Like so many things in Detroit, Ford's Volvo sale may be all about the retiree health benefits
The WSJ has a very interesting article today explaining that Ford's main motive for thinking about selling off Volvo is the need to raise money to pay for a deal with the UAW:
General Motors Corp. and Ford Motor Co. have moved in recent months to pare assets and build up cash as they seek answers for their loss-plagued North American auto operations. Potentially adding to the moves, people familiar with the matter said over the weekend that Ford is considering selling its Volvo car unit, a profitable business expected to receive considerable interest from other car companies and financial buyers such as private-equity firms.
GM, meanwhile, agreed to sell its Allison Transmission unit for $5.6 billion after nearly 80 years of ownership. It has also raised more than $10 billion in recent months in credit markets, all of which was won by pledging assets essential to running its automotive business.
A key part of GM's plan, according to people familiar with the matter, is to amass a cash hoard big enough to offload tens of billions of dollars of current health-care liabilities for blue-collar retirees to a new, union-run fund outside the company known as a VEBA, for voluntary employees beneficiary association. Industry observers say Ford's move also fits that goal.
Whenever I write that the Detroit Three have become retiree-benefit providers that make a few cars on the side, I wonder if maybe I'm overstating things. But here's Ford thinking about selling off one of its more valuable assets just so it can pay to get retiree benefits off its books. After that, the idea is, Ford will just be a carmaker again. From the perspective of the automakers, I think this a great idea. It will remove their executives' perennial excuse for losing ground to Toyota and Honda and Nissan. But that's a good thing, right?
For the retirees, it's a somewhat tougher call. They will no longer be at the mercy of Detroit, and no longer at risk of losing their benefits in a bankruptcy. But if health costs keep going up and the VEBAs turn out not to have enough money, retirees won't be able to hit up the automakers for more. Still, they've got Medicare already, and this seems like an eminently reasonable solution to a really difficult problem.
-
1
I think this is a very sad denouement to decades of bad decisions by both management and union in the auto industry. It pains my stomach just to think that it has come to this. Everyone that has spent their careers associated with the auto industry should be ashamed. If we look at who has dismantled the industrial prowess of America, the fingers don't point at NAFTA, they point at Detroit.
. . . excuse me, I got carried away, but it is depressing. You're absolutely right, Justin. This move is business at its best.
-
2
Agreed with Peter that there's more than enough blame to go around. However, I would place the vast majority of the blame on the Detroit 3's management rather than the unions. For too many years, they have stuck the poor American consumer with gas guzzling junk, while using patriotism and political lobbying to help them survive. At the end of the day, when the ship sinks, the captain gets most of the blame. When a team has a bad record, the coach gets fired first. It's time for Detroit 3's management to accept responsibility for their failures, make better cars, and quit blaming their own former employees for the mess that got everyone into.
If you need to be reminded of how arrogant and pathetic the Detroit 3's management is, rent a copy of Roger and Me.
-
3
Indeed, this situation is a sad one, and it is management's fault. For years, they committed the sins Make notes, but they also committed another very grave one: they never stood up to the unions for fear of a strike. It was management that signed off on these benefit packages, job guarantees, and wages. As a result, these unskilled assembly line workers with sufficient seniority earn more than many white collar professionals with graduate degrees. They believe they are entitled to it, and why not? Management has handed it to them contract after contract after contract.
It is indeed tragic to see the disintegration of the US auto industry. Talented people still work in the business, but management, driven by short term goals and Wall Street pressures, have sold them down the river and enriched themselves in the process
- TIME The road to World Cup glory | http://su.pr/4BIr6L - 8 hours ago
- TIME Twitter App Showdown: Echofon Pro vs Tweetie 2. There can be only one. (via @techland) | http://su.pr/2NRR4C - 11 hours ago
- TIME The National Zoo's panda is leaving. See pictures here | http://su.pr/1wUNuY - 11 hours ago
Most Popular »
- Tennessee Mayor Accuses Barack Obama Of Hating On Charlie Brown, Peanuts
- Wii Fit Plus Review
- NV Sen Poll: Reid In Trouble
- Obama Shifts Date of Copenhagen Visit
- The PlayStation Turns 15, We Reminisce
- 'Forgotten Man' II: Two-Thirds of Jobless Blue-Collar
- 135 Money-Saving Resources and Tips, Special Holiday Season Edition
- Twitter App Showdown: Echofon Pro vs Tweetie 2
- False Economy: Think You're Saving Money? Think Again
- Loving The Joke
- How Strong Is the Evidence Against Amanda Knox?
- Will Federal Spending Mistrust Mean the End of Obama's Audacity
- Amanda Knox, Convicted of Murder in Italy
- Amanda Knox Testifies: The Murder Trial That Has Gripped Italy
- Nicolas Sarkozy: A French Paradox
- Helicopter Parents: The Backlash Against Overparenting
- Astronomers Spot Planet-Like Object GJ 758 B in Orbit
- Foxy Knoxy Case Still Roils Italy
- Hate Your Job? Here's How to Reshape It
- Are TV Chefs Taking on the Latest Diet Craze?
Quotes of the Day »
RSS