Bridge Loan to the "Big Three"?

1. Unionized vs Non-Union Labor

With a bailout/bridge loan for the auto industry a perhaps increasing possibility albeit not a certainty, it's worth checking out an article in today's New York Times which breaks down the labor costs for the unionized American car makers and their competitors in non-union plants in the U.S. (e.g., Toyota and Honda).

The bottom line is that the difference in total labor costs is partly a matter of wages and benefits to current workers. Unionized workers get around $55/hr and non-union workers get around $45/hr. Most of that $10 difference is in benefits, not take-home salary. But an even more important part of the difference is health care costs for retirees: about $15-16/hr/worker for the unionized companies, but only around $3 for the non-union companies.

2. Labor costs

"That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle." (Thus 90% of the cost of an American vehicle has nothing to do with the labor used to manufacturer the vehicles.

3. Say no to bailout of money changer

Chapter 11 is the right road for US carmakers, by Joseph Stiglitz, Commentary, Financial Times: The debate about whether or not to bail out ... carmakers has been mischaracterised. ... In fact, a ... bail out ... would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem. ... Today, they are asking to escape accountability. We should not allow it. ...

4. American cars uniformly have a horrible maintenance and repair history compared to European and Japanese cars. The overwhelming majority of vehicles with low "true cost of ownership" are not manufactured by the "Big Three".


5. Residual value

Of the top ten cars, (manufactured in 2006), with the best residual value, as listed on Edmunds, not one is manufactured by the "Big Three"

6. Excessive management costs

The "Big Three" pay their CEO's and upper management excessive salaries and perks, especially compared with foreign based manufacturers


So, in short, I agree...Chapter 11 for the "Big Three" is the best option.
Cheers,
-=rwp=- ... Richard @ Bizmarts 12/12/08 - 3:05:51 pm