Friday, December 12, 2008

Ex Detroit




You've seen this picture from Buffalobeast everywhere else, and now you're seeing it here.

Which brings us to today's head-scratcher.

So we had this hideously awful auto bailout package, which suffered most obviously from the fact that (a) the Big Three still have no real plan of how they're going to spend the money, and (b) the Car Czar would not be able to make enforce decisions, but could only "negotiate" with the various interest groups involved, who once they had their bailout might well have told the Czar to take a flying leap.

So then the hideously awful bailout package was then shot down by the Republican Senator from Honda--- sorry, from Mercedes--- sorry, from Hyundai--- sorry, from Alabama, where all those companies have assembly plants, and who could perhaps be forgiven for thinking that his own state would prosper all the more once the Big Three were out of the picture.

Though that's not what he said. What he said was that he wanted the workers to agree to cut open their chests, remove their still-bleeding hearts, and place them on altars to be smashed by sledgehammers weilded by himself and other Deep South Republicans, and do all of this before any negotiations took place. (They had obviously learned this "We demand that you surrender before we will even talk to you" negotiation strategy from George W., who is now probably wondering why no one ever talks to him.)

So now, because the catastrophe of a bailout looks to be followed by yet another economic catastrophe as the Three and all their suppliers and dealers die, throwing even more millions out of work, it looks as if George W. will have to rescue the Three on his own, without help from his own party.

(Who knew that George W. would end his presidency as such a leftist? Certainly not I.)

But while this drama is being played out, a company called Better Place is doing an end-run around the whole miserable automobile infrastructure, using a strategy derived from--- get this--- mobile phones.

The plan works like this:

1. Generate electricity from renewable wind and solar.

2. Sell the power to electric cars at power stations set up throughout the country. You can either plug the car into a socket or swap out the old battery for one that's fully-charged. The user buys miles for his car in the same way he buys minutes for his cellphone.

The car you use is either bought or leased from Renault or Nissan, who are participating in the program.

Charging and battery-swap stations are even now being set up in Denmark, Israel, Australia, the State of Hawaii, and the Bay Area. Stands are also going to be set up in Yokohama, which is Japan's Detroit.

According to this article by Thomas L. Friedman, "our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes . . . "

(Friedman's overstating here. No matter what your energy model, somebody still has to make the cars. In a factory, we presume.)

"What Agassi, the founder of Better Place, is saying is that there is a new way to generate mobility, not just music, using the same platform. It just takes the right kind of auto battery — the iPod in this story — and the right kind of national plug-in network — the iTunes store — to make the business model work for electric cars at six cents a mile. The average American is paying today around 12 cents a mile for gasoline transportation, which also adds to global warming and strengthens petro-dictators . . . "

"If we miss the chance to win the race for Car 2.0 because we keep mindlessly bailing out Car 1.0, there will be no one to blame more than Detroit’s new shareholders: we the taxpayers."

Do I hear an Amen, somebody?

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18 Comments:

Anonymous S.M. Stirling said...

Actually, there's enough blame to go around.

GM pays more in pensions etc. to non-workers than it actually pays to the people producing cars.

Hence its hourly labor costs are approximately 40% higher than otherwise identical Asian-owned plants in the south -before- you factor in hourly wage rates.

It's pretty much the same for all the "legacy" carmakers.

Bad management aside -- of which there's plenty -- how could they possibly compete?

Nissan, Honda et. al. have made some of the same mistakes (putting huge investments into SUV's, for instance) and are suffering pretty much the same drop in sales.

What's different is their fixed costs and debt load.

The Big 3 and the UAW came of age in a situation where they were the only game in town, and where they could divvy things up between them and pass the price on to the public, who had no alternatives.

But it ain't 1960 no more, folks.

9:56 PM  
Anonymous S.M. Stirling said...

The best "green" car on the horizon is GM's plug-in hybrid, the Volt.

That's actually buildable in the immediate future, and requires no enormous, capital-intensive new infrastructure.

Pure electric cars simply aren't suitable for general use yet.

9:58 PM  
Blogger Engel-Cox said...

GM had a perfectly fine electric car, the EV-1, in the 1990s. The reason it's not here now is due to many factors, one of the biggest being GM's own disinclination to promote it. I'm not holding my breath for the Volt.

The best option right now is the hybrid. While the Big 3 were making SUVs, Honda and Toyota were actually making (and improving) hybrid technology. Yes, Honda and Toyota also made SUVs, but they realized that you don't just make one kind of car. Toyota is converting one of their planned SUV plants in Tennessee to be a Prius factory instead. The Big 3? They're taking their private jets to DC to ask for money. While you have a point about the pensions, there's a shortsightedness among the Big 3 that's all too apparent.

6:47 AM  
Blogger Lance Larka said...

My wife and I have a 4 year old Prius. We love it.

Toyota got the jump on the US auto industry and are reaping the rewards because of their forethought...JUST LIKE IN THE 80'S!!! The Big 3 have had almost 30 years to learn from their mistakes then. Bah.

There are 2 things that bemuse me (I've gone WAY past disgust).
1) Prius's have been around for 5 or six years and presumably in development for 3 more before that. What the hell were the big 3 doing during this 8-9 year period? Don't they do competition analysis?

2) While the Volt is intriguing it will cost $35K. It is suggested that it will cost $0.02/mile to drive. If you drive the average 15K miles per year and accept that traditional gas-only cars cost $0.12 per mile you would have a 23 year return on investment. For something that has batteries that will only last 5 years. Bah.

The Prius is in the low 20's. There are aftermarket add-on kits that can extend the fuel efficiency up to 150mpg...more if you never need to use the gas tank and just recharge from a plug. Basically a Volt, just cheaper :-)

Why are we still supporting the Big 3? They should immediately shutter all their US factories that serve the domestic market, lay off all their white collar staff devoted to those now non existent sales, and focus solely on turning their business model around. Part of that should be entering into bankruptcy so that a judge can wipe out their obligations and start them on the path of competitiveness again.

Will this hurt? Absolutely. Will 300,000 people loose their jobs? Yes. My answer. 14,000,000,000/300,000 = $46,667

Isn't that better than a short term bailout that won't do a damn thing and will require MORE money in 3 months?

1:14 PM  
Blogger dubjay said...

Ironically, the pension system that's causing so much trouble was originally established at the insistence of the Big Three.

The union wanted a broader-based pension system involving most of industry, but the Big Three felt this was politically insuitable--- i.e., socialistic--- and instead opted for capitalistic paternalism. Out of the goodness of their hearts, they agreed to provide retired workers with pensions.

Of course they never established proper pension =funds.= They just paid for expenses as they arose. If they'd created pension funds they'd have much less of a problem now.

Details in this New Yorker article, which also has a lot of interesting stuff about demographics: http://www.newyorker.com/archive/2006/08/28/060828fa_fact

Though everyone keeps talking about the pension problem as an obstacle, which I'm sure it is, no one actually seems to have a solution other than "let the retired workers starve, and serve them right!" Which =I= find politically unacceptable.

GM, by the way, loaded a huge amount of their pension obligations onto their subsidiary Delphi, and then spun Delphi off into an independent company that is now $3.5bn in debt. If they default, thousands of workers who =never worked for Delphi= will be up the creek.

Or actually the taxpayers will be, since we'll undoubtedly pick up the tab for all this.

As for the Volt, it's not technically a hybrid, since the E-Flex system doesn't have a motor that provides power to the drive train. If GM can actually deliver what they've promised it'll be a worldbeater, but at $32K per unit--- actually $40K minus a government subsidy--- I'm not sure how many will be sold.

I quite like the Better Place system, where the battery swapouts are automated and take about 3 minutes, which sure beats having to trade in your car every 5 years.

The best part of the Better Place system is that the proof-of-concept is going to take place in Denmark and Israel, small states where the infrastructure can be installed at low cost.

Better Place may not be a workable model, but it's foreign states, not the US Treasury, that get to foot the bill for the experiment.

1:46 PM  
Blogger Lance Larka said...

No matter what happens the US Taxpayer will be absorbing the cost of paying for the Big 3 pension obligations. As WJW says they've been getting rid of those costs in shady, but legal ways.

Why that is something that should be addressed sooner rather than later. But it won't help. TB3 set themselves up for failure. One way or another we're all (that is the people who are paying taxes each year) going to be paying for those pensions. This I don't have much of a problem with. We should guarantee pension obligations as a society.

What I don't like is that we as a nation are seriously talking about propping up these companies that are failures.

Let's put the 14 Billion (or more probably 46 Billion to support them for a year, not 3 months) into ventures like Better Place...or high speed rail. Or hell, why not Heavy Lift blimps to move cargo.

All these are worthy uses for funds that will all help solve the basic problem of burning oil to move stuff around the country.

My thought is that the US Auto industry is simply in an untenable situation....now, in 3 months, in a year. Aren't they in the hole for 60 Billion in debt right now? So to prop them up as they are now will require roughly 100 Billion in the next year and 40-50 Billion a year thereafter.

Before a single dollar is given over I need to be convinced that they will do better. So far I haven't heard much attempt at convincing, just begging.

3:39 PM  
Anonymous S.M. Stirling said...

Yeah, the pension costs will have to be socialized, eventually. Otherwise the domestic car industry just can't compete.

Socialized at rather lower levels.

There's no reason that autoworkers (present or past) should get such high levels of remuneration.

It's simply a legacy of past market power, both the UAW's and the Big 3's.

Why should taxpayers, many making less money, pony up to subsidize them?

The -market- level for their work is much closer to that at the non-union plants in the South.

Those workers are just as productive as the ones in Michigan, often more so. There's simply no reason for the ones in the north to be paid more or get higher benefits.

The problem is that people subconsciously assume that the 1945-1975 situation is "normal", and that we can somehow get back to that.

But it wasn't, and we can't.

It was a unique confluence of factors -- like the destruction of the rest of the world's auto industries in WWII -- which can never be replicated.

Frankly, I think any aid to the Big 3 should be contingent on Chapter 11 reorganization and firing all their top management. Firing them and blacklisting them.

And to be even blunter, the UAW should be destroyed. It's a reactionary force mostly concerned with people who -aren't- working.

9:47 PM  
Anonymous S.M. Stirling said...

The Volt is technically sound and is our sole opportunity, at present, to for once be -ahead- of the curve.

The cost is a chicken-and-egg thing; it nees to be mass-produced at high volumes to get the price per unit down, but it can't be produced at high volumes without a guaranteed market.

Generally I'm against subsidies, but I'm not fanatical about it. This should be an exception, for military-strategic reasons among others.

9:49 PM  
Anonymous S.M. Stirling said...

Pure-electric systems may work in small countries like Israel or on islands like Hawaii. There -aren't- any really long trips you can take in either -- well, you can in Israel, but you need to switch to a tank.

But pure electrics don't have the flexibility needed for the continental US. A car for an American needs to be able to do intercity driving occasionally. Plus we have an enormous investment in the fuel distribution system which can't be abruptly written off.

The problem is that most cars are driven 40 miles a day or less, but have to be capable -- instantly -- of driving many hundreds of miles, and they have to be able to use existing refueling systems.

The plug-in hybrids have this flexibility.

They can function as pure electrics most of the time, and as ordinary gas-fueled cars when needed for exceptional trips. You're buying a car which can do anything a standard auto can, and doesn't need a nonexistent battery-switching system.

Otherwise you need 2 cars -- the pure electric and the gas-fueled one -- which is just out of the question.

9:55 PM  
Anonymous Ethan said...

Socialized healthcare is one of the reasons the German auto companies aren't struggling nearly as much as the Americans--they don't have to bear the entire burden of their employees' healthcare, and thus have more money for other stuff. Like paying their salaries and keeping the lights on.

The problem with a socialized healthcare system is that it takes time and a good plan to set up correctly--and neither waiting nor planning are things Americans are very good at.

1:57 AM  
Blogger halojones-fan said...

Walter: If the publishing industry worked by the same rules as unionized automobile labor, you wouldn't be allowed to type. You'd be required to hire a typist and dictate to them. Also, they'd have to have a secondary typist to push the "SHIFT" key when required. Printer operation and printout collation are the purview of the Document Hardcopy Specialist, with a special modified work order if you want the pages loose instead of stapled. Proofreading requires a team of three. And all of this happens BEFORE it goes to the publisher.

******

The EV-1 could easily have worked like the Volt; an electric-drive motor with a bank of batteries, and a gas-burning generator to charge the system. Unfortunately, at the time, California had mandated zero emissions, rather than just high efficiency.

Contemporary drivers are willing to accept low emissions, rather than no emissions; this is what makes the Volt workable where the EV-1 was not.

If the State of California had been willing to consider a "hybrid" EV-1 instead of electric-only, then we'd all be driving them by now.

12:17 AM  
Blogger dubjay said...

Actually if I belonged to a writers' union, I wouldn't have any of that stuff, because the writers would be in charge and we'd all vote against it.

What we'd do is to contract with publishers so that they'd hire enough editorial assistants to actually do the job of putting books into print on time, and we'd try to assure that promotion departments got an adequate budget so that a the very least they'd let people know when our books were in print, and maybe insist that the sales force be boosted so that they could adequately cover the country.

Undoing all the cuts made by the bean-counters, in short.

Not that the publishers wouldn't find ways to screw all that up.

And of course forcing publishers to spend more money on each work would mean they'd be acquiring fewer books. But most of their books were doomed anyway, so there you go.

Non-unionized auto workers are paid about the same as unionized workers, for the same job. The big problem seems to be the legacy pensions. So if the government takes over the pensions, then they don't need to give the Three any more of a bailout, right? They'll be competetive again. I mean, without the pension thing, you won't see those guys flying into Washington begging for money.

I'm correct here, right?

What really disturbs me is the knee-jerk reaction on the part of so many to punish the worker. These guys signed agreements in good faith to be given a pension which the auto companies offered of their own free will--- =insisted on=, in fact, rather than fund a rational pension scheme, or even 401(k)s.

The companies, it now seems, were negotiating in bad faith and are now doing their best to weasel out of these obligations.

And now everyone's saying, "YOU FILTHY OVERPAID WORKERS!!! How DARE you aspire to raise your children in material comfort??? Don't you know that your proper place is to live in FILTH and SQUALOR like your grandparents??? Get out of those nice houses and into the trailer parks where you belong!!! (And by the way, we're going to give those nice proper executives who cheated you a HUNDRED BILLION DOLLAR RAISE!!!)"

Let me just say that I have certain biases here. I'm one of the few of the males of my generation in my family not to work in a mine. Most of my relations are miners, and unionized, and though they sometimes shake their heads at the endless bullshit forced upon the world by the union, it's nothing compared to the bullshit forced upon the work force by management.

Plus there's the survival factor. The industrial unions enforce job safety standards, and have kept all my cousins alive. No deaths from rampaging machinery or explosions, no missing fingers, no limb amputations, no missing eyes or teeth. All of which used to be common. And if any of my relatives suffer a work-related injury, they get proper medical care instead of being crippled and pushed out onto the street.

So yeah--- unless the smokestack industries get decent, csring, compassionate managers--- heh--- then the unions are still going to be necessary.

2:04 PM  
Blogger Lance Larka said...

Walter, I don't think anyone here is blaming the workers for wanting a good life and safe working environment. I for one am a strong supporter of those tenants.

I like the idea of unions. Unfortunately in the last 60 years they have gone from an organization that has the best interest of their members as their primary focus to the best interest of the union. That is not the same thing.

In retrospect wouldn't it have been a good idea to trade some short term concessions over the last 30 years for a permanent ownership stake in TB3? Then they could have gotten a solid source of funding (dividends) to pay into the pension system.

How about demanding a seat at the design board? Nothing like having some rank and file blue collar folks actually having direct input into the direction the company is heading.

But we didn't get that. We got job banks. We got a head in the sand approach that ignored the market forces that were whittling away at their financial base. Now TB3 and the unions are collectively paying the price.

I still do not see a viable way out. Just yesterday I saw a story that Chrysler is planning to get out of this jam by....wait for it....releasing virtually every vehicle in two versions. Traditional gas and pure electric. Huh?
Yes, let's add $10K to the price of a vehicle for a battery pack to get a 40 mile range. Someone already mentioned that no one is going to use a 40 mile go-cart.
Regardless, financially how many consumers are going to go for this? That $10K even at $4/gal and a 25 MPG rate would get them over 60,000 miles.

This is just one more example of how boneheaded the management is. This is obviously a knee-jerk reaction to the public's (ok, the political) demand for a plan out of this mess despite the claim that they've been working on this for the last year.

I'm trying to see a solution given the situation. I'm not seeing it...well, hell if I could see it I would definitely not be sitting at home typing here and maybe doing something useful in Detroit or DC :-)

4:35 PM  
Blogger dubjay said...

No one has yet explained to me why American workers would vote for the 21st Century when there was any hope of an alternate.

Here's what they're being told:

"You will continue to work at the same job, but you will be expected to compete with coolie labor in the Third World, and your income and standard of living will decline at the same time that your bosses are paying themselves hundreds of millions of dollars. They have the collective common sense of a fraternity binge-drinker, the intelligence of a rutabaga, and the compassion of a wolverine, but every time they make a mistake, you'll have to take a pay cut and they won't.

"Your children will go to decaying, often violent public schools while their kids go to private schools that actually educate their students, and which you can't afford. Your pension fund will be sold to a pre-bankrupted subsidiary, your neighborhoods will lack adequate police protection while theirs have private security, and while you will have access to health care, you'll be competing with workers who don't.

"But don't worry. Thanks to the wonderful new century you're living in, you'll be able to browse job-finding sites on the Internet after we lay you off."

Now why would anyone vote for that? Why would anyone look at that and say, "Hey yeah, globalization is so totally for me!"

No wonder the unions have become reactionary, defensive, and obsessed with retaining privileges gained in their salad days. It's in their absolute best interests.

11:20 PM  
Blogger Lance Larka said...

I would like to know what you think would be a realistic path forward given the current situation.

If you were in charge of everything involving the US auto industry what would you do to achieve the stated goals you have written here?

9:55 PM  
Blogger dubjay said...

Jeez, Lance, can't you ask me to do something comparatively easy, like establish world peace?

Actually it's too bad you specified =realistic= solution, because I'd rather time-travel back about fifteen years and start kicking Detroit ass.

As it is, every choice seems to lead to failure.

What I would do as Bailout God would be to make a Federal guarantee of the workers' pensions. That's going to happen anyway, so it may as well happen early enough to do some good to the companies.

I would also guarantee the BT's warranties and guarantee that their suppliers will be paid. Right now the fact that no one will loan the BT money to pay their suppliers is causing them to shut down.

Once there, depending on how megalomaniacal I feel, I'd either put the BT into a pre-planned Chapter 11 or demand the powers of a bankruptcy judge for myself.

It's not so much the BT that need to be restructured or altered, but their culture. They've been living in a dreamworld for thirty or forty years, and someone needs to knock the real world in. So I'd fire a lot of the folks responsible for stifling innovation and try to import some new engineers and managers. (All easier said than done, I know.)

I would also hire at least one person who can read a chart of oil reserves and consumption, and thus note that peak oil was a while ago.

I'd also void the UAW contracts and build new ones based on new realities. Including a realistic retirement scheme, free of the BT's residual paternalism.

I'm not sure whether I'd give the BT any money directly. I sure as hell wouldn't give them anything without being told how they plan to spend it.

Et vous?

9:03 PM  
Blogger Lance Larka said...

Walter, our civil service and think-tanks have lost out by your preferred career choice.

Your solution is a good one. Honestly, the best and most realistic I have heard to date.
I hope that it comes to pass.

What would I do? I've have similar thoughts, but not so articulate. That's probably why I buy your books and you haven't seen my writings.

What I'm going to do is take your suggestions and write them into a letter to be send to my Congressional representative, Senators, and my President. Minus the megalomaniacal bit that is :-)

Will you do the same? I'd be honored to have my signature alongside yours on such an important issue.

9:38 PM  
Blogger dubjay said...

Perhaps we ought to wait for the Constant Readers here to tell me why these ideas won't work.

But yes, I will happily send my ideas to our representatives. It won't be the first time my congresspeople ignored my instructions.

11:12 PM  

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