An Open Letter to U.S. Leaders

22 December 2008


President George W. Bush,
Honorable Senators, and
Honorable Representatives:

W. Edwards Deming, writing in Out of the Crisis (Massachusetts Institute of Technology), p. 98, a book written when U.S. automaker Chrysler sought federal loan guarantees more than 25 years ago, says:

“As William E. Hoglund, manager of the Pontiac Motor Division, put it to me [Deming] one day, ‘Blue Cross is our second largest supplier.’ The direct cost of medical care is $400 per automobile (‘Sick call,’ Forbes, 24 October 1983, p. 116). Six months later he told me that Blue Cross had overtaken steel. This is not all. Additional medical costs are embedded in the steel that goes into an automobile. There are also direct costs of health and care, as from beneficial days (payment of wages and salaries to people under treatment for injury on the job); also for counseling of people depressed from low rating on annual performance, plus counsel and treatment of employees whose performance is impaired by alcohol or drugs.”

I should think that the U.S. automakers have had more than sufficient time to get their house in order. It is clear that short-term thinking – the desire to earn quarterly bonuses – has overtaken any constancy of purpose on the part of executive management to keep the U.S. automakers viable (let alone successful).

The assets owned by U.S. automakers will NOT evaporate overnight if they must declare bankruptcy. Other firms with fresh new ideas will soon take advantage of the void in the marketplace and will leverage the labor and assets that become available to establish successful and profitable new manufacturers.

It is NOT the responsibility of the U.S. taxpayer to underwrite the long-term failure of private sector managers (or the failures of union managers to properly assess their own organization’s long-term viability). Please, NO MORE BAILOUTS to “save us” from the BAD ECONOMICS of Democrats and their cronies in the unions and elsewhere. Let the Democrat economics FAIL so that we can move onward, upward and away from more socialist means and methods.

I just sent this message to Congressional leaders

I oppose using TARP funds to provide emergency loans to the auto industry. As famous business professor and author Peter Drucker has said, "It is inevitable that some businesses will fail." The U.S. automakers have had their day in the sun and their management has proven themselves to be totally inept at seeing the long-term consequences of producing short-term gains based on foolish decisions.

The automakers' assets will not evaporate if they are allowed to go bankrupt. Someone will take possession of those assets and re-employ many of the people, but they will do so with a fresh, new vision about how to succeed in TODAY's economy, not the economy of the 50's nor the dream-world in which Ford, Chrysler and GM management have been living.

-- Richard D. Cushing

Bailout Parade Panic and the Benefits of Bankruptcy

Let's not allow Congress and members of the bailout parade panic us into allowing them to do things, as was done in the 1930s, that would convert a mild economic downturn into a true calamity. Right now the Big Three auto companies, and their unions, are asking Congress for a $25 billion bailout to avoid bankruptcy. Let's think about that a bit.

What happens when a company goes bankrupt? One thing that does not happen is their productive assets go poof and disappear into thin air. In other words, if GM goes bankrupt, the assembly lines, robots, buildings and other tools don't evaporate. What bankruptcy means is the title to those assets change. People who think they can manage those assets better purchase them.

Chapter 11 of the U.S. Bankruptcy Code, where the control of its business operations are subject to the oversight and jurisdiction of the court, gives companies a chance to reorganize. The court can permit complete or partial relief from the company's debts and its labor union contracts.

A large part of the problem is the Big Three's cozy relationship with the United Auto Workers union (UAW). GM has a $73 hourly wage cost including benefits and overtime. Toyota has five major assembly plants in the U.S. Its hourly wage cost plus benefits is $48. It doesn't take rocket science to figure out which company will be at a competitive disadvantage. Then there's the "jobs bank" feature of the UAW contract where workers who are laid off workers get 95 percent of their base pay and all their benefits. Right now there's a two-year limit but in the past workers could stay in the "jobs bank" forever unless they turned down two job offers within 50 miles of their factory. At one time job bank membership exceeded 7,000 "workers." GM, Ford and Chrysler face other problems that range from poor corporate management and marketing, not to mention costly government regulations.

Two vital marketplace signals are the profits that come with success and the losses that come with failure. When these two signals are not allowed to freely function, markets operate less efficiently. To be successful a business must take in enough revenue not only to cover wages, rents and interest but profits as well. In order to accomplish that feat executives must not only satisfy customers but they must do it in a manner that efficiently utilizes all of their resources. If they fail to cover costs, it means that resources are not being used efficiently and/or consumers don't value the good being produced relative to some other alternative. When a firm routinely fails to turn a profit, there are bankruptcy pressures. The firm's resources, workers, building and capital become available to someone else who might put them to better use. When government steps in with a bailout, it enables executives to continue mismanaging resources.

How much congressional involvement do we want with the Big Three auto companies? I'd say none. Congressmen and federal bureaucrats, including those at the Federal Reserve Board, don't know anymore about the automobile business than they know about the banking and financial businesses that they've turned into a mess. Just look at the idiotic focus of congressmen when the three auto company chief executives appeared before them. They questioned whether the executives should have driven to Congress rather than flown in on corporate jets. They focused on executive pay, which is a tiny fraction of costs compared to $73 hourly compensation to 250,000 autoworkers. The belief that Congress poses the major threat to our liberty and well-being is why the founders gave them limited enumerated powers. To our detriment, today's Americans have given them unlimited powers.

-- by Walter E. Williams

Found at: Capitalism Magazine (online)

Born in Philadelphia in 1936, Walter E. Williams holds a bachelor's degree in economics from California State University (1965) and a master's degree (1967) and doctorate (1972) in economics from the University of California at Los Angeles.

Auto industry ailing???

Apparently it's not the "auto industry" that's ailing.

See this article in the Detroit Free Press.

It's bad management by the auto companies and wrong-headed thinking on the part of the U.S. trade unions that caused the disease afflicting U.S. auto manufacturers.

American Automakers Bailout?

Click on this link to read an article that clearly articulates the situation and solution of the U.S. automakers.

Thank you.

An Excuse to Do Anything or Everything

Rahm Emanuel, Barak Obama's new Chief of Staff declare, “You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.”

Throughout history, those who wished to take despotic actions that the citizens would otherwise reject have moved rapidly to take those actions in times of crises. Almost any crisis will do as an excuse for those bent on moving government in directions counter to the long-term interests of the people. In recent history we have seen Hitler was one such opportunist, leveraging Germany's post-World War I economic failures as grounds for taking drastic Socialist actions.

Rarely, however, are despots so candid as President-elect Obama's emerging administration. Rahm Emanuel (quoted above) enunciates this crisis-based opportunism precisely.

The present Democrat-controlled Congress, brazenly encouraged by its recent victories at the polls and the most radically left-wing President-elect in the history of our nation, is poised to take just such actions. Using the current economic crisis as its excuse, the left-wing radicals presently sitting at the helm of our national legislature are prepared to take control -- one way or the other -- of the U.S. automakers in order to "remake" them according to their leftist and eco-Nazi agenda.

Under the euphemistic term "retooling," the Democrat leftists intend to force Ford, Chrysler, and GM to produce cars for "the green economy." As in the former Soviet Union, the only cars that will be available from U.S. factories will be those that meet approved "government designs." You can be sure that if these leftists have their way, protectionist measures will be put in place to assure that foreign auto manufactures will be priced out of the market, as well.

Next on their list of "crisis" measures will be steps to assure that gasoline prices are pushed higher again. And, of course, a grasp at another huge portion of the U.S. private economy -- the "nationalization" of healthcare.

Please take action now to stand against these kinds of actions by the current (and future) Congress and the Obama administration. Write and call your Senators and Representatives.

(c)2008 Richard D. Cushing

Are U.S. Automakers and Congress Telling the Truth About Jobs?

“The auto industry supports one of every 10 jobs in the United States,” Michigan Governor Jennifer M. Granholm has said multiple times in her pleas for a bailout of the Detroit Three.

Is it true?

Click here for the real story!