Business Insight Zone

With this morning’s post still fresh in mind, I read these two items with interest:

1. David Leonhardt in the New York Times: $73 an Hour: Adding It Up

Leonhardt breaks that $73/hour figure — frequently tossed around as the average price the Big 3 pay for their workers — into its components, including (a) wages for current workers, (b) benefits for current workers, and (c) pensions and other benefits for retired workers.

Yes, UAW workers are “overpaid” a bit in comparison to non-union workers who staff U.S. plants for Toyota, Honda, Daimler, et al. But much of the differential in labor-related costs between the Detroit Big 3 and others stems from legacy costs — costs that the companies took on in much plusher times and that would be borne, in other countries, by government-funded pension and healthcare regimes.

I’m not saying which system is better. But I do think it’s worth keeping in mind that the Big 3 are operating under unavoidable conditions somewhat different than their non-U.S.-headquartered rivals.

2. Andrew Leonard of Salon: Senate GOP to UAW: Drop dead

Leonard covers this story with much more attention to political detail than I do, which is interesting in itself, but he also gets at a point I tried to make a while back in “Should” versus “should” in the Wall Street bailout. I think I made the point a little better — or at least much shorter — in the comments on this morning’s post:

[W]hat we’re really up against is two definitions of “should”:

1. What “should” happen to the car makers (or the UAW, or bad financiers, or whichever bad actors) so that they get their just desserts;

2. What SHOULD happen so that the economy doesn’t spiral further into recession.

The second question is hard enough to get a bead on even if it’s a strictly technical discussion limited to how much government intervention should occur, what shape it should take, how it would best be administered, etc. But thet you get the first question layered in on top of it, with all the emotional, philosophical, and political debate that it implies.

Here’s Leonard’s take:

The U.S. economy is in much worse shape than it’s been for at least a quarter-century, and appears to be unraveling at terrific speed. Thus, an even more timely case can be made for saving Detroit as was offered for Wall Street. Does it really seem like right now is the best time to see what happens if G.M. declares bankruptcy? As a worst-case scenario, might not it be better to help Detroit limp along for another year or two . . . ?

Though I’m holding my nose about it, I’ve come to believe that some sort of bailout for the Detroit automakers must happen, if only to soften the blow as the U.S.-headquarted automotive business goes throgh a fundamental restructuring that is not merely necessary but inevitable.

What form the bailout will take — much less what the Detroit auto business will look like afterwards — is beyond me. At a bare minimum, I would guess that the Pontiac, Hummer, and Buick brands will be discarded, and that overheads (plants, dealerships, payrolls, etc.) will be cut even deeper than any of the Big 3 have yet visualized.

These changes will be wrenching, especially for the town economies in the Midwest that rely so heavily on automotive and auto-part plants. But there’s no reason to make them more wrenching or more abrupt than they have to be.

Regardless of what we think Detroit’s just desserts are, the U.S. economy as a whole is on life support at the moment, and I don’t think we’ll benefit from increasing the strain on the patient before normal breathing and circulation are restored.

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ADDENDUM, a few minutes later: As part of any bailout package, I would not be averse to a bare-knuckles investigation of the finances of Cerberus, especially one that gave a reduced amount of aid to Chrysler and required Cerberus to pony up (dog up?) billions of its own money. For more on why a harsh investigation might be in order, see this Forbes item:

Chrysler’s Hidden Coffers

Thanks to reader Joseph Miller for pointing out this story.

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Photo of a Buick from Detroit’s happier days by pyntofmyld.

Category: Economics, Manufacturing & Heavy Industry, Transportation