Metropolitan Rural

I heard the news this morning. I guess there really is a Santa Clause:

Auto Bailout Talks Collapse as Senate Deadlocks Over Wages

I guess there really area a few people left in Washington willing to stand up for what’s right. What was the big sticking point that brought down the $14 billion dollar bailout? There had already been agreement in the bill to reduce executive compensation and dividends over a period of time, but one more item requested by the most junior member of the Senate Banking Committee just couldn’t get supported:

The negotiations were based on a plan advanced by Corker, the most junior member of the Banking Committee. His proposal sought to reduce the wages and benefits of union workers by requiring the automakers’ total labor costs to be “on par” with Honda and Toyota.

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He and other Republicans had revolted against the earlier plan because they thought it did not go far enough in forcing contracts on the UAW. GM officials have told Congress, for instance, that under the most recent contract, labor costs would be about $62 per hour in 2010 — $30 per hour in wages and slightly more than that in benefits to current workers and retirees. That’s about $14 per hour more than at Toyota’s U.S. plants.

To me, that’s just amazing. In more detail, Corker was asking that this happen sometime in 2009, but no one was willing to budge on union wages and benefits until their contracts come up in 2011. I guess having no job at all is better than taking a pay cut huh? Seriously? So, it’s okay for the executives and shareholders to agree to reduced/no compensation, but not for the working Joe? I mean, really, $30 per hour plus more than that in benefits? You can’t give up some of that to keep your job? In economics we call that “sticky prices.” That simply means price (or in this case wages) are quick to go up and slow to go down.

Also, part of this bill was to give money to Chrysler to prevent them from going under later this month (according to them). If you remember, Chrysler is actually owned 80% by Cerberus Capital Management, a private investment group. Below are a handful of quotes from the Cerberus website:

We work patiently and constructively with management teams and we have a deep respect for operational excellence. We succeed when our companies succeed, to the benefit of our portfolio companies’ employees, customers, suppliers and the communities in which they operate.

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Cerberus Capital Management, L.P. is one of the world’s leading private investment firms. Cerberus specializes in providing both financial resources and operational expertise to help transform undervalued companies into industry leaders for long-term success and value creation.

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At Cerberus, we have a long-term investment horizon and focus on value creation. We invest in undervalued companies and their people, and help them to realize their potential.

We partner with our portfolio companies to help them become industry leaders. We believe competition makes the global economy more productive and more efficient, which enables companies to succeed long-term in the globally competitive marketplace.

We encourage our companies to focus on the future through prudent capital investment, R&D, new product marketing, talent development, improved operations and appropriate strategic acquisitions.

These statements from a company that prides itself on turning around companies to make themselves a lot of money. Here they are now, failing with one of their investments and they want someone else to make up for it.  The reason buying “undervalued” companies and turning them around is such a lucrative business is that it is also inherently risky.  It might have been easier in a strong economy, but with a weak economy you have to be much better.  Either way, you are bound to lose a few.

Senator Corker, thank you for standing up and reminding us that we are still required to be responsible.

Times are going to be hard folks.  It’s time to make good decisions again.  It’s time to be responsible with your money for a change.  It’s time to hold our politicians accountable for the money we allot to them.  From all accounts, the great depression was a terrible thing to live through, but it also taught people the values of responsibility and  resourcefulness.  Those skills learned led to a new society when we broke from the depression.  Maybe it’s time for a new generation of us to learn those values for ourselves anew.  The road is not always easy; the path is not always straight.