Monday, November 24, 2008

Automaker CEO’s - making as much sense as 125% LTV stated income loans

Pee on the Big ThreeI know this is a few days late, but I wanted to get a few quick thoughts out on the automaker testimony. I know it has been a while, but I have been trying to decide where to take this blog next. Even though it began as a blog that talked specifically about mortgages and real estate, I think I am going to start talking about all things business and finance related. I enjoy doing the blog, and have been thinking of ways to regenerate my once large audience and get blogging again. The posts will most likely be shorter, but will come more frequently again. Besides, there are more than enough financial issues out there aside from mortgages. I have a few thoughts of my own on our current problems and since nobody knows how to fix this situation, and the people that are offering solutions didn't even see the problem coming, I don't feel too bad giving my opinion on things.

I am sitting here between work trips watching the automaker CEO's and the UAW (United Auto Workers) testify before the Senate Banking Committee. I'm sorry, but I thought for a second there I was watching a stuttering contest. If you can't put together a concise statement without stuttering, or answer a simple direct question without sputtering like a 20 year old trolling motor, then I can only assume you are not confident in what you are saying.

I am not buying the fact that it would be catastrophic if one or two of the 'big 3' went away or consolidated. I would definitely cause some problems in the short term, but I think it is a necessary evil in the long term. Let's face it, the numbers don't work and the 'big 3' are not competitive in this global economy.

One of the things that was most shocking to me was this: a union worker gets 100% of their money when they are working. But let's say a plant is CLOSED and they are not working, they still get 95% of their money!!! Yes, it is a 'great deal' for the 'worker' because they are getting paid for not working. How many people in the non-union private sector can get pay and benefits for NOT working?? People can tip-toe all they want around the 'powerful' unions, but the unions are NOT doing themselves any favors by acting this way. Michigan needs to become a 'right to work' state, and let workers do something complete crazy, and COMPETE for their jobs based on productivity!! Wow, what a concept I know!

It surely wasn't surprising when Barney 'Fannie is a solid investment going forward' Frank's buddy Christopher Dodd said that he wasn't offended by the people getting 95% of their pay and benefits when not working. In fact, he commended the unions for their work in 'taking good care of their people'. Geez...I would like to see Mr. Dodd run a company and offer the same thing to his employees. You get 100% of pay for working, and 95% of pay when you're not....and see how many employees show up to work! I know that isn't exactly the same situation, but I think we can all agree that you can't pay people to 'not work' at a plant that is shut down. I am not talking about being closed for a day or two, or even a few weeks, I am talking about CLOSED. Not operating. No work to be done.

I wasn't impressed with Rick Wagoner from GM at all. He looked like a deer in headlights and had trouble answering simple direct questions. That guy needs to go away faster than a pedofile at a pre-school. He does not help the image of GM one bit, and should step down. He couldn't or refused to answer direct questions asked of him. When he finally answered because he saw that he wasn't going to weasel out of things that easily, he lacked uh, uh, confidence, and uh, showed uh, that he, uh, was uh, void of uh, and CEO qualities. Maybe he shouldn't have taken the private jet, and instead flown first class and use the extra money for a years worth of dues to his local Toastmasters Chapter.

Of the three, Alan Mulally came across the best, with Robert Nardelli in second place. Maybe that is only fitting since the financial health of the 3 automakers was said to be 1. Ford, 2. Chrysler, and 3. GM. Ron Gettefinger from the UAW (United Auto (non)Workers) was also there. It was very entertaining listening to Mr. Union rationalize how the unions are doing a great job and how they have made so many concessions. Give me a break.

Anyway, it seems that a majority of the Senators were less than impressed with these guys. They couldn't say what the money would go towards, and they couldn't guarantee that they wouldn't be back. It only takes about 3rd grade math to realize that at their current burn rate, the 25 billion would only buy them a few months time, especially if they don't make DRASTIC changes to the way they are doing business. And according to Mr. Union, they were NOT going to make any more concessions. So, sounds like a stalemate to me. You can't compete in the this global economy, you aren't willing to make the necessary changes, so why should we help you? Make Michigan a 'right to work' state, and let the workers, NOT the unions, decide if they want to help the situation. Sounds simple, but it will NEVER happen, because the unions don't want to give up their 'good' deal.

Oh well, should be interesting to see what happens with the automakers. Will they make the tough decisions that need to be made, or will they try the 'status quo' of further whining to politicians? Only time will tell.

Look for more insight to the Wall Street bailout and the continuing financial problems right here.

Stay tuned...

SoCalMtgGuy

10 Comments:

Anonymous Anonymous said...

The unions have cut!! The last contract cut new hire wages and benefits to half of what they were.
I do agree the old pension obligations are too much for them to fund. {they look like our social security system]. Broken!
We are in deep sh@t. Whole system is banrupt. Serious inflation is on the way. No one wants to face the truth.

11/24/2008 3:42 AM  
Blogger SoCalMtgGuy said...

I am by no means a union expert, but I have seen the numbers, and the big 3's cost of labor is 30-50% more than their competitors at Toyota, Honda, BMW, etc.

Sorry, but you can't compete that way. It is going to hurt and be very painful, but there is NO WAY you can continue down this path. Same goes for guvment. Spending needs to be SLASHED across the board in pretty much every city, state, and federal guvment agency.

There will be NO easy solutions to this problem. The 'good deal' is going to have to end for a lot of people, and they are going to have to start ADDING VALUE to receive their compensation.

Stay tuned...

SoCalMtgGuy

11/24/2008 8:52 AM  
Anonymous Anonymous said...

Love your blog, but no, you're no union expert. First, you should study up on what right-to-work actually means. It's not nearly as important as you seem to think (for example, the Saturn plant is in a right-to-work state).

You also might want to take a look at the union contracts that Volvo, BMW, Mercedes, and every other car maker in Europe operate under. They seem to be competing on the global market just fine. Japanese auto workers enjoy many of the same protections as U.S. union autoworkers as part of the Japanese business model (lifetime employment, etc).

The biggest difference between southern auto plants and Detroit auto plants are: 1) they are much younger (as is their workforce), which entails far less in legacy costs (i.e., retired workers); and 2) they weren't managed over the past two decades to depend on the production of huge vehicles with low gas mileage.

I've learned a great deal from your blog about the mortgage industry, but you're just bloviating the usual anti-union tripe with this one.

11/25/2008 8:30 AM  
Blogger SoCalMtgGuy said...

I am by no means an expert on the union stuff or right to work states. I know that right to work isn't a be all end all solution, but I have heard it discussed as a move in the right direction (if getting off labor unions is a goal).

I do know that in the airline industry, the airlines that are the MOST profitable have the lowest amount of union representation.

I read an article a while back that stuck in my head about crane operators in the Long Beach Port. A union crane operator made 40-50k more than an 'equal' civilian crane operator. Why is that?

Why are all most of the condo towers in San Diego built by foreign owned companies? Because they are not mandated by law to use union labor.

Why did Chula Vista lose a multi-billion dollar development that could have revitalized an entire area? Because the unions had to have their hands in every aspect of the project. The developer tried to negotiate, but they would have any of it. So he took his money and development to Arizona instead.

I might not be a union expert, but most of what I spoke about in my blog post was directly from the automaker hearings. I had no idea they got paid 95% when not working, and apparently either did many of the senators.

I will stick to finance and things I know a lot more about. I will admit that bureaucracy and unions are not on my 'favorites list' though.

Thanks for reading.

SoCalMtgGuy

11/25/2008 4:08 PM  
Blogger daniel said...

There is a difference between working in a business environment and an industrial one. In a business environment, the riches go to those who can do their work better. Bring in more customers, get more money. On the assembly line, if you are more efficient, you are not producing any more because your work depends on the work of hundreds if not thousands of others. Further, in a Business environment, if you do well, you are protected by the fact that you do well and can do well anywhere. If you are in an industrial environment, without a union you are subject to discipline, displacement, and replacement based singly on the word of your boss. I've worked for bosses that did not like me because of my size (I am 6'5"), and because of my race (white). The only thing that saved me from being fired for stupid reasons was my union. It is hard for people who have not worked on a line, to be under the thumb of a boss, to be seen as easily replaced, to understand the importance of unions. You should note that the height of the middle class was also the height of union membership.

11/25/2008 8:51 PM  
Anonymous Anonymous said...

95% pay for a laid off worker is wrong, I agree. I work construction under the union. If we are laid off we only recieve state unemployment. Union auto workers recieve state benefits plus additional money from GM etc. to make 95%.
What about the taxes our companies have to pay that overseas companies don't. The biggest reason companies are leaving the USA is the cost of doing business. EPA, OSHA, DEQ and high tax rates.
This country did very well in the 50's 60's 70's 80's and 90;s with strong unions.
Greed and big goverment has put us in this mess. NOT THE UNIONS!!!

11/26/2008 5:01 AM  
Anonymous Anonymous said...

The high laid-off pay for auto workers is also in the interest of management (which is why it is in the contract, which BOTH management and the union agree to).

Auto workers are highly trained. If the plant shuts down for an extended, but temporary period of time, management doesn't want the workforce finding new jobs or moving out of the area (or getting hired at another plant).

Management incurs this expense because in the long run it's cheaper to keep the already trained workforce at the ready, rather than having to retrain a green workforce every time.

11/26/2008 8:04 AM  
Blogger SoCalMtgGuy said...

anon said:

The biggest reason companies are leaving the USA is the cost of doing business. EPA, OSHA, DEQ and high tax rates.
This country did very well in the 50's 60's 70's 80's and 90;s with strong unions.
Greed and big goverment has put us in this mess. NOT THE UNIONS!!!

------

I agree to a point. Guvment needs to step away. The USA has the 2nd highest corporate tax rate in the world. In this global economy, it is crippling and you cannot compete.

The unions had their place in the 50s, 60s, etc. But like everything, times have changed and the world has evolved. All the 'bennies' of those decades are costing a ton today with all the medical and pension guarantees.

This isn't caused by the unions, but they are not helping.

Unions are not for any advancement in technology or automation that 'removes' a 'job'. Their goal is their existence, not becoming leaner, meaner, and more competitive.

Again, just my opinion. I am by no means a union expert. Most of my union exposure has been through friends and family members that have had to work with or for unions.

SoCalMtgGuy

11/26/2008 4:50 PM  
Anonymous SFbay renter said...

If you're looking for a new focus for your blog, I suggest expanding it to include the design and operation of our monetary system. This sounds sleep-inducing, but after learning the basics of how it 'works', I have become very concerned for my economic future.

Basically, we are all "F@cked Borrowers", whether we've bought real estate on credit or not. This is because our money consists of units of debt, not units of value.

Here is how dollars are created:
1) The US Treasury sells Treasury bonds to the Federal Reserve Bank. These bonds are interest bearing, and payable to the Fed in dollars.
2) In exchange for the bonds, the Fed gives the Treasury dollars that it (the Fed) has willed into existence out of nothing.

This means that dollars are IOUs from the US Treasury to the Federal Reserve Bank. Every dollar created is a perpetual interest-bearing debt from the US government to the Federal Reserve Bank. As the economy (or more precisely, the money supply) grows, the interest burden on the taxpayers increases. We cannot grow our way out of this situation, since growing the economy requires growing the number of dollars. And of course, the taxpayer is on the hook for all this interest, since taxes are the only source of revenue to the Federal government.

Notice that this means that the number of dollars must continuously grow at at least the interest rate on the bonds the Treasury sells to the Fed, whether the underlying economy grows or not. There is no getting off this treadmill. Our entire money supply is a neg-am loan from the taxpayers to the Federal Reserve Bank.

But is this really a problem? Since the Federal Reserve part of the government, don't we just owe this interest 'to ourselves'?

It turns out, the Federal Reserve Bank is not an agency of the Federal government. It is a consortium of private banks, chartered by Congress and granted the monopoly to literally make money and charge the US government interest on the money so created.

Who the Federal Reserve's shareholders are, is a secret, since the Fed is not a publicly traded corporation. But the shareholders are probably some of the large financial institutions that were influential in the American economy at the beginning of the 20th century, and which still exist as big banks like JPMorgan and Citibank. The Federal Reserve Act was passed on December 23, 1913, and the Fed began operation in 1914. The 16th Amendment to the Constitution, establishing the Income Tax, was passed by Congress in 1909 and ratified in February 1913, and essentially guarantees the interest payments to the Fed.

In other words, as part of the 1913 deal, Congress granted the owners of the Federal Reserve Bank the power to garnish everyone's wages, via the income tax. And of course, the collateral for this perpetually expanding line of credit from the Fed to the Treasury, is the entire gold reserve of the US government.

What's going on now, is that we have borrowed so much money that we (the taxpayers) can only support this debt by borrowing ever more money. In other words, we are borrowing from the Fed to make the interest payments to the Fed. That is why you are seeing the Fed create trillions of dollars and inject this new money into various financial institutions.

11/27/2008 10:07 AM  
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