Friday, December 12, 2008

Gaming out the Auto Bailout

Republican Senators were right to kill the $15-bn down-payment mini bailout. Here's why.

  • A necessary condition for the long term survival of the domestic car companies is a cost of labor comparable to their "transplant" competition*.
  • A mini-bailout of $15-bn would create a "sunk cost" mentality in Washington, giving bargaining leverage to those who are in favor of a bailout and decreasing the pressure on the UAW.
  • The Corker amendment, weak though it was, was the only chance of getting labor concessions in the ballpark of the appropriate level.
  • Therefore, the mini-bailout (sans Corker) creates a likely scenario where numerous tens of billions are put into companies that have virtually no chance of long-term survival.


* - (Assuming a current $48/hr "transplant" labor cost, even a 20% increase over that is $57.60/hr. But the current cost of labor for the domestics is approximately $73/hr, which is a 52% premium to non-union labor. Would the UAW be satisfied merely making a half-crapload more than their competition, or are they holding out for the entire crapload?)



I think this would actually set up the worst possible case scenario - the auto companies go under AND the public gets fleeced for billions.

1 comment:

Anonymous said...

Hey Joe - your assumption looks flawed - labor costs moer like 10% higher than japanese competition outside of legacy costs. Take a look @
http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?_r=1&scp=1&sq=%2473&st=cse
and let me know what you think

Matt