Coyote Blog

GM, as reported by Reason's Hit and Run, has actually already had something of a breakthrough in labor costs, at least for new employees:

The current veteran UAW member at GM today has an average base wage of $28.12 an hour, but the cost of benefits, including pension and future retiree health care costs, nearly triples the cost to GM to $78.21, according to the Center for Automotive Research.

By comparison, new hires will be paid between $14 and $16.23 an hour. And even as they start to accumulate raises tied to seniority, the far less lucrative benefit package will limit GM's cost for those employees to $25.65 an hour.

So this puts GM in the position of shoving experienced employees out the door as fast as they can, to make way for lower cost employees hired under this new deal.  Apparently GM also has more flexibility to manage costs in a downturn.  Good news, assuming they can accelerate a 20 year demographic transition to about 6 months, avoid giving away too much to these newer workers when times are good again, and arrest market share declines with better cars. Oh, and I presume the UAW has not abandoned seniority, which means that in recession-driven layoffs over the next year, GM must being by laying off these much cheaper younger workers.  Layoffs will actually mix their labor cost upwards.

I still don't want to bail them out.  Like numerous other industries, from steel to airlines, there is no reason GM shouldn't have to pass through Chapter 11 on the road to recovery.  However, the argument that GM is turning a corner if we just give them a little help seems to be persuasive with many folks around me, so much so I am tempted to buy some GM stock as a way to go long on my prediction of the creeping corporate state.

Update: On the other hand, this is a sign that GM may be scraping the bottom of the barrel for cash:

Cash-strapped General Motors Corp. said Monday it will delay reimbursing its dealers for rebates and other sales incentives, an indication that the company is starting to have cash-flow problems....Erich Merkle, lead auto analyst at the consulting firm Crowe Horwath LLP, said GM wouldn't delay payments if it had enough cash.

In the third quarter of this year, GM's operations burned through $7.5 billion in cash, offset somewhat by asset sales and financing activities.  But this is really a pre-recession burn rate.  What will the burn rate be over the next 6 months?  There is an argument to be made that $25 billion is not going to last even a year, particularly given the dynamic that layoffs will hit mostly the lower-cost workers, and a Democratic Congress and Administration that is handing over the money may well restrict GM's freedom of movement on layoffs anyway.  I can see the Obama administration now -- don't lay them off, lets put them all in a factory making green energy, uh, stuff.

"I don't even think they've got 60 days," Merkle said. "Their cash position is probably getting pretty weak right now, and it's cutting into those minimum reserves that they need on hand."

Politicians seem to love the movie business, or so I infer from the rash of proposals of late to subsidize the movie business. 

New York City seems to have been first out of the blocks, with this program to provide tax rebates and free advertising for shooting movies in NYC.  The article tells us this is the only industry being so targeted at this point by NY.  Why?  Why are movie jobs and movie makers somehow better than every other kind?  Maybe its because they think the movies provide good advertising for NYC, like the great light they cast on the city in movies like this and this.

Anyway, the trend got my attention when our own Arizona governor lamented that Arizona is no longer home to as many movie shoots as it once was decades ago.  Far be it for me to suggest that this is probably more of an issue of westerns going in and out of style (since about a majority of movies shot in Arizona were westerns).  Nevertheless, Napolitano is pushing ahead with her plan to improve the net income line of Hollywood studios by subsidizing production in Arizona.

Finally, via Reason, we see that Hollywood is worried that it is being left out of the subsidy competition, by actually paying companies to film in LA:

Mayor James K. Hahn on Thursday announced a plan he hopes will keep Hollywood in
Hollywood "” by paying film production companies to shoot in Los Angeles.

Hahn's proposal, which was inspired by a program that New York City
adopted in December, would use as much as $15 million in public funds to
reimburse companies that make a movie in Los Angeles, paying them 5% of their
production costs or up to $625,000.

OK, so one would think that all these locations have struggling media and production industries.  But in fact, just the opposite is true.  In New York:

But Wylde thinks film is just the tip of the iceberg. The city's entire media sector is growing explosively, she notes. From Time Warner to Hearst to Bloomberg LLP, media firms account for $13 billion in city wages, 50% more than tourism.

And, in LA:

Last year, however, film, video and television production in Los Angeles
actually reached record highs. Entertainment Industry Development Corp. issued
permits for 52,707 location production days "” one day representing a single day
of work on a single project "” a 19% increase over 2003.

Doesn't sound like they are in much trouble.  Their film and media businesses are already growing explosively to record highs.  So why do they need a subsidy?  Doesn't exactly sound like the New England textile business.

Look, at the end of the day, this is about politicians handing taxpayer money to powerful media people, people who have the ability to disproportionately influence public opinions and things like ... elections!  This is a barely disguised campaign expenditure, except for the fact that taxpayers pay the bill.

I wrote more about the idiocy of subsidizing corporate relocations to one's state or city here.

Update:  Match Welch has more