U.S. Economic/Financial News
GM, Delphi Deal with UAW Hastens Industry Shutdown
GM and Delphi reached a deal with the United Auto Workers March 22, on an "accelerated attrition program," offering early retirement incentives to employees. Foolishly called "a historic agreement" in some press accounts, the deal will dramatically shrink the production workforce of both companies, costing GM between $6 billion and $10 billion, while solving none of the issues between Delphi and the UAW. In fact, Delphi announced immediately after the "historic agreement" that it still intends to file a bankruptcy court motion asking that its contracts with the UAW be set aside, and still demands drastic wage reductions from those workers who remain at Delphi. Nor does it solve the question of whether Delphi's pirate CEO Steve Miller gets to close half its production plants; a national UAW strike could still result.
GM is offering to pay a lump-sum incentive of $35,000 to any of 13,000 Delphi UAW workers who are eligible to retire, and willing to quit; it is offering early retirement buy-out packages to "all [114,000] GM hourly employees," with incentives of between $35,000-$140,000, higher for younger workers, lower for those nearer retirement. GM employees who accept early retirement would give up health care and other post-retirement benefits, while keeping pension benefits. And GM will offer "positions" to another 5,000 Delphi employeeslikely to mean positions in a GM "jobs bank" for laid-off workers until the end of the UAW/GM contract in 2007, and then early retirement.
Neither company, nor the UAW, was estimating how many of the 130,000 production workers of both companies would accept this offer to be flushed out of the auto industry. The plan clearly involves the threat of even further drastic shrinkage of GM as a productive company, even as the interest-rate burden on its $300 billion in debt keeps growingthus opening the door wide to a near-term GM bankruptcy.
"It doesn't get us any closer to what we need to save this industry, and some of these plants are going to be concrete slabs within a yearthe country will never get that capacity back," said one union leader familiar with Lyndon LaRouche's alternative policy for retooling the auto industry. LaRouche himself commented that this has been allowed to happen because neither the Senate nor the House Democratic leadership has been functioning recently, due to "the problem represented by Felix Rohatyn."
Auto Sales Plunge in Early March
U.S. retail auto sales plummeted by 13% in the first half of March, compared to 2005, the Detroit News reported March 20. Every major automaker, except BMW, posted a drop in sales, according to J.D. Power and Associates. GM's retail sales fell 20%, Ford's sales were down 19%, and Chrysler's sales declined 14%.
Funds' Risky Bets Could Spell End of 'Debt Party'
"Nobody knows how much is at risk in the entire [debt] market if there is a big blow-up," the Wall Street Journal mused March 22, warning that the riskier bets of the hedge funds could signal an end to the "debt party." "Nobody knows just how much the few investors who buy the riskiest portions stand to lose if things go badly." The Journal focussed on the "collateralized-loan-obligation" marketbank loans to companies that are bundled and sold in pieceswhere speculators are now making deals they wouldn't talk themselves into a few years ago. With loan defaults rising, "who is holding the riskiest tranches? It is mostly hedge funds.... How much underlying leverage do they all really have? Nobody knows because nobody keeps track."
Hedge funds' assets have reportedly grown to $1.5 trillion, a 50% increase in just two years.
Maryland Electric Co. Begins Charging Deregulated Rates
Maryland's electric company is getting an early start in charging deregulated rate hikes, while the Governor and legislators are making noises about trying to get BG&E/Constellation to settle for less than the up-to-72% rate increase it has announced it will impose when price caps come off electric rates July 1. But the utility is not bothering to wait until then.
The 50,000 of the utility's 300,000 customers who pay on a bill-averaging basis, are already being hit with price increases, reflecting rate hikes that are slated to go into effect in the third quarter of this year. Average residential bills are expected to increase more than $700 a year.
Neo-con Gov. Robert Ehrlich has offered $25 million in a supplemental budget proposal to help pay the bills of low-income residents.
Democratic leaders have called for the ouster of Public Service Commission Chairman Kenneth D. Schisler, saying that he is too close to the utility the commission is supposed to regulate. "We're moving ahead to find a solution," said one Democratic state senator, without mentioning the possibility or necessity of re-regulation.
Across the state line in Virginia, the legislature recently extended price caps on electricity for another two years.
Fewer Doctors Providing Low-Cost Health Care
According to a new report from the Center for Studying Health System change, covered in the Washington Post March 23, the proportion of doctors providing low-cost health care dropped to 68% of doctors in 2004-05 from 76% in 1996-97. It is also of note that the number of people without health insurance has risen sharply, putting more pressure on emergency rooms. Nonetheless, many people just go without.