GM and the Unions
Professor Bainbridge has a big comment discussion going about the amazingly high wages the UAW union has extracted from the automakers it is bankrupting. What is really going on is that the workers own the firm. They are the residual claimants, and the company is run for their benefit. A residual claimant has a risky claim, though, and in a bad year he will earn less. The workers have avoided this so far by letting the capital of the company run down. Now they are at the point where they must take a temporary wage cut, unless they can use their political clout.
Or so I hypothesize. This would make a good paper. Some facts are easily checkable. Has GM been investing less than the value of true depreciation? Has it been able to sell new stock? If it were freed of the unusually high pension obligations and wages, would it be in sound financial shape?
November 16: Here is one of the many good comments from the Bainbridge post (his readers seem to be far smarter than those of other blogs!):
I'm sorry, but if you try to make a point like this, and don't back it up with an outside source supporting your assertion, you only leave yourself open to people (like me) who will show you an outside source that proves you wrong. http://www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID=2008115 JD Power 3 Year Vehicle Dependability Study Problems per 100 Vehicles, by Brand, for the first 3 years of ownership, for cars sold in 2005, surveyed in 2008. (I'm only going to list the non-luxury brand names, since in the luxury brands, Lexus/Toyota has been winning this thing for the past 15 years) Mercury - 151 Toyota - 159 Buick - 163 Honda - 177 Ford - 204 Industry Average - 206 Nissan - 224 Pontiac - 225 GMC - 225 Chrysler - 229 Dodge - 230 Chevrolet - 239 Scion - 243 Saturn - 250 Jeep - 253 A little statistical analysis: The average Ford has 1/3 more problems than the average Toyota. The average GMC, Chrysler, Dodge, and Chevrolet has 50% more problems than the average Toyota. The average Saturn and Jeep has 2/3 more problems than the average Toyota.
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