It’s Déjà Vu All Over Again

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The latest news on the American auto industry brings back bad memories of Obama’s crooked crony nationalization of GM and Chrysler. We may well be seeing the setup of another round of bailouts in our dysfunctional domestic auto industry.

Start with a recent report on the nervousness in the industry during the run-up to the Federal Reserve decision on whether to move off the Fed’s seemingly endless zero-interest rate policy. The auto industry has been selling a lot of cars for cheap money; as the report notes, the apparent revival of the domestic auto industry has been facilitated by an explosion of auto loans. Earlier this year, the combined auto debt of US households hit an all-time high of over $1 trillion. The artificially low interest rates, along with the drop in gasoline taxes (brought about by the miracle of fracking) worked like Viagra to swell the American libido for new cars. The sales of domestic cars will likely exceed 17 million units for the year — a level not seen since 2001.

GM alone has recorded more than $25 billion in profits over the last five and a half years, and Chrysler has recorded 65 months of sales growth. All this is the aphrodisiacal effect of 0% interest rates on auto loans. One couple quoted in the report said they just bought their first car in 20 years, enticed by the 0% financing, though they chose a 1.95% rate loan because of a $3,000 rebate (which they apparently used to cover their down payment). This is a common perception now: the University of Michigan’s most recent household survey showed that 28% of the households surveyed pronounced it a great time to buy a car because of the low rates.

We may well be seeing the setup of another round of bailouts in our dysfunctional domestic auto industry.

Moreover, customers are using the low easy money to buy more expensive cars. This has all the signs of a government-induced easy credit asset bubble: buy expensive cars you otherwise can’t afford, since the government has made it clear that it prefers borrowers who recklessly spend to savers who prudently forego immediate gratification. That is about as sound an economic theory as it is a moral one! Can we spell “moral hazard,” boys and girls?

However, as the report observes, easy credit brings the risk of easy defaults. And that risk has been growing like a virus: in 2013, 10.3% of auto loan applications were declined as not being credit worthy; this year, the proportion was a risible 3.3% — a drop of two-thirds!

Easy money is translating into longer loans on more expensive vehicles. Last month, the average length of an auto loan was over 68 months — six months more than it was a decade ago — a rise of nearly 10%. The size of the average auto loan is now $29,000, an increase of 15% over five years, while the average down payment amount has only increased by 10%, meaning that the loans are backed by relatively smaller down payments.

Earlier this year, the combined auto debt of US households hit an all-time high of over $1 trillion.

More bubbly still is the fact that subprime auto loans — i.e., loans to people with poor credit histories — now constitute one-fifth of all auto loans, with the total balance outstanding on subprime loans rising over the past five years to a whopping $176 billion. Many of these loans, please note, were originated by finance companies with ties to the automakers. Subprime auto loans, like subprime mortgages before the mortgage meltdown, are being bundled as securities and sold on Wall Street to people who buy them because they have higher interest rates.

Sound familiar?

Now consider another recent report, this one about the latest capers of the UAW — the main instigators of the American auto industry’s problems, and the greatest beneficiaries of Obama’s corrupt socialization of GM and Chrysler. In that deal, the GM and Chrysler bondholders and the taxpayers were totally shafted in favor of the UAW. The only real concession was the institution of a two-tier wage scale, by which existing autoworkers kept their outrageous salaries, while new hires were to come in at a lower rate — roughly $9 an hour (or about $19,000 a year) less. This irks the new hires, who often do the same work as the “upper tier” workers.

And here it gets interesting. Recently, under Rick Snyder’s enlightened governorship, Michigan — historically a state totally dominated by the unions — chose to become a right-to-work state. Thus, many UAW members — formerly coerced into supporting a mob of rentseekers — are now free to leave the union plantation. Some of the newer members, tired of being at the low end of the scale because of the UAW contract, and tired of seeing the UAW mismanage their dues, are indicating that they intend to do just that.

Subprime auto loans, like subprime mortgages before the mortgage meltdown, are being bundled as securities and sold on Wall Street.

This has led the UAW to maneuver the weakest of the three domestic automakers, Chrysler — oops! Fiat Chrysler — into signing a new contract, a contract much more favorable to the UAW. Under this new deal, after some period of time (not yet revealed), the current cap of under $20 an hour for new hires will rise to about $25 an hour (that is, new autoworkers will start out at $52,000 a year!). The two-tier system will be phased out. In keeping with its past modus operandi, the UAW will get GM and Ford to agree to the sweetened contract.

The big picture is clear. The weakest of the domestic automakers, which has on two prior occasions had to be bailed out by the federal government, at massive costs to the taxpayer, has just agreed to go back to overpaying the unionized workforce. It can do this because of the “red hot” pace of sales.

But the hot sales are inflated by the Fed’s easy money policy, and the surge of subprime loans; and sooner or later, the Fed will have to start raising interest rates. Thus, sooner or later, the nation, which has been enduring a slow, painfully shallow recovery, will slide back into recession. Then we will see the inevitable plunge in car sales, with the domestic automakers again locked into ludicrously high wage rates.

The weakest of the domestic automakers, which has on two prior occasions had to be bailed out at massive costs to the taxpayer, has just agreed to go back to overpaying the unionized workforce.

And then it will be what that great American philosopher Yogi Berra — sadly departed, this September — called “Déjà vu all over again!” We will probably see Chrysler (and even GM) go into the red once more. We will hear, once more, about the piteous plight of the company, about how sad it would be for all those overpaid employees to be laid off, and about how “compassion” — always defined by the progressive elites as spending other people’s money to buy votes for the advocates of big government — dictates another bailout of a joke of a company.




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A Mysterious Death

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A week or two ago, a man was sent to repair a hole in a roof in a nice ranch house on a nice street in Pontiac, Michigan. He had been sent by the bank that had foreclosed on the house for nonpayment of its mortgage. In the process of repairs he discovered a car in the garage, containing the mummified body of a woman. It was mummified because it had been enclosed in the car for six years.

The woman was thought to have spent a lot of time traveling, so she wasn’t expected to be around at any particular time. Anyway, nobody cared. As long as her bank account had money in it, her mortgage payments continued to be made by her computer. Utilities were paid in the same way. Her next-door neighbor continued to mow her lawn whenever he mowed his own lawn. Nothing appeared to be out of order. It was 2,000 normal days in Pontiac, Michigan, where $54,000 in a bank account can go a long way. As it should.

At this point, you may be shaking your head and muttering, “Look at the way things are in this modern, heartless, automated society.” But I, for one, am not muttering.

One reason is that I myself am from Michigan. The Pontiac story is a picture of what Michiganians are like. At least outstate Michiganians, meaning people who don’t live in Detroit. Michigan is full of odd expressions like “outstate.” It’s also full of people for whom it’s perfectly normal not to care about their neighbors. No, there’s nothing wrong with mowing the neighbor’s yard for her — why not? You’ve got a lawnmower. Might as well help her out. But why should you insist on talking to her? I can’t think of a reason.

As to dying in your garage: to this the Michiganian responds, “Where would you rather die?”

I remember how surprised I was when I got acquainted with my relatives in downstate Illinois (that’s Illinoisans’ dully predictable expression for people who don’t live in Chicago) and found that they actually knew what was up with their next-door neighbors. Sometimes the neighbors came strolling into the house with barely a yoo-hoo, on the mere pretext that their families had lived on the same block for a hundred years. The nerve!

Now, as to dying in your garage: to this the Michiganian responds, “Where would you rather die?” Would you rather freeze to death on your way from the house to the garage, like the old lady from the Upper Peninsula who was found frozen in her back yard (after which it was discovered that she had never been outside the Upper Peninsula of Michigan even once in her life)? No, you’d rather die in the garage, and better yet, in your car, where you’re comfortable and looking forward to a good trip. The lady in the Pontiac had her key in the ignition. She was ready to go.

But the second reason I am not muttering in protest is that I don’t find this vision of America in all its lack-of-community, bowling-alone, atomized-and-uncaring individualism (if that’s what it is) the least bit disturbing. The dead woman had planned her life and was leading it in the way she wanted. Presumably she had friends somewhere, and spent time with them. If she didn’t, she didn’t want to. I can’t see that getting together with her neighbors to scrub the curbs or neuter stray cats or attend weekly meetings of the zoning board would have enhanced her spiritual life. If there was a chance that it might have, she could have taken that chance. She didn’t. Probably she considered herself blessed enough already — blessed to live in a capitalist country where people can pay their bills on their own, without consulting anyone; a country where they can go away for months at a time without anybody “worrying” about them — anybody whom they themselves wouldn’t worry about; a country where neighbors can lend a hand without exacting the tribute of a feigned “community.”

This woman had a happy life — and if it wasn’t happy, she had only herself to blame. Contrast the millions, yea billions, of other people, people who have lived in other times and places, people who have been starved, butchered, tortured, or, as my ancestors used to say, “bothered half to death” in the circle of a close community. This woman was not a martyr; this woman was the symbol of a calm and tolerant society.




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A Miracle in Lansing

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On December 11, in a stunning surprise, Michigan became the 24th state to adopt right-to-work (RTW) legislation, that is, a law that prohibits any union from forcing workers to join or support it. In other words, Michigan has finally allowed people to exercise their right to free association.

This victory for workers’ freedom was amazing in that it was unlike most RTW states — which are mainly Southern states with no deep history of unionization. Like Indiana, the most recent state to adopt RTW legislation, Michigan is a large, upper Midwestern state; and it has long been dominated by union power.  

In fact, Michigan ranks fifth highest on the list of the states in terms of the percentage of its workforce who belong to unions (19.2%, compared to a national average of 11.8%). It has watched as businesses fled the state in droves — especially to Indiana, which after it passed its RTW law picked up 90 companies from Michigan.

The victory was notable for how quickly it occurred. It was only on December 6 that both chambers of Michigan’s legislature passed the Workforce Fairness and Equity Act. Under legislative rules, the state’s Governor Rick Snyder had to wait at least five days before signing the bill, during which time the unions mounted loud, furious, and occasionally violent protests. But the governor signed the law on the first day he could, despite the fact that Snyder had earlier in his term stated that he was not inclined to support RTW legislation.

But the really surprising thing is that Michigan has often been a bastion of the Democratic Party. The state’s citizens voted overwhelmingly for Obama in the recent election (54% to 44%). As surprising as the victory for the RTW law was, however, there were several reasons why the state legislature and governor felt the time was right to free the workers from their union oppression.

First, Michigan has been on an economic road to hell for years, with the crisis of its leading city, Detroit, as just the most striking example. Detroit is now teetering on bankruptcy, in great measure because of the excessive compensation and pension packages that public employee unions enjoy. Michigan has the highest unemployment rate in the Midwest — despite the tens of billions of taxpayers’ dollars that the Obama administration has given to GM, Chrysler, and the United Auto Workers Union.

The unions not only didn’t help to solve the problems, they made it nearly impossible for the governor and legislature to act. In particular, the public employee unions opposed all efforts to institute reasonable fiscal reforms to rescue distressed cities and school districts, virtually shutting down dysfunctional Detroit.

Second, the unions overreached. Seeing nearby Wisconsin cut back on collective bargaining rights for some public employee unions and nearby Indiana adopt an RTW law, Michigan’s unions put a proposition (Prop 2) on the ballot to amend the state constitution to make public employee collective bargaining beyond all legislative control. They also pushed an amendment (Prop 4) that would have forced unionization on all home health workers. Their arrogance in pushing these propositions and their impotence in failing even to come close to passing either one of them made the unions look asinine.

Third, the unions displayed their vicious side too prominently during the legislative debate. As legislators examined the RTW proposal, union supporters screamed “Heil Hitler! That’s what you people are!” at the Republicans speaking in favor of it. The Democratic legislators tried every parliamentary trick to stop a vote, including a Wisconsin-style walkout. A Fox reporter was beaten up by union thugs, and union supporters collapsed a tent owned by Americans for Prosperity (supporters of the legislation) on the people inside it, while screaming insults at them.

The question is now: which states will follow Michigan’s lead?




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