483 Million GM Dollars = 483 New Jobs

Earlier this week General Motors announced their plans to invest $483 million in to their Spring Hill, Tennessee plant, which they claim will create 483 jobs. GM also explained that employees who had been laid off will be brought back to work at the new plant.

CNNMoney.com reports

Mark Reuss, president of GM North America, said his company would invest the money in the powertrain factory through 2012.

"By coincidence, the result in new jobs is 483," he said, before a crowd of cheering auto workers. "No, we didn't plan it that way."

The additional investment and jobs are pending successful incentive negotiations with local and state officials, GM said in an announcement.

The additional employees will be brought back from among workers GM had earlier laid off. The plant already builds three versions of GM's Ecotec four-cylinder engine. The additional jobs are needed to add production of a next-generation variant of the engine which, GM said, is more fuel efficient and runs more smoothly.

"The engines made in Spring Hill will drive the success of GM to meet our customer demands for advanced powertrains which offer high fuel economy without sacrificing performance," said Reuss, in a corporate announcement.

Read more here

Car Deals Disappear As Dealers Rethink Promotions

Over the past couple of years, consumers have gotten used to dozens of promotions and incentives to purchase American made vehicles. However, as this article from the Huffington Post explains, many car dealerships and automakers are beginning to rethink huge promotions to increase profits.

For years, Americans shopping for cars were treated to all sorts of deals and incentives, especially at the end of summer. Think Cash for Clunkers, which paid up to $4,500, or promotions that offered employee discounts to everyone.

Those days are over.

Deals are becoming more scarce because automakers, newly lean and profitable, are holding the line on those profit-eating promotions. In July, they offered $1,000 less in incentives per car than a year earlier, according to Edmunds.com.

And with no one expecting the government to offer a repeat of the Clunkers program, get ready for fewer discounts on your next car.

"This may be as good as it gets, and get used to it," says Jeff Schuster, the executive director of forecasting for J.D. Power and Associates.

As a result, U.S. auto sales are at a standstill, with potential buyers waiting for more deals but automakers resisting. The industry expects this to be the worst August in 18 years, with sales barely over 1 million cars and trucks. Sales are expected to fall 3 percent from July, according to car-pricing website Truecar.com.

Auto Industry on Road to Recovery but Pace Slows

From MSNMoney.com:

The U.S. auto industry stayed on the road to recovery in April, but it eased up on the gas pedal a bit.

Ford Motor Co. saw last month's sales rise 25 percent from a year earlier, while General Motors Co. climbed 6.4 percent. Hyundai, Subaru and others also continued to see gains from last year.

All automakers report their U.S. sales on Monday, and together they're expected to outpace last April, when the industry was hurt by the economic downturn.

But the industry overall may not be able to maintain the pace of March, when big sales promotions led by Toyota Motor Corp. fueled higher sales. The Japanese automaker needed to lure buyers after suffering a series of safety recalls beginning last fall.

As buyers' expectations for even better deals grew, demand slowed from March and some automakers eased up on promotions.

Turnaround for Big Three automakers? Not so fast

From CNNMoney.com:

One year ago, the U.S. auto industry faced the worst crisis in its history.

Chrysler Group filed for bankruptcy on April 30, the same week that GM announced a plan that put it on the path toward its own bankruptcy a month later. Ford Motor (F, Fortune 500) had just reported huge losses.

So by comparison, conditions for Detroit's Big Three today represent an almost shocking turnaround.

Ford just reported a profit of $2.1 billion. While GM has yet to report a profit, the company managed to cough up enough cash to make an early repayment of $5.8 billion in loans to the U.S. Treasury.

And Chrysler Group just reported that despite another loss, it is no longer burning through its cash reserves.

But many experts still think it's too soon to call a turnaround in the domestic auto industry.

California Lawmakers Scramble to Keep State's Last Car Factory Open

Lawmakers are struggling to save California’s last remaining car factory, NUMMI plant, in Fremont. The plant is operated by both GM and Toyota, and employs over 5,000 Californians. Legislators are hoping to push through a bill that will give the plant increased tax breaks, and a decision is expected this afternoon. Check out the following article from the LA Times discussing the issue.

"We believe that plant is a public good," said state Sen. Roderick Wright (D-Inglewood), who co-wrote the Senate bill. He added that his own Los Angeles County district is home to parts suppliers that would be affected should NUMMI close. "The fact that we could lose our last car manufacturing facility is unconscionable."

But amid Sacramento's grinding budget crisis, there is considerable doubt about how much money would be available to provide tax cuts to one of the world's largest companies -- and whether any amount of taxpayer-funded goodies would be sufficient considering the depths of the auto industry's woes.

"How many extra millions do taxpayers have to give Toyota to stay?" said Lenny Goldberg, executive director of the California Tax Reform Assn., who questions whether those kinds of incentives even work. "If you're going to give it away, give it away right."

Manufacturers have long complained about the cost of doing business in California. The legislation proposed this week would, in part, reduce that burden for the auto industry, sponsors said.

The bills, ABX4 31 and SB 830, would exempt NUMMI and other auto plants from sales tax on improvements and retooling of the plant, a process that can cost hundreds of millions of dollars. Toyota is not currently retooling NUMMI, but it could in the future to build fuel-efficient vehicles such as hybrids.

The Senate bill goes further. It would designate the plant and the area around it an enterprise zone, which provides a variety of other tax benefits. In addition, the bill would cut state fees that NUMMI pays for utilities, and it would encourage state and local agencies to buy vehicles made at the plant.

Legislators say they will urge Gov. Arnold Schwarzenegger to use the incentives as leverage with Toyota to keep the plant operating.

Chrysler To Use Tax Money For Buyouts

From Freep.com:

Chrysler will use taxpayer money to sweeten buyout deals for UAW workers who could lose their jobs at six plants likely to be closed if no buyer can be found.

The autoworkers are now being offered up to $115,000 plus a $25,000 vehicle voucher to leave Chrysler voluntarily.

The larger lump-sum payment, which was increased from $75,000 in earlier buyouts, is available to workers under 50 years old who have 10 or more years of seniority.

Workers 50 or older who qualify for some pension benefits won't receive that type of onetime payment. But those with 30 years, or whose age and years together exceed 85, will receive $50,000 plus the $25,000 voucher for a new Chrysler vehicle.

The new offer, which eligible workers have until May 26 to accept, provides a cushion for several thousand workers who could lose their jobs anyway. It also could take some pressure off the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care fund because younger workers who take the buyout may find health care through spouses or new jobs.

The buyouts are funded through Chrysler's taxpayer-backed "debtor-in-possession" financing.

By contrast, the company reserved funds prior to the bankruptcy filing to cover similar buyouts previously offered to UAW members. It is trying to pare its UAW workforce by 3,500 from about 26,000 when the first offer was made in January.

Plants covered by the latest offer are Sterling Heights assembly, Conner Avenue assembly, St. Louis North and South assembly, Kenosha (Wis.) engine and Twinsburg (Ohio) stamping. The offer doesn't apply to workers at plants in Newark, Del., which has closed, or Detroit Axle because some of those workers will be transferred to a new Marysville axle plant that is to open in 2010."This is simply Chrysler's way of reducing the number of employees about whom it will have to worry," said Richard Block, Michigan State University professor of industrial and labor relations.

Chrysler's creditors aren't likely to object because the plants could be more marketable with fewer workers, said Sheldon Stone, a managing director of Amherst Partners.

Let's Cut Cap-Gains Taxes on Auto Investments

From the Wall Street Journal:

The din of clattering metal echoes through the halls of our capital: panhandlers! Erstwhile captains of the automobile industry, having foregone their Learjets, now don the tattered rags of beggars as they seek congressional approval for a $34 billion bailout of the Big Three automobile companies.

Our United States Congress of lawyers, doctors, diplomats, retired military officers and career politicians -- along with their staffs of intelligent young political science majors and MBAs -- now finds itself poring over "business plans" submitted this week by Ford, GM and Chrysler. People who have never before in their lives seen -- no less implemented -- a business plan are now trying to decide if these companies will succeed by means of a "capital infusion" with various imposed preconditions and negotiate what we taxpayers (investors) should be getting for our money. Something is wrong with this picture.

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive.

Autoworkers Making $70 An Hour? Not Really

From CBS News.com:

If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour.

That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with autoworkers making so much, why should taxpayers--many of which make far less--finance a plan to bail them out?

Well, here's one reason: The figure is wildly misleading.

Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.

But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted Friday, the claim that workers are getting $70 an hour in compensation is just "not true."

Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.

The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.