Category Archives: economy

The line for the UAW

Some of the goals of the Bush auto bailout plan deal with real issues – but some don’t quite hit the mark.

NEW YORK (CNNMoney.com) — President Bush’s bailout plan contains some “targets” the government wants the automakers and the United Auto Workers union to achieve before agreeing to a bailout loan.

All of the terms are still negotiable as long the automakers can produce a plan to become viable without them.

The terms, as laid out by the White House, appear simple on the surface, but the issues they cover are a lot more complicated. Here’s a rundown:

Competitive wages by 2010

The way it is now: Domestic automakers’ labor costs are considerably higher than those of foreign competitors operating here in the United States.

What’s in the bailout: By 2010, domestic automakers must pay hourly wages that are on par with those offered by their foreign competitors.

Reality check: Hourly wages for comparable work at General Motors (GM, Fortune 500) and Toyota are nearly identical. According to various reports, each company pays experienced auto workers about $30 an hour.

It’s when benefits are factored in that cost differences begin to rise, opening up differences of several dollars per hour.

But the real issue for U.S. automakers – the factor that gives rise to stories of autoworkers bringing home more than $70 an hour – is retiree benefits. Those hourly figures, which were calculated by the automakers before the latest round of contract negotiations in 2007, include money paid into retiree healthcare and pension funds – not just the pay and benefits of active workers.

Those retiree costs are the reason that the UAW created trusts to cover them so that automakers wouldn’t have to continue paying for retiree benefits out of their own funds indefinitely.

Competitive work rules

The way it is now: Various work rules built into union contracts cover things like paid holidays and dictate specific job descriptions laying out exactly what each worker can and cannot be required to do as part of his job.

What’s in the bailout: Domestic automakers’ work rules must be competitive with those at foreign auto plants in the United States, like those run by Toyota, Honda and Nissan.

Reality check: It’s commonly thought that the domestic automakers’ plants are far less efficient than plants run by foreign automakers. The blame usually goes to strict work rules that rigidly define each union worker’s job function.

Here’s an extreme, but common, perception: If an assembly worker sees a piece of trash on the floor, he can’t just bend over and pick it up because that would infringe on another worker’s job.

“That was true 10, 20, 30 years ago,” said Ron Harbour, an auto manufacturing consultant and analyst. Those sorts of efficiency-strangling rules have been negotiated out of contracts over the years.

The rules that do remain mostly involve legitimate safety concerns, he said, and don’t hurt efficiency. For example, fixing an electrical problem still requires a union electrician. “If you are not a trained electrician, you can kill yourself,” he said. “That makes sense.”

His annual Harbour Report ranks auto factories by their efficiency, or the number of worker-hours required to produce a car. In his most recent report, he found nine of the 10 most efficient auto plants in North America are unionized plants run by domestic automakers. The 10th is a unionized auto plant run jointly by GM and Toyota.

Eliminate the jobs bank

The way it is now: Under labor agreements, laid-off union workers are furloughed while receiving almost their entire pay.

What’s in the bailout: The plan calls on automakers and unions to eliminate these so-called jobs banks.

Reality check: After the automakers went to Congress asking for bailout loans, the UAW offered to eliminate the jobs bank. That wouldn’t eliminate something called supplemental pay, though. Workers go into sub-pay, as it’s called, immediately after being laid off and go into the jobs bank only after their unemployment benefits run out.

While on unemployment, state benefits are supplemented by money from the automaker. In the case of General Motors, the total compensation adds up to 72% of a worker’s original pay, according to a GM spokesman.

After that, the employee goes into the jobs bank and receives either 85% of his pay or 100% if he’s asked to come in for training or other work.

If a job becomes available at any time within 50 miles of a GM worker’s old job, he or she must accept it. If jobs become available elsewhere, the worker is allowed to turn down up to two more distant reassignment offers.

Years ago, the jobs banks were much more expensive for automakers than they are today, according to a General Motors spokesman, because many workers have left the company through employee buyout programs and early retirement. Recent rounds of plant closings and layoffs are expected to push these costs back up, though.

What Toyota does for its workers is actually very similar to the jobs bank, but without the sub-pay period. Toyota has a strong “no layoff” policy, so workers stay on the company payroll at full wages while they are assigned to either training programs or other jobs within the company.

Up to a point, jobs banks do offer some benefit to the automakers themselves. Automobile sales are highly cyclical and even in good times, workers sometimes have to be idled for weeks as factories are retooled or inventory is sold off.

Without some way to support themselves during that time, workers may look for other jobs, requiring automakers to go through a massive hiring and training process for new workers when the lines start back up.

VEBA payments in stock

The way it is now: In last year’s round of contract negotiations, domestic automakers agreed to put money into a union-controlled investment fund that would pay for future retiree benefits. It was called the Voluntary Employees’ Beneficiary Association (VEBA). The biggest benefit for automakers was that it removed these costs from their books.  more

Failed banks for sale…who’s buying?

A move by regulators to open up the failed bank bidding process has sparked a wave of investor interest. But experts are wary about its real impact.

NEW YORK (CNNMoney.com) — More banks will certainly fail in the months ahead, but at least regulators shouldn’t have any trouble finding buyers.

Last month, two of the nation’s top banking regulators – the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – widened the buyer pool for failed banks by opening up the bidding process to both investor groups and individuals.

Traditionally, this process has been limited to chartered banks and savings institutions. But regulators changed their stance partly in response to strong demand from non-bank investors and expectations that the supply of failed banks will grow in 2009.

So far this year, only 26 of the more than 8,400 FDIC-insured institutions have failed. But with 171 institutions on the FDIC’s so-called ‘problem bank’ list as of the end of the third quarter, it’s likely that the assets of many more failed banks will be up for grabs next year.

Waiting for a failure

Despite some high-profile bank mergers in the past few months, there has yet to be a major wave of consolidation in the industry since many banks have been afraid of inheriting another company’s troubled loan portfolio.

Instead, many banks have waited for others to fail outright before stepping in. That’s because once the FDIC assumes control of the failed bank’s troubled assets, an acquirer can get deposits on the cheap and a clean balance sheet.

Officials at the OCC and FDIC were unable to provide any figures as to how many investors have applied to buy failed banks so far. But they said interest in the program has been robust since it first launched.

One firm that has already won conditional approval to bid for a failed bank is Ford Group Holdings, an investment group which includes long-time Texas bank investor Gerald J. Ford.

That interest could extend to wealthy individuals who want to break into the banking game and even private equity players.

Christopher Flowers, who runs the buyout shop J.C. Flowers, scooped up a tiny bank in northern Missouri with $14 million in assets in August. At the time, he hinted at plans to expand. more

Obama’s big bang: Sizing up risk

It’s going to big, bold and fast. But keeping the stimulus package – or packages – from becoming a runaway train will take some restraint on the part of lawmakers.

NEW YORK (CNNMoney.com) — It is widely considered to be a foregone conclusion. The government will commit a breathtaking amount of money — as much as $1 trillion may be required, some say — on an economic recovery package over at least the next two years.

Economists from across the philosophical spectrum have advised President-elect Obama to act boldly to prosecute a war against the economic and financial crises, the speed and depth of which have shocked most experts.

Lawmakers and Obama are already starting to publicly discuss the broad outlines of elements they want in a stimulus package.

But to win a war, it’s a good idea to map out or at least have a sense of the endgame before deploying the troops. That is, lawmakers must think about establishing yardsticks, curbs and deadlines for the money.

Otherwise, there’s a risk that the historic recovery package morphs into a boondoggle that mortgages the nation’s future by adding hundreds of billions to the deficit while creating a hard-to-tame bureaucracy.

Many countries with growing economies have been shrinking the size of their governments, said Harvard economist and stimulus advocate Kenneth Rogoff on CNN’s “Your Money. “And here, we’re blowing it up. That’s a concern over the longer term.”

But in the short-term, Rogoff doesn’t see an alternative if lawmakers are to prevent what he characterizes as the worst recession since World War II from becoming even worse. “We could just see something really incredible if they don’t act coherently,” he said.

Red flags that would worry some

The breadth and time limit of stimulus efforts are two areas that pose potential concerns for stimulus supporters and opponents alike.  more

New York business index hits low

Fed survey of manufacturers show sharp growth in unfilled orders.

NEW YORK (CNNMoney.com) — A survey of manufacturers in New York state hit a record low this month, paced by an increase in unfilled orders.

The Federal Reserve Bank of New York said Monday that its index for general business conditions slipped to minus 25.8 from minus 25.43 in November, the lowest reading since the bank began compiling data for the survey in 2001.

The report’s unfilled orders component reached a record low of minus 27.7, down 4 points from the prior month. more

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Prices May Have Tumbled as Economy Sank: U.S. Economy Preview

Prices May Have Tumbled as Economy Sank: U.S. Economy Preview

The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week.

By Bob Willis

Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide.

Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

Dollar Slumps Below 90 Yen as U.S. Auto Bailout Fails in Senate

Dollar Slumps Below 90 Yen as U.S. Auto Bailout Fails in Senate

The dollar slumped below 90 yen for the first time in 13 years after the U.S. Senate rejected a $14 billion bailout for the nation

Trade gap rises as exports plummet

NEW YORK (CNNMoney.com) — The trade deficit rose unexpectedly in October as U.S. exports plummeted, according to a government report released Thursday.

The U.S. Department of Commerce reported that imports exceeded exports by $57.2 billion, up from the $56.6 billion gap in September.

Economists had expected a $53.5 billion gap, according to a consensus estimate compiled by Briefing.com.

Strength in exports, which contributed to gross domestic product, has come to an abrupt halt as major trading partners in Europe and Asia feel the effects of a global recession, according to Bob Brusca, economist at Fact and Opinion Economics in New York.

“The economies overseas are getting hit with recession all of a sudden,” said Brusca.

“The bad news is that the growth rate in exports is falling very, very quickly,” he said. more

Obama’s January agenda

The president-elect and Congress will be kicking off the New Year with big plans — and no time to waste. Here’s the immediate to-do list.

NEW YORK (CNNMoney.com) — Considering the work ahead, it’s likely that the fabled first 100 days of a new presidency will be highly compressed for President-elect Obama and the new Congress.

With so much at stake for the United States and the global economy, the demand will be great for substantive action during January, a month normally reserved for procedural necessities that establish the new administration.

Between Jan. 6, when the 111th Congress begins, until Jan. 20, when Obama takes office, lawmakers will be scrambling to hold hearings, write major legislation and oversee a string of unprecedented and controversial financial rescue packages.

Then after Obama is sworn in, action is expected on a number of fronts before the month is out.

“A lot of houses are on fire. Everyone is going to be looking to the president for decisive action,” said Terry Sullivan, executive director of the White House Transition Project and an associate professor at the University of North Carolina at Chapel Hill.

Here are four key things that Obama and lawmakers will have to face in the first month of the new year:
Get cabinet nominees confirmed

Given the economic crisis the Obama administration will face on Day 1, lawmakers are expected to act immediately to confirm the next president’s cabinet nominees.

The Senate may not confirm all of Obama’s cabinet members on Inauguration Day, “but a very substantial number of them,” said Norman Ornstein, a resident scholar at the American Enterprise Institute.

Indeed a Senate Democratic leadership aide told CNNMoney.com that “there is a possibility that we’ll be able to do a handful by Inauguration Day.”

Ornstein and other experts said they expect at the very least the nominees for key economic and security cabinet posts will be confirmed right away.

“Generally [the transition team] works it through before with committees’ staff and leadership along with Senate leaders that [the nominee] won’t have trouble getting confirmed,” said Lynn Jennings, executive vice president of the Council for Excellence in Government.

Speedy confirmations are not without precedent. Eleven members of President Bush’s cabinet, for example, were confirmed on Jan. 20, 2001, according to the Council for Excellence in Government.

Following confirmation of the remaining cabinet members, the goal then will be to get the top 100 players in each area confirmed, Ornstein said. “It’s really important to get those moving.”
Enact an economic recovery package

The Obama team isn’t putting a price tag on its economic stimulus plan, which Democratic leaders want to have ready for the new president to sign either on or very soon after Inauguration Day.

Currently, the initial package is expected to cost somewhere between $500 billion and $700 billion over two years.

On the likely agenda: Funds for infrastructure projects, middle class tax cuts, aid to state and local governments, and money for safety net programs such as food stamps and Medicaid.

Obama described the package as “the largest infrastructure program … since the building of the Federal Highway System in the 1950s.”

Infrastructure is likely to be the most controversial measure. Many critics say such funding isn’t the best way to jumpstart economic activity in the near-term because many infrastructure projects take too long to get under way.

A recovery package also might include an extension of the increase on the maximum loan amounts that qualify mortgages for backing from Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the Federal Housing Administration, a measure that House Financial Services Chairman Barney Frank, D-Mass., is advocating. On Jan. 1, the limit will drop to $625,500 from $729,750 in the highest-cost housing markets.
Allocate TARP money

It’s still not clear whether Treasury Secretary Henry Paulson will ask for the remaining $350 billion of the $700 billion Congress authorized to stabilize the financial system under the Troubled Asset Relief Program.

Paulson would need congressional approval and Democratic lawmakers are not pleased that all of the money allocated so far has gone to capitalizing financial institutions — money offered with fewer strings attached than they would have liked.

Frank said this week that until Treasury uses the TARP money to help prevent foreclosures, Congress is not likely to release the funds to Paulson or his successor.

Obama has promised to put a mortgage-relief plan in place, although he hasn’t specified what that plan will look like yet.

To get congressional support, “we believe the Obama administration will get the final $350 billion by endorsing the FDIC mortgage modification program,” said financial services analyst Jaret Seiberg of the Stanford Group, a policy research firm. more

Deal on $15 billion auto bailout

Deal on $15 billion auto bailout

White House, congressional Democrats reach agreement that could bring quick vote on stopgap rescue plan.

The White House and leading congressional Democrats have reached an agreement on legislation to provide a stopgap bailout to U.S. automakers, according to officials from the administration and Congress.

White House Deputy Chief of Staff Joel Kaplan cautioned at a press briefing that he had not seen the final language of the bill but said that great progress had been made on bridging differences with congressional Democrats.

Kaplan said administration officials would push reluctant Republican lawmakers to support the deal.

A vote could take place in the House as soon as Wednesday.

While most House Republicans have been strongly opposed to the auto bailout from the beginning, multiple House Republican aides concede that the Michigan Republicans and perhaps others from the auto belt in the Midwest are expected to vote for the agreement, giving House Democrats the votes needed to pass the bill.

But chances for quick passage in the Senate are far more questionable due to rules that give the Republican minority more power to block the aid. It is possible vote there might not occur in until the weekend.

The move could provide the $15 billion cash that General Motors (GM, Fortune 500) and Chrysler LLC would need to avoid filing for bankruptcy later this month or early next year, allowing them to continue operations through the end of March and letting the new Congress and new administration reach an agreement on a longer-term solution. It also would give the companies time to negotiate with creditors and the United Auto Workers union on additional concessions needed to stem their ongoing losses.

Ford Motor (F, Fortune 500), which has more cash on hand than its U.S. rivals, is not expected to tap into this bailout, at least in the coming months.

The agreement came after Democrats dropped a provision in their previous draft of the bill that would have prohibited automakers from continuing their support of lawsuits against states that have drafted more stringent emission standards than current federal rules.

“We do not believe there was any chance the legislation would pass if that provision remained in,” said Kaplan, the White House aide.

Some Republicans have threatened a filibuster, which could delay and even potentially block a vote on the bill. more