The current management of GM has run the company into the ground, and now they say they will fail in the next few weeks. Ford and Chrysler are much better off. A bridge loan will only prolong the agony. What we need is different. The Federal government should buy GM (cheap right now, I imagine) and install new management, firing current management with just a standard employee severance package, no more.
This will ensure better management and fair treatment of labor and retirees. Nothing else will do that. Bankruptcy rules are too biased in favor of preserving existing management to do the job properly. Also, they encourage canceling of pensions and union contracts to keep the company alive. This is not useful. If GM recovers, great - we can sell it off and get our money back. If not, we can make sure the employees get the best deal they can out of it.
The main argument against nationalizing corporations is the notion that the free market management is more efficient. This is plainly not the case in GM - their management has been consistently failing for years. We can do better.
Wednesday, December 03, 2008
Nationalize GM
Posted by The Law Talking Guy at 7:51 AM
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I am interested to hear your thoughts on the argument that the domestic auto makers will not be able to compete into the future unless they get out from under their current labor deals. As I understand it the only way out from under those deals is through bankruptcy. See the post by Gary Becker at http://www.becker-posner-blog.com/archives/2008/11/bail_out_the_bi.html for details
Contracts can be renegotiated. The UAW is already agreeing to reopen its current labor deal. So bankruptcy is only necessary if labor is recalcitrant. This is more likely in the airline industry (and we have seen it there) where the failure of an airline is not as catastrophic.
GM's much-touted plan seems to be to sell off divisions, close plants, lay off workers, etc. at a higher and faster pace than before. In other words, to shrink in size. Once GM has sufficiently shrunk, its failure or success will no longer be of great interest to the economy. That may be where this is all going.
I think that the UAW is going to participate in a modification of the existing CBA. Re-opening of the CBA would allow all things negotiated in the existing CBA to be on the table.
- Rolleroid
My understanding is that labor costs are only part of the issue. Unions certainly are not the cause of any problems in any case. After all, the Big Three's European competitors have far higher rates of unionization than we see here and probably have better wages to boot. It's also harder for European manufacturers to lay employees off etc. What the Big Three do face is health care benefits which are paid largely by the company here but by the state in Europe.
A big part of the problem is that there are way too many dealerships. Every little rinky dink town has a car dealership. Ever wondered why? Because the dealers have preferable contracts backed up by state legislation.
Closing down half of all the dealerships would help these companies immensely at far less cost to employees than would any knee jerk savaging of the employee pension or health benefits.
Finally, the real problem is that these companies have been managed by imbeciles for decades. The Daily Show had a great Moment of Zen a while ago. They showed a clip of a 1950s futuristic concept car where the announcer was talking about how we'd all be driving futuristic rocket cars and what not in the year 2000. Then they cut to a clip of this year's auto show in LA showing all the same old models of cars: muscle cars, over engined luxury sedans, badly designed midsized sedans and SUVs.
I'm not sure nationalization is the answer in the long run but I have a hard time coming with an argument for how it could makes things worse in the short run. And really, a bail out with no strings attached would have all the same negative effects on incentives and what not that opponents of nationalization usually raise.
It's not quite true that the state pays for health insurance in Europe. In Germany, employer and employee share the cost of health care (which of course means that the employer pays all of it). Health cost tend to be lower in Europe, though.
"Every little rinky dink town has a car dealership. Ever wondered why? Because the dealers have preferable contracts backed up by state legislation."
What state legislation creates car dealerships? I am willing to believe this, but I need to see the evidence.
Its not something I've done a lot research on but I have heard that many states have regulations and subsidies that encourage the maintenance of car dealerships in small towns. According to Wikipedia, in some states car dealerships are given authority to do just about everything that the local DMV office can do. In other states, the DMV is responsible for regulating the activities of the dealerships. It's not hard to imagine how such a regulatory arrangement might lead to subsidies and other ways of keeping unnecessary dealerships afloat.
I've seen fully operational dealerships in tiny towns with barely two gas stations but there is a big dealership. And these are towns barely 20 minutes drive from much larger cities.
Well if they're being kept afloat by subsidies, then they are not causing an economic drag on GM. Right?
Speaking of subsidies, does anyone know how these bailout/rescue plans interact with the World Trade Organization? I had the impression the WTO could strike down "anti-competitive" laws, and naively I would imagine that a multi-billion dollar line of credit would fall in that category.
RE: drag on GM et al... the subsidies could be taking the form of conditions for licensing authority etc. For example, there could be a law saying that for a car company to get some state granted perk, they have to maintain dealerships in x number of small towns. That kind of stuff goes on all the time in states with dominant rural interests.
RE: the WTO... the signatories of the WTO/GATT treaties are said to be in violation if a committee established by the full membership says so. The trick of course is that the full membership can pick a committee knowing pretty much what their opinion will be. The current situation has just about ever member of the WTO throwing around bail out money left and right. Those few that aren't are so dependent on the economic health of the US, EU et al that they will happily sit by and watch the bail outs continue.
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