Saturday, 9 May 2009

Screw you GM -or- a brief Keynesian tutorial

Hey Don,

Like I was mentioning on the phone, this is an absolutely irresponsible way to run a company.

What the automakers and many other northamerican industries had done is defer some of the costs of vehicle production into the future (today).

By not adequately funding (sometimes not at all) their pension plans for past employees building past cars, current car sale revenues are on the hook to pay the retirement costs.

In one Keynesian economic model the argument works like this, if we agree that the economy can only expand (theory supported by Keynes, Smith, Phillips) then so does expand the auto (fridge, light bulb, whatever) market and as does the company's share.  So why worry about an expense that represents x % of our cogs when we can defer it till the market expands and it will represent (x-rate of growth) %.

The problem with this plan (Keynes also warned of) is that it is unlikely that the market would ever expand faster that the 'usual' rate of return (Smith).  So while yes that expense if thrown forward will represent less and less of the cogs, you must factor in the cost of time of deferring the debt which will always equal the 'usual' rate of return (also Smith).

So here we are.  2009 and the retirment costs of employees that built your 1975 Pontiac Acadian are imbedded in the sticker price of the 2009 Pontiac Vibe, and someone will say, how can GM compete in such a market when Toyota has less costs.

The corporate regulatory environment continues to allow corporations to raid their pension funds and use the cash for non-pension activities.  GM used 11.6 Billion dollars from its pension fund for non-pension activities as recent as 2007 (Detroit free press).  In 2008 the fund had a 12.4 Billion dollar deficit.

Btw, the usual method of raiding a pension is to claim that it is over funded and then use the cash for something else.  GM chair and CEO Rick Wagoner claimed in 2006 that the fund was over funded by about 6 billion (CNNMoney.com).

I think that's when it was healthcare that was blamed for higher auto labour costs.  Oddly enough, in Canada GM endorses Canada's healthcare system, but in the US publically stated that it does not advocate a single-payer system.

Send from my BlackBerry, excuse the typos.



-----Original Message-----
From: Don
To: Daniel
CC: Dennis
Sent: Thu May 07 12:30:51 2009
Subject: Auto unions

Hi Daniel,
We talked about some of these points a few weeks back.
- GM chief executive Fritz Henderson, who replaced Rick Wagoner at the end of March, has said the agreement made CAW workers competitive with their counterparts in the United States.

But the federal and Ontario governments have said the company must set the bar higher and aim to be competitive with non-unionized Toyota plants in Canada.

- The CAW said the governments' main issue with the previously ratified agreement is that it fails to reduce GM Canada's legacy costs - primarily pension obligations - by enough.

But CAW economist Jim Stanford said it's nearly impossible to make GM's legacy costs competitive with those at Toyota's Canadian plants, because GM has far more retirees.

Full article,

CAW says it's being forced to re-enter labour negotiations with GM

Thu May 7, 12:02 PM
Kristine Owram, The Canadian Press


By Kristine Owram, The Canadian Press

TORONTO - The head of the Canadian Auto Workers says the federal and Ontario governments are forcing the union and General Motors of Canada to come up with a new labour agreement by the end of next week in order for the company to get bailout funds..

Ken Lewenza said the governments have set a strict deadline of May 15 for the two sides to reach a new agreement, to replace one that was negotiated in March before the CAW agreed to even bigger concessions with Chrysler.

"If we don't get a deal, the governments will provide no financial support and GM Canada will be liquidated," Lewenza said at a press conference Thursday.

"Who would ever think that General Motors could possibly be in a position where they could potentially liquidate and potentially have no existence here in Canada? It's quite frightening," he added.

The CAW and GM agreement in March, less than a year after the two sides had reached a three-year contract, provided the company with about $7 an hour in labour cost savings. That followed an agreement last summer that froze wages and gave other concessions.

GM chief executive Fritz Henderson, who replaced Rick Wagoner at the end of March, has said the agreement made CAW workers competitive with their counterparts in the United States.

But the federal and Ontario governments have said the company must set the bar higher and aim to be competitive with non-unionized Toyota plants in Canada.

A new agreement would likely mimic a deal reached with Chrysler late last month that provided that company with about $19 an hour in savings.

Lewenza said he's frustrated that the government is intervening in a company's operations and forcing the union and GM to head back to the bargaining table for the third time in a year.

"We put our hearts and our minds with our members in the workplace today who are going to be asked for the third time in 12 months to ratify another agreement to meet the objectives of the government," Lewenza said.

The CAW said the governments' main issue with the previously ratified agreement is that it fails to reduce GM Canada's legacy costs - primarily pension obligations - by enough.

But CAW economist Jim Stanford said it's nearly impossible to make GM's legacy costs competitive with those at Toyota's Canadian plants, because GM has far more retirees.

Lewenza said the union will do what it can to protect Canadian jobs, but said he doesn't think the issue of pension payments can be solved at the bargaining table.

"Our responsibility as a union is to do whatever we can to preserve the jobs that we have left in General Motors and Canada because the only way you can protect the pensions long term is to continue to operate," Lewenza said.

"But it is absolutely impossible that we can correct the legacy costs at the bargaining table."

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