the workers and need to be paid. I don’t care how they do it. It is not fair for the workers to have money put into this in lieu of wages and then be told – oh well, we decided it’s too expensive for us to pay you this.
Unfortunately, a bankruptcy will allow them to dump the pensions, the health care, and the unions, all in one fell swoop. Oh wait…that’s what the Repukes have been wanting all along.
I don’t suppose that we can charge anyone with something criminal can we?
Spend a lot of money trying to prosecute and gain nothing in the end cuz the companies don’t have any money.
You raise an important point. Healthcare and pension commitments are hard contracts. They are deferred compensation. Labor gave Big Auto concessions “today”, in exchange for being paid “tomorrow”. Payment was to be in the form of benefits.
Management gambled that over time, the cost of providing benefits “tomorrow” would be lower than higher pay “today”. Or it didn’t care what the costs were, since “they” wouldn’t be around when it came time to pay the piper. The deal was repeated every negotiating cycle for decades.
Management took much of its compensation “today”, via immediate career success, via higher salaries and bonuses, and via deferred cash and stock grants, most of which were to pay out well before retirement. Management’s bet turned out to be lousy, and now it wants out of the liability. Not a new dynamic: Big Telco just reacted the same way when it sought and received Congressional immunity from suit for its assisting in illegal domestic spying.
What’s different is that the auto industry, the US economy and its place in the world economy are all fundamentally different than in the 1960’s, ’70’s, ’80’s or ’90’s. What’s different, as Paul Krugman points out, is that the US economy today is in dire straits. So is the US government, which has whopping debts and perhaps its lowest political and financial credibility in modern times.
Those circumstances are what justify federal assistance. No, that assistance shouldn’t come free or without strings. That should have been true of the much larger sums just ladled out to Wall Street (but wasn’t). The assistance should be focused on revivifying US manufacturing, on helping individual companies, and the suppliers, communities and employees dependent on them, reorganize with less pain than having their few possessions thrown into the proverbial street (literally or in bankruptcy court).
Congress doesn’t seem to want to go there. It shelled out hundreds of billions to Wall Street with its eyes closed. The Dems have no stomach to tackle hard problems, and the GOP wants to profit from them. The consequences of the massive failure of Big Auto would not be limited to millions of unemployed and the plundering of its assets by “investment” banks and Chinese investors. It would make it deepen the current recession, make it last longer and cost more to get out of, and leave us without critical assets needed for our long term economic health.
Yeah, you make excellent points. Let me draw an analogy that will drive people nuts. What about military pensions and benefits after retirement? Well, come on what about it blowhards that are so quick to call for trashing the pensions and benefits of the auto workers, are you also arguing to trash and burn the same for those in the military???
Because, there is a lot of yammering about how the CEOs of the auto companies made bad decisions and are upside down financially; and based on that, think that the workers ought to be taken to the woodshed. How the hell is that any different than the employer of the military? Their employer, the US government, makes the auto company executives look like the most brilliant and responsible financial minds on the planet in comparison. Talk about yer upside down and bad management. And speaking about people who take early retirements; jeebus, a lot of military people are retired and taking full benefits at 40 -45 years old. Sorry. How do we afford this if we can’t afford the auto workers?
You want to bankrupt GM? Then bankrupt the US too; they need the “reorganization” a hell of a lot more.
It seems like the auto industry is still fighting the last war.
Car buyers, especially ones who have been in acidents, want heavier bigger cars. So everyone drives around in bigger and bigger cars.
This is a direct impact on mile per gallon. and the environment and Global warming.
So do we worry about the few and not all the population?
The legislation I would like passed would be maximum 500 pound cars, 100 mile pergallon minimum and five years to get all the carsthat don’t meet those standards off the road.
by imposing these standards evryone is in the same ball park and the planet wins!
instead of bailing out the auto makers simply take over the pensions and obligations of the auto makers it would have to be cheaper.
so with all these proposals enacted everyone can now go back to the game
That homework assignment is a cheap thrill at the Saturday afternoon matinee. It is Congress attempting to redirect the simmering boil of resentment against Big Finance onto Big Auto, by ask Big Auto everything Congress and the administration refused to ask Wall Street: What will you do differently? Give us specifics. Demonstrate your commitment to change. Show us why we should trust you to not to divert public monies into black holes, like excessive compensation, or to ship it offshore to still profitable operations. All the administration asked Wall Street was how much do you want?
This is Congress pretending to do its job — deflecting some of it, such as national healthcare, onto Detroit’s shoulders — while its members go home to celebrate, lick their wounds, thank their patrons or send out their resumes. Fiddling while Detroit and the heart of American manufacturing burns.
This is the Beltway bureaucratic mind chanting its old mantra, “We can do it later, if necessary; if wait, maybe we won’t have to do it at all.”
This is also Democrats, who have much to thank old and new unions for, being too weary and wary, avoiding a lasting conflict with the GOP. It may be a rump party, but it can still bite like a wolverine.
Thanks to PhilPerspective for opening up the digg
Aren’t we the only country in the world that doesn’t have health care for everyone?
The only *Cough* first world country with no healthcare, the death penalty, we lock up more of our own people per capita than the Commie USSR or White South Africa ever did.
We have a lot of work to do/things to change.
Pity that Harry and Nancy didn’t submit these same demands to Paulson and the banks.
I hope this plan appears on the Net. I want to see what kind of MPG their cars plan to get.
We’re going to have to be more like European countries and put a larger tax on gasoline. After a while Americans will force the auto industry to produce more fuel efficient cars and/or alternative energy cars. Slap a $2 or $3 a gallon tax and folks won’t like their tanks as much.
http://en.wikipedia.org/wiki/Health_care_in_Japan
my bold
http://en.wikipedia.org/wiki/H…..ted_States
My Bold So we spend about 15.2% of GDP to insure only 84.7% of our people vs Japan who insures everyone for 6% of their national income.
Plus they live longer than us.
I think the Health Care bill will be along with the stimulus package the top bill on this winter’s agenda. I don’t think Obama wants to drag this out. His original proposal, which has some theoretical flaws, has fewer in the context of an economic meltdown, since people will be losing their company benefits right and left. This will make for strong public support for having a public system available. It may be the case that when the economy recovers, the private insurance companies will try to start cherry-picking again, but that bridge can be crossed when we come to it. This is likely to be a prolonged economic depression, so we won’t see much of it all that soon.
Why are we not sending in independent accountants to review the books? We are trusting the car companies to report their own numbers in public?
Treasury Sec Paulson got in trouble when he said that he didn’t know where the money was being spent.
Now Congress expects us to trust the big three’s numbers?
The same guys who swore that Toyota was losing money on every Prius?
Book Salon up at the Mothership
Health care “It’s also the thing that separates us from other advanced nations, which subsidize these things and would refuse to allow an entire industry to be wiped out because of these things”
That about covers it. Wondering when Micheal Moore will come out with Sicko 2 , Sicko 3, Sicko 4 etc. He definitely could do a run.
I am dealing with a stepfather/teamster/WWII vet who has been in the health care, nursing home assisted living maze for close to a year now. I have heard so many stories of people who have played the American game straight down the line, worked for 40-50, paid their taxes, health care etc etc saved a bit and then spend all of their savings to fill in the gaps when it comes to their care in their twilight years.
Talked to a couple in their late 80’s the other day who had gotten divorced because the health care industry would take their savings because he was ill. This is criminal…and pathetic
OT EW
From Juan cole
http://americanforeignpolicy.org/
http://capwiz.com/justforeignp…..38;type=CO
check out the new report signed by Juan Cole and other heavy hitters
Retirement and health care are definitely important.
Also near the top of the list is what the big2.5 are going to build when they get bailed out.
It turns out that lithium batteries that are used in electric cars, hybred cars and plug-in hybred cars require both lithium (Surprise!) and cobalt.
Lithium and cobalt are not found in abundance in the US, but are found in abundance in countries that are not friendly to the US. Bolivia, China, Siberia.
Electric cars may be a tradeoff. Forerign oil for foreign chemicals.
So, what should the big2.5 build?
Now this is an important read
Joint Experts Statement on Iran
We should all send this to Hillary and Obama
http://www.justforeignpolicy.org/experts.pdf
Who stands to gain the most if our auto companies go under? Who has the loudest mouth in oppositition to the auto loan? Why?
Who (politicians and lobbyist) allowed China to import more auto’s knowing the big 3 were already in trouble?
Why not put a tariff on auto’s and auto parts that are imported to cover the auto workers retiree’s benefits?
China will be importing cars next year. Is this a payback because they are giving us loans? Can this be stopped? Or just put tariffs on them? Is that what schrub is worried about and why he paid becareful of protectionism?
GM can be green when they want to be. Maybe it’s just here they push not green things. How much did the “largest rooftop solar plant” cost them? THey have 2 here is the US, where?
http://icantseeyou.typepad.com…..video.html
Um, maybe the market, tax structure and other conditions are a little different here than there. Maybe they are in the process of greening here too. I really don’t understand the people that are so up in arms about GM not building a whole fleet of tiny efficient cars when no one would have bought them in the US. They were supposed to build a bunch of crap no one wanted? Maybe all the solar stuff you like so much was cost efficient, or close to it, in Spain; but was far, far from that here. Are they now to be crucified for not doing it?
This stuff is a lot more complex than a lot of people are factoring into the equation.
Maybe it is just the stress of not knowing if we will have a retirement check and health care next year.
GM is green with many things, not just efficient with gas in cars and trucks, why?
If GM goes bankrupt, that’s just the GM in US, right? All other GM companies will go on as always?
http://www.gm.com/corporate/re…..070808.jsp
How can they be so green yet be so far behind the curve with auto unless the oil companies were holding them back?
http://empoweringsolar.blogspo…..rgest.html
Toyota: Auto Industry Race to the Bottom
by Barbara Briggs, Special to CorpWatch
September 16th, 2008
Cartoon by Khalil Bendib
Beneath Toyota’s buffed shine lies a dark undercoat. The Toyota Corporation enjoys a fine reputation for well-built cars, environmental innovation, flexible production lines and effective management practices. But in its quest for ever-increasing efficiency, profitability and growth, the world’s largest auto manufacturer has sparked a race to the bottom that, like its car sales, is global in scope.
in the Philippines, and engages in cozy relationships with Burma/Myanmar’s military dictatorship.
In the U.S. – where Toyota has 13 facilities employing some 36,000 people, and sells an average of 56,923 vehicles each week –
And in Japan, at its flagship operation in Toyota City, some 30 percent of the workforce is temporary workers who earn as little as half what permanent employees do. In the surrounding area, a network of closely-related supplier companies utilizes thousands of foreign guest workers under conditions that, by many definitions, qualify as human trafficking.
Toyota Japan has also created a work environment so stressful that, each year, an
http://www.corpwatch.org/article.php?id=15182
Interesting
Coming to America
http://www.corpwatch.org/article.php?id=15182
So what exactly is your point with all this longwinded stuff?
Guess I was long winded, sorry. My point is without unions this is the type of conditions workers get. Look down below, Toyota plans to cut there pay to new hires by 50% and that was before talk of a recession.
Ah, okay then. I agree with that proposition. Maybe wordy, but a valid point. There are some dedicated union busting efforts going on too. And the insistence of some on bankruptcy is not about negotiating with the unions (again) but instead about busting them. Pretty thinly disguised at best too I might add.
http://www.corpwatch.org/article.php?id=15182
Death from overwork in Japan is, sadly, neither uncommon nor unique to Toyota. It ties in with the traditional culture of extreme dedication to one’s company, and the effect has been exacerbated by the long economic doldrums there, since companies have been trying to do more and more with less and less. Not unrelatedly, there have been disturbing increases in suicide trends in Japanese society generally, especially among the unemployed, the underemployed, and the elderly. Crime by the elderly — robberies of businesses mainly, to get money for food — is the new trend that’s caught my eye. There is a youth brain drain and the average age is increasing rapidly.
The Japanese people are, in short, having an extremely hard decade.
Explain what the point of all this is or stop serially posting the “Corpwatch” encyclopedia Brittainica
I am glad there is a policy “show me the plan and I’ll show you the money”.
I am glad there will be 6 days to discuss it before it’s voted on. I’d like to see someone else decide how the auto co’s spend that 25 billion if they get it. I don’t know, maybe Ralph Nadar or Michael Moore. I think either one would do a better job of managing that money.
So goes the auto unions, other unions to follow.
http://www.usatoday.com/money/…..-uaw_N.htm