Chrysler turns down Government Loan for Guarantee to keep Minivans in Windsor

Posted by PITHOCRATES - March 8th, 2014

Week in Review

Cities and governments have long loved big industry.  Unions, too.  Because they’re big.  And are difficult to move. Such as an automobile assembly plant.  They take a lot of real estate.  Require a lot of specialized production and assembly equipment.  And a lot of infrastructure to support them.  Making them very difficult to move.  But not impossible (see Chrysler spurns government money, Windsor to build minivans posted 3/4/2014 on CBC News Windsor).

Chrysler will continue to build its popular minivan in Windsor, Ont., and has withdrawn all requests for government financial assistance in relation to the redevelopment of its assembly plants in Windsor and Brampton…

At the Detroit auto show seven weeks ago, Chrysler CEO Sergio Marchionne said that changes at the Windsor plant alone would cost at least $2 billion, and that Chrysler needed government help to finance the project.

Chrysler said in a media release Tuesday it will now “fund out of its own resources whatever capital requirements the Canadian operations require.”

Industry Minister James Moore said the government’s commitment to the auto industry is strong and he was surprised by Chrysler’s decision.

Essex Conservative MP Jeff Watson, whose riding is just south of Windsor, said he believed talks were going well.

“We were prepared to invest in exchange for guarantees for Canadian production and a Canadian supply chain,” Watson said.

Money from the government doesn’t come without strings.  And the string here was a guarantee that Chrysler wouldn’t leave.  No matter how costly the government or union contracts made it to stay in Windsor.  Costs that Chrysler has to recover in the sales price of their cars.  Which can’t be so high as to price them out of the market.  So Chrysler chose to spend their own money.  So they didn’t get stuck in an adverse economic situation when trying to compete in a global market.

“It is clear to us that our projects are now being used as a political football, a process that, in our view, apart from being unnecessary and ill-advised, will ultimately not be to the benefit of Chrysler,” the company said in a news release.

“As a result, Chrysler will deal in an unfettered fashion with its strategic alternatives regarding product development and allocation, and will fund out of its own resources whatever capital requirements the Canadian operations require.”

The government wanted what was best for them.  Economic activity they could tax.  While Chrysler wanted what was best for them.  Being able to sell cars at market prices.  And leaving their options open in the future.  Should it become too costly to continue to build cars in Canada.  Due to the cost of labor.  Or new regulatory policies.  Or higher taxes to fund a welfare state struggling under the costs of an aging population.  Governments are desperate for new tax revenue.  And will make almost any promise to get it.  Making long-term deals with governments risky.

According to the Ontario government, the auto sector employs 94,000 Ontarians, and supports as many as 500,000 families through indirect jobs…

Unifor Local 444 president Dino Chiodo, who represents hourly employees in Windsor, said he wasn’t completely surprised by Marchionne’s announcement…

Chiodo said Tuesday’s announcement is short of the $2-billion retooling and flexible manufacturing line employees were looking for in Windsor…

Chiodo said a $2.3-billion investment would secure three generations of minivans, which could secure jobs for decades…

Marchionne also wants union concessions.

Yes, they love the jobs these corporations create.  And all that economic activity those jobs create.  Economic activity they can’t create.  But they still hate corporations.  That’s why they tax them.  Regulate them.  Call them greedy.  Exploiters of labor.  And that the only way they can get them to do something decent is by making deals with them that favor them and not these evil corporations.  But sometimes these evil corporations don’t enter agreements that may harm them in the long run.  And when they do governments and unions panic.  As they fear they may have let a cash piñata slip through their fingers.  Which is a problem for them.  For they can’t create a single job those evil corporations can.

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The Ford Model T is probably a Safer Choice for a Cross-Country Trip than an All-Electric Car

Posted by PITHOCRATES - February 16th, 2014

Week in Review

The United States is no doubt tired of winter.  It’s been a long one.  Snow, ice and cold.  Especially cold.  With below-zero temperatures in northern states.  And freezing temperatures even in southern states.  In fact, it’s been such a brutal winter that every state in the United States but one has snow.  Florida.  It’s just been a long, cold winter.  But it’s been a good one for those in the snow removal business.  And for those in providing a jump-start for dead batteries.  For batteries just don’t like cold weather.  Which is another problem with all-electric cars.  In addition to finding a place and the time to charge them (see Tesla Model S Electric Car Versus … Ford Model T? A History Lesson by John Voelcker posted 2/14/2014 on Yahoo! Autos).

While the fast-expanding network of Tesla Supercharger DC quick-charging stations now permits both coast-to-coast and New York-to-Florida road trips by electric car, the magazine conducted its test last October…

And as it points out, in its area of the country (Ann Arbor, Michigan), there were no Supercharger stations last fall.

(There is now one, along I-94 in St. Joseph, Michigan, 26 miles north of the I-90 cross-country corridor–one of 76 operating U.S. Supercharger locations as of today.)

So it couched its Tesla-vs-Model T test as the equivalent, a century later, to the question it imagined potential buyers of the first automobiles may have pondered: How does this stack up against my old, familiar, predictable horse..?

In due course, small roadside businesses sprang up to sell gasoline for the newfangled contraptions, usually in the same place they could be repaired.

But travelers couldn’t be confident of finding gasoline until well into the 1920s, a result of the Model T turning the U.S. into a car-based nation almost by itself.

Imagine driving across a state the size of Michigan on a road trip.  From St. Joseph to Detroit on the other side of the state it’s about 200 miles.  Which it will take you over 3 hours to drive at posted speed limits.  Now imagine driving this with only one gas station to stop at.  One you’re not familiar with.  One that you will have to drive around a little to find.  While you’re running out of energy.  Now imagine you’re in an all-electric car.  And you find this one charging station and there are 4 cars ahead of you waiting for their 30-minute quick charge.  Which could increase your charging time from one half hour to two and a half hours.

Every gas station has electric power.  So every gas station could sell electricity for electric cars, too.  If someone had to wait a half hour to charge their car that is a lot of time they could be buying stuff from the mini mart all these gas stations have.  So why aren’t they building these things?  Is it that they don’t want the liability that might come from a faulty charger starting a battery fire?  Is it because there are so few all-electric cars to waste the investment on?  Is there a question of how to charge for electricity?  Or do they not want to turn their gas stations into parking lots with a bunch of cars waiting for their half hour of charge time?

Perhaps the reason Michigan only has one Supercharger station is because Michigan has long, cold winters.  Limiting electric car traveling to the summer months.  In fact, if you live in a northern state look for the charging stations some big stores have installed to show how green they are.  Chances are you won’t see a single car at them during the winter.  For when it comes to cold winters gasoline has it all over batteries.  Gasoline provides far greater range.  You can jump-start a gasoline engine in the coldest of winters and then drive home.  And if it’s cold you can crank the heat up to make it feel like summer inside that car.  Something you can’t do in an electric car without sacrificing further range.

The Model T was an improvement over the horse.  But the electric car is just not an improvement over the Model T.  Because a gasoline-powered car is superior to an all-electric car.  For if one was going to travel across a state the Model T would have better odds of getting you where you were going before running out of energy.  And even if you ran out of gas someone could bring a can of gasoline to you so you could drive to the next gas station.  Whereas an electric car would require a tow truck to the next charging station.

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The Fed’s Quantitative Easing keeps the Big Three Building Cars

Posted by PITHOCRATES - December 29th, 2013

Week in Review

Governments love it when people buy houses and cars.  Because building houses and cars generates a lot of economic activity.  So much economic activity that central banks will flood their economies with money to keep interest rates artificially low.  To encourage people to go into great debt and buy these things.  Even if they don’t want them.  Especially if they don’t want them.  Because if you add in people buying things who don’t want them with the people who do that’s a lot of economic activity.  Which is why central banks keep interest rates artificially low.  To get people to buy things even when they don’t want them.  But do because those low interest rates are just too good to pass up.

Automotive jobs are union jobs.  At least with the Big Three.  Which is another reason why the Federal Reserve (America’s central bank) keeps interest rates artificially low.  To save union jobs.  Because they support Democrats.  And the Democrats take care of them.  By enacting legislation that favors union-built cars.  Placing tariffs and quotas on imports.  And doing whatever they can to encourage the Fed to keep interest rates artificially low.  So the Big Three keep building cars with union labor.  Even if they’re not selling the cars they build (see Spending on new cars may break record in December by Joseph Szczesny posted 12/25/2013 on CNBC).

Total vehicle sales are expected to be up at least 4 percent year over year, with the industry anticipating all-time record consumer spending on new vehicles, according to a forecast.

While new car sales started the month slowly, they are expected to finish strong, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. That would be a welcome development for industry planners concerned about a recent bulge in dealer inventories, which has led several manufacturers to trim production…

Vehicle production in North America through November is up 5 percent from the same time frame last year, with nearly 700,000 additional units. Even as inventory has increased, production volume remained strong last month, at 1.4 million units—a 4 percent increase from November 2012.

But there are some concerns that the industry may be turning up production faster than the market can handle. General Motors, Ford Motor and Chrysler continued to build inventories last month, and their combined supply climbed from 87 days at the beginning of November to 93 days by the end…

Some of the buildup can be traced to dealers’ ordering pickup trucks and utility vehicles before the planned shutdowns for model changes at GM and Ford. But those two makers also have decided to take more downtime at some of their plants this month in an effort to reduce excess stock.

Automotive news is often contradictory.  Sales are up they tell us.  Even when inventories are growing.  A sign that sales are not growing.  Because when people buy more cars than they build inventories fall.  But when people buy fewer cars than they build inventories rise.  So when inventories are rising typically that means sales are falling.  So this isn’t a sign of a booming economy.  But one that is likely to slip into recession.  Especially when the Fed finally begins their tapering of their bond buying (i.e., quantitative easing).  The thing that is keeping interest rates artificially low.  And once they do those inventories will really bulge.  As they do during the onset of a recession.

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California offers Tax Breaks to help sell $70,000 Tesla Model S

Posted by PITHOCRATES - December 22nd, 2013

Week in Review

Electric cars aren’t selling anywhere near enough to make them a profitable business.  Because they just won’t do for you what gasoline will do for you.  Let you carry lots of stuff over great distances.  Because the electric car is so less of a car as a gasoline-powered car governments bribe manufacturers to build them.  And people to buy them.  Just so rich people can have these toys (see California Is Giving Tesla Another Huge Tax Break. Good Move. by Will Oremus posted 12/19/2013 on Slate).

This is going to drive the Tesla-haters crazy. The luxury electric-car maker is getting a huge new tax break from California, SFGate reports. The state will let it off the hook for sales and use taxes on some $415 million in new equipment it’s purchasing in order to expand production of the Model S at its Bay Area factory. That amounts to a $34.7 million tax break to produce more of a vehicle whose sticker price starts above $70,000…

So, in fact, it isn’t Tesla per se that’s getting special treatment from the state. It’s the clean-tech industry in general, which California is very keen to promote…

More broadly, whatever sense a tax on the purchase of manufacturing equipment might once have made for California, it’s patently counterproductive in the context of clean-tech startups in the 21st century. Add to that some of the highest income and sales taxes in the nation, and it’s no wonder California is worried about companies like Tesla picking up stakes and heading elsewhere. Businessweek notes that new manufacturing jobs in the state have risen less than 1 percent since 2010, compared with nearly 5 percent nationally. Gov. Jerry Brown has been chipping away at the tax already, and Tesla is just the latest example.

Nor is the deal likely to burden the state’s taxpayers. Tesla’s Model S is in huge demand, and the company has been scrambling since its launch to ramp up production.

No.  The Model S is not in huge demand.  Demand may be up for the car.  But if the demand was ‘huge’ like every other popular car that sold well you wouldn’t need subsidies or tax breaks to build and sell them.  For cars in high demand are often the cars with the greatest profit in their selling price.  Because people want them so much that they are willing to pay these higher prices.  SUVs and pickup trucks were these kinds of vehicles.  And before gas prices spiked they were the lifeblood of manufacturers.  Because people paid more for these than they would for the sedans at the time.  Which is when the imports took over that segment.

People like SUVs and pickup trucks because they are big.  They carry a lot of people.  And a lot of stuff.  Even pull campers and boats.  The ideal vehicle for the family vacation.  Something the electric car just sucks at.  For any extra weight just sucks away charge time.  Limiting your range.  Which takes all the fun out of going on vacation.  And makes it a little scary.  For there is nothing worse than having a car that doesn’t move anymore in a strange place far from home.

But if you’re still convinced that tax breaks to big manufacturers are unfair and wrong, you might want to train your ire on a state a little further north, which just offered an all-time record $8.7 billion in tax breaks to a company that manufactures perhaps the least-green transportation technology of all. The worst part: Boeing might just move out anyway.

There is a bit of a difference between Tesla and Boeing.  Boeing employs a great many more people than Tesla.  And they’re all union workers ‘further north’.  Hence part of the reason for the tax breaks.  To help them compete with their high labor costs against the heavily subsidized Airbus.  Also, Boeing leads U.S. exports.  And is about the biggest component in U.S. GDP figures.  So while tax breaks and subsidies are abhorrent at least Boeing gives us something for theirs.  Unlike clean-tech industries.  That receive huge government subsidies and tax breaks.  Only to go bankrupt (Solyndra, Fisker, etc.) a short time later.  Tesla is the exception to the rule.  Because its founder, Elon Musk, is a billionaire who spends his own money.  A lot of it.  Unlike the other failed clean-tech start-ups.

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A Diesel Car is a better value than an Electric Car

Posted by PITHOCRATES - December 22nd, 2013

Week in Review

People aren’t buying electric cars.  Because they are too expensive.  And because of their limited range.  Governments (federal and states) are trying to encourage people to buy cars they don’t want by offering subsidies to both manufacturers and buyers.  Which is getting some people to buy these cars.  But not many.  For even with those subsidies they’re still expensive.  And still have limited range.  Unlike these alternative cars (see These Diesels From Audi, BMW and Mercedes Cost Less To Own Than Your Gas-Powered Luxury Car by Hannah Elliott posted 12/19/2013 on Forbes).

Automakers have long lamented the American public’s reticence to embrace diesel technology as wholeheartedly as have Europeans…

But those who have adopted diesel love it. Audi head Scott Keogh routinely tells me his company sells out of each TDI model they make; Detlev von Platen at Porsche  told me at the LA auto showst month that diesel technology will continue to play an “increasingly significant” role for its fleet, especially the best-selling Panamera.

The truth is that while there is a price premium (roughly $5,300 on average) associated with the initial purchase cost of diesel vehicles, they typically get 30% better gas mileage and flaunt superior torque numbers and reliability ratings. The automotive analysis firm Vincentric estimates that driving a diesel car will save $2,117 in fuel costs over one year assuming annual rate of 15,000 miles.

Note the one thing conspicuous by its absence.  The word ‘subsidies’.  For people will pay a premium for a diesel.  Because there is value in a diesel.  They have superior torque.  Giving them greater pulling force than comparable sized gasoline-powered cars.  Better reliability.  And best of all they get a 30% better fuel mileage.  Which gives them greater range than a gasoline-powered care with a comparable sized fuel tank.  Giving them a greater range between fuel-ups than with a gasoline car.  And a far, far, far, far, far greater range than an electric car.  Giving the diesel an excellent value for the money.  Something you don’t have to bribe people to buy with subsidies.

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Democrats and Unions are impoverishing American Cities

Posted by PITHOCRATES - December 21st, 2013

Week in Review

Detroit had a massive public sector.  Lots of union government jobs.  With very generous benefits.  Then the city began losing population.  As the city shrank the public sector did not.  As the city could no longer support the public sector on tax revenue they turned to borrowing.  At her bankruptcy her pension obligations were in the billions.  And were just unsustainable.  With a lot of those retirees going to see huge cuts in their retirement benefits.  A first for a public sector union.  And one that may set a precedent for other impoverished cities (see Cities where poverty is soaring by Michael B. Sauter and Thomas C. Frohlich, 24WallSt.com, posted 12/16/2013 on Yahoo! Homes).

Many of these cities show a symptom of the regions hit hardest by the recession — a significant decline in real estate value. Nationally, the average home value during the three-year period of 2010-2012 was down by 9% compared to the previous three-year period. In eight of the 10 cities with soaring poverty rates, property values fell by at least 10%. Homes in Eastpointe lost nearly half of their value. In Inkster, Michigan, another city where poverty grew substantially, an average of 43.3% of homes were worth less than $50,000 between 2010 and 2012, compared to just 11.8% of homes during the 2007-2009 period…

Several of these cities were already struggling prior to the recession, in part because of their reliance on manufacturing. The industry had been declining for years, and the recession only made matters worse. In Salisbury, North Carolina, employment in manufacturing fell from 15.5% of all jobs to 8.3%. Goshen, Indiana, another city with a major increase in poverty, is heavily dependent on the auto industry — more than a third of the working population was employed in manufacturing between 2010 and 2012. According to Joe Frank at the Indiana Department of Workforce Development, this dependence had particularly dire consequences during the recession.

The Democrats are all Keynesians.  Who believe in government spending.  And keeping interest rates artificially low to stimulate the economy.  To encourage people to buy big expensive houses.  Just because interest rates are low.  So people did.  With mortgages so cheap everyone was getting them.  And as these buyers flooded the market housing prices soared.  Creating a great housing bubble.  Which collapsed when interest rates rose.  Resetting the rates on those subprime adjustable rate mortgages (ARMs).  Raising monthly payments.  Beyond what some people could afford.  Forcing them into bankruptcy.  Creating the subprime mortgage crisis.  And the collapse of housing prices.

The UAW made American cars so expensive people started buying the less expensive imports.  As most people don’t have UAW contracts giving them a fat paycheck and generous benefits.  Leaving them to get by on less than UAW workers.  Which meant they turned to the less costly imports.  Built by companies that didn’t have those great legacy costs of years of overly generous contracts that became unsustainable.  Pension costs and health care for retirees (which outnumbered active workers) forced GM and Chrysler to ask for a government bailout to avoid bankruptcy.  Asking the taxpayer to help them pay the generous pensions and health care costs of others.  Instead of bringing these benefits into line with the rest of America.

Democrats are Keynesians.  They believe in government intervention into the private sector economy.  And they protect their friends in unions to get their votes.  Raising costs for everyone else.  These policies, though, are just impoverishing American cities.  At least the ones dominated by unions and/or Democrats.

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Relying on Technology in lieu of Teaching our Kids to be Responsible Adults

Posted by PITHOCRATES - November 30th, 2013

Week in Review

There was an episode of Madmen showing Don Draper spending an afternoon drinking beer while working on a present for his daughter.  Then his wife said he had to go pick up the birthday cake.  He was not happy about this.  But poured himself a drink and left anyway.  Taking his glass of bourbon into the car.  And drinking from this glass while driving.

This is only a television show.  But a television show noted for its accurate portrayal of life in the 1960s.  People drank.  And drove.  With some crawling from their car to their front door because they were too drunk to walk.  And life went on.   Teenagers watched driver’s education films like Red Asphalt.  And still became Don Drapers.  Despite all that gore.  To this day we still drink and drive.  Well, for a little while more, at least (see Auto safety initiative seeks to reduce driver errors by Jerry Hirsch posted 11/29/2013 on the Los Angeles Times).

Auto safety regulators are pushing for new equipment to protect motorists from their biggest threat: themselves.

They’re aiming to keep drunk drivers off the road with the help of onboard technology that immobilizes their cars…

Now NHTSA and a coalition of 17 automakers are working on the so-called Driver Alcohol Detection System for Safety. The DADDS system uses sensors in the cabin to measure blood-alcohol content by breath or touch to ensure a driver is below the legal 0.08% threshold for impairment…

But some have reservations about these high-tech minders. The restaurant lobby opposes what it sees as an encroaching nanny state. Some analysts predict the equipment could add hundreds of dollars to the cost of each vehicle. And even some car enthusiasts say that imperfect technology could alienate the public it’s supposed to protect.

Jack Nerad, an analyst with auto information company Kelley Blue Book, imagined a scenario in which sensors picked up alcohol on the breath of passengers, preventing the designated driver from getting them home.

“You are reliant on the technology to be 100% perfect or your car doesn’t start,” he said. “That makes people very, very angry…”

Mistaken alcohol readings or faulty seat-belt sensors could put motorists in harm’s way if they’re stranded during emergencies or in remote places.

Where the DADDS system will set the blood alcohol limit could also prove contentious.

NHTSA says it will be the .08% level at which a driver is legally considered impaired, a ceiling that is supported by Mothers Against Drunk Driving…

But a slightly higher limit might leave a margin of error that reduces false positives without greatly increasing the frequency of drunk-driving crashes, said Clarence Ditlow, executive director of the Center for Auto Safety.

The majority of people who were killed in drunk-driving crashes last year were in collisions in which a driver had double the legal limit, according to NHTSA data…

“We are opposed to mandating this technology on all cars as original equipment,” said Sarah Longwell, managing director of the American Beverage Institute, a restaurant trade association. “You are not going to solve the drunk-driving problem, which is a small, hard-core population of offenders, by treating everybody like a criminal.”

She said drinkers could find ways to evade the technology. For example, they could quickly throw down some shots and already be on the road by the time their blood-alcohol level crosses the .08% limit.

“And then what is going to happen?” Longwell asked. “If you crash your car and you are well above the legal limit, can you sue the manufacturer? Who has the liability?”

Good point.  Who do you sue?  The bartender for serving the shots?  But why should the bartender worry about a patron’s sobriety when his or her car won’t start if this person is too drunk?  Which would be great for the drinking industry.  No more worries about someone leaving too drunk to drive.  Because the car will determine that.  So while the bartender may have cut them off after 3-4 shots there is no reason to cut them off at all now.  Because their car won’t start if this person is too drunk to drive.  So you can’t really hold the drinking establishment responsible.  For the new technology takes on that responsibility.

So do you sue the car manufacturer?  They’ll blame the American Beverage Institute who lobbied against the 0.08% limit.  Saying that raising it to such a high level (something above 0.08%) that it didn’t detect the drunkenness of the driver until after they started their car and entered traffic.  Will they require a time lapse between the driver’s last drink and the time they can try starting the engine?  A link between the bar’s POS system and the car?  This would be ridiculous.  Add more costs to a car.  And add more technology that can be ‘not perfect’.

What happens if some rowdy men spill a drink on a woman in a bar.  Who then leaves the bar.  But cannot start her car because of the alcohol spilled on her?  And then the rowdy men follow her to the parking lot.  And proceed to smash her windows to get at her.  While she can’t do anything because her car won’t start.  And they rape her.  Who gets sued then?

They used to hang horse thieves in the old West.  Because if you stole a man’s horse you put his life in great danger.  A car is the modern day horse.  Something you depend on getting you home safely.  And it is so reliable that we never imagine it not getting us home.  But now your car may strand you.  Leaving you to the dangers surrounding you.  And it may cause you to abandon your drunken friends to find their own way home.  Because you don’t want to take any chances your car won’t start.  By having their drunken asses in the car with you preventing you from getting home.

Of course it begs the question.  What will they do to protect us from people texting and driving?  Which has surpassed drinking and driving as a greater danger?  Technology that shuts off your engine whenever it detects a cell phone in use?  Imagine someone turning on their cell phone when you’re in a center lane on a limited access expressway.   Shutting off your engine.  And your power steering.  While you desperately make your way to the shoulder during rush hour traffic.

Perhaps we need a little less technology and a little more Red Asphalt.  For many of our problems would go away if we would only teach people to be responsible.  Instead of relying on technology to protect us from the irresponsibility of others.

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Australia’s Carbon Tax kills 1160 Jobs as Ford Stops Making Cars in Australia

Posted by PITHOCRATES - June 1st, 2013

Week in Review

General Motors and Chrysler required those government bailouts because of the costs of their pensions and health insurance.  Especially for retirees.  Who were living long into retirement consuming a lot of their health care dollars.  It was so bad that the cost of GM’s retirees was greater than the cost of their active workforce.  Which was a big problem.  For they just couldn’t sell cars at high enough prices to cover these crushing costs.

While labor costs are the automotive manufacturers biggest cost they’re not their only big cost.  Another big cost is energy.  For those assembly plants consume a lot of energy.  Especially electric power.  Which is why a carbon tax would be a horrible thing.  As it will only make a big cost bigger.  Perhaps even chasing more manufacturing jobs out of the country.  Like it is doing in Australia (see Ford workers ‘won’t be left behind’ posted 6/2/2013 on Sky News Australia).

Ms Gillard met workers from the Geelong factory on Saturday afternoon and announced an extra 15-million-dollars to help them find new jobs when operations close down.

Earlier on Saturday, Opposition Leader Tony Abbott challenged Ms Gillard to apologise to the workers, singling out the carbon tax as a contributing factor.

Last month, the company announced it would stop making cars in Australia, costing 510 jobs at Geelong and 650 at Broadmeadows.

The war on carbon gave Australia a carbon tax.  To punish those big carbon emitters.  In particular their coal-fired power plants.  Giving the government a clever way to transfer more money from the private sector to the bloated public sector.  For a noble reason to boot.  To combat global warming.  As Australia suffers through one of the coldest winters on record.  So to combat this global warming they added a punitive tax on electric power producers.  Which greatly increased the cost of electric power.  Greatly increasing a business’ costs that consumes a lot of electric power.  Like an automobile assembly plant.

The carbon tax is anti-business.  It makes for a less business-friendly environment.  So is it any wonder that a business leaves a place that grew more business unfriendly while they were there?  This is the cost of environmentalism.  And fighting the specter of global warming.  You put people out of a job.  And ruin their lives.

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How a 12-Year Old Canadian and U.S. Unions see Business Differently

Posted by PITHOCRATES - May 12th, 2013

Week in Review

Advancing technology has greatly increased productivity.  Allowing fewer workers to do what workers a generation earlier did.  Causing our workforce to age.  Fewer workers are entering the workforce than are leaving it.  And costly union contracts paying pensions and health care to those who have left the workforce has decimated union membership.  For the costs they place on business have made these businesses uncompetitive in the market place.  Chasing manufacturing jobs out of the country.  Leaving union membership in the private sector at its lowest rates since the heyday of the labor movement.  To understand why let’s take a business lesson from the Canadians.  Who are trying to encourage their kids to become entrepreneurs.  Unlike in America.  Where business and profits have become a 4-letter word (see Canadian entrepreneurs: Born or made? by BARRIE McKENNA posted 5/10/2013 on The Globe and Mail).

[Entrepreneurial Adventure] pairs students with local business people to create a business, design a product, sell it and then give the profits to charity.

Why?

Evidence suggests Canada suffers from a weak entrepreneurial culture. While it’s relatively easy to start a company, the record of turning start-ups into fast-growing and successful enterprises is less convincing.

A 2010 study by Industry Canada…

… found that Canada generates a lower proportion of fast-growing companies than other developed countries, that relatively few small companies export and that the age profile of business owners is getting older…

Many business schools, including McGill University and the University of Toronto, now offer special entrepreneurship programs.

This is a problem.  For the number one job creator in any free market economy are small business owners.  People who go into business for themselves.  Taking great risk.  And hiring people as they grow.  This is the entrepreneurial spirit.  People who start out small.  And become someone like Steve Jobs.  Most people don’t understand the entrepreneurial process.  And the importance of having a business-friendly environment to encourage entrepreneurialism.  To create jobs.  To grow a healthy economy.  Creating new products that make our lives better.  And to do that one of the first things an entrepreneur must learn is what this 12-year-old learned.

“Some things work and some don’t,” acknowledged Alim Dhanani, 12, who worked on project management and Web design for the company. “To sell something, you have to have the right price. Not too small, so you have a profit, but not too big, so people will buy it.”

A 12-year-old can understand this.  The role of prices in the economy.  They have to be high enough to pay the bills.  But low enough to encourage people to buy from you.  Often times it’s not a matter of a business owner determining the price he or she wishes to charge.  They have to figure out how to pay their bills (and earn a profit) at the prevailing market price.  Something labor unions don’t understand.  Or they simply don’t care (see Fast-food workers in Detroit walk off job, disrupt business by Steve Neavling and Lisa Baertlein posted 5/10/2013 on Reuters).

Hundreds of fast-food employees in Detroit walked off the job on Friday, temporarily shuttering a handful of outlets as part of a growing U.S. worker movement that is demanding higher wages for flipping burgers and operating fryers.

The protests in the Motor City – which is struggling to recover from the hollowing out of its auto manufacturing sector – marked an expansion in organized actions by fast-food workers from ubiquitous chains owned by McDonald’s Corp, Burger King Worldwide and KFC, Taco Bell and Pizza Hut parent Yum Brands Inc.

Fast-food workers, who already have taken to the streets in New York, Chicago and St. Louis, are seeking to roughly double their hourly pay to $15 per hour from around minimum wage, which in Michigan is $7.40 per hour…

“People can’t make a living at $7.40 a hour,” said Rev. Charles Williams II, a protest organizer. “Many of them have babies and children to raise, and they can’t get by with these kind of wages.”

Those workers face high hurdles in their fight for better pay. Low-wage, low-skill workers lack political clout and face significantly higher unemployment than college graduates…

The Detroit action was put together by the Michigan Workers Organizing Committee, an independent union of fast-food workers, that is supported by community, labor and faith-based groups such as the Interfaith Coalition of Pastors, UFCW Local 876, SEIU Healthcare Michigan and Good Jobs Now.

The unions want to do to fast-food what they did to the automotive industry.  In this case the union basically gave unskilled workers the wages and benefits of skilled workers.  Sounds great if you’re an unskilled worker.  But the UAW priced the U.S. auto manufacturers out of the market.  The Big Three are a shell of what they used to be.  With both General Motors and Chrysler requiring taxpayer bailouts to avoid bankruptcy.  And pay for their crushing pension and health care cost obligations.  For GM was paying for more people not working than they were paying to work.  Even a 12-year-old can understand that this is a business model that just won’t work.

So what will happen in fast-food restaurants if you raise the labor wage from $7.40 per hour to $15 per hour?  That’s a labor cost increase of 103%.  In the restaurant business the rule of thumb for calculating your selling prices is as follows.  You calculate your food cost then triple it.  For in general one third of a menu price goes to food.  One third goes to labor.  And one third goes to overhead (utilities, rent, insurance, etc.) and profit.  Now let’s take a typical combination meal (sandwich, fries and beverage) price of $7.50.  One third of this price is $2.48 which represents the labor portion of the price.  The increase in labor is 103%.  So we take 103% of the $2.48 ($2.54) and add it to $7.50 to get the new selling price of the combo meal.  Bringing it to $10.04.

What will customers do?  Now that the combo meal will cost $2.54 more will they just continue to eat fast-food like they once did?  Will they stop adding an extra item from the dollar menu?  Will they just buy a burger and eat it with a beverage from home?  Will they just buy from the dollar menu instead of buying combos?  Of course, with the increase in labor costs that dollar menu will have to become the $2.03 menu.  Will people stop going to fast-food as often as they once did?  Some may decide that if they’re paying for a $6 hamburger the may go to a diner or bar for a $6 hamburger.  Worried about the lost business would fast-food owners try to cut their costs elsewhere to try to continue to sell fast-food at the market price?  By hiring fewer people?  Pushing current workers to part-time so they don’t have to give them costly health insurance?  Or will they just close their restaurant.  As people just won’t pay fancy restaurant prices for fast-food.

That 12-year-old in Canada would understand how the higher labor costs would affect business.  Causing changes in buying habits.  And changes in business practices.  He would not start up a fast-food franchise if labor prices were 103% higher than they are now.  For he would have to raise prices high enough to pay the bills.  But when he did they might be too high to get people to come in and buy food.  Causing a fall in business.  And a loss in revenue.  Making it more difficult to pay the bills.  That 12-year-old would see this as bad business.  Because he understands that a business owner can’t charge whatever he wants to charge.  He has to figure out how to stay in business while selling at the prevailing market price.  And though he may love fast-food he knows that his allowance won’t be able to buy as much as it once did.  So he would reduce his purchases at fast-food restaurants.  Just as his father will probably take the family out less often because of the higher prices.  Just as single mothers struggling to pay their household bills will, too.  But the unions don’t understand this.  Or simply choose not to.  Instead they just tell the workers that their employers are greedy.

It’s a sad day when a 12-year-old has better business sense than our unions.  Then again if unions cared about business they wouldn’t have bankrupted two of the Big Three.

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The UAW and Public Sector Unions devastate Three Michigan Cities

Posted by PITHOCRATES - February 24th, 2013

Week in Review

It’s not been a good year for Detroit.  Well, it’s been more than a year.  It’s been a few bad years.  Actually, it’s been a great many bad years.  Since 1970.  When Ford Motor Company Chairman Henry Ford II joined with other business leaders to form Detroit Renaissance.  To revitalize the City of Detroit.  And some 42 years later, the City of Detroit is still struggling (see Detroit’s Misery Can Be Its Turning Point by Micheline Maynard posted 2/23/2013 on Forbes).

Detroit boosters were dealt a one-two blow this week by the kind of outsiders they have come to resent.

First, a state review panel declared that a financial emergency existed in the city, making it likely that Michigan Gov. Rick Snyder will appoint an emergency financial manager with sweeping powers.

Then, Forbes weighed in by declaring Detroit the nation’s most miserable city, based on a series of criteria that include crime, unemployment, foreclosures and home value…

Although General Motors is based in Detroit, and Chrysler recently opened an office there, the automobile industry is not going to provide the vast numbers of jobs the city needs to become solvent.

And there lies the problem for Detroit.  A city that grew big and rich off of the automobile industry saw a steady exodus and a declining tax base when the automobile industry declined.  Live by the automobile.  Die by the automobile.  And it’s just not Detroit.  A couple of other Michigan cities broke into the top 10 of Forbes’ America’s Most Miserable Cities 2013.

#7 Warren, Mich.

Troy and Farmington Hills are part of the government-defined Warren metro division. Like Detroit, the Warren metro has seen home prices collapse–off 53% the past five years.

#2 Flint, Mich.

Flint has been demolishing homes as the city shrinks with residents leaving in search of jobs. Only Detroit has a higher net out-migration rate. Flint ranks third worst for violent crime, behind Detroit and Memphis.

#1 Detroit, Mich.

Violent crime in the Detroit metro was down 5% in 2011, but it remains the highest in the country with 1,052 violent crimes per 100,000 people, according to the FBI. Home prices were off 35% the past 3 years, which is the biggest drop in the U.S.

If you seek a pleasant peninsula* you’d do better looking for one where the UAW isn’t dominant.  Perhaps Florida.  For the UAW is a city killer based on these Michigan cities.  (*The official state motto of Michigan is “If you seek a pleasant peninsula, look about you.”)

The Big Three dominated these cities.  Where fat pay and benefit packages were passed on to consumers in overpriced vehicles.  The Big Three’s monopoly on car sales allowed them to make fat profits.  And pay enormous amounts of taxes to the cities that had the factories that assembled their cars.  City coffers were so flush with cash city governments grew.  And city workers enjoyed fat pay and benefit packages.  This was the high water mark of the UAW.  Just after public sector unions had joined them on the gravy train.  But then something happened that devastated the UAW.  Consumers got choice.  They no longer had to buy overpriced ‘rust buckets’ the Big Three was putting out during the Seventies.  For the Japanese gave them choice.

And so began the great decline of the Big Three.  Quality and value did them in.  It’s what the people wanted.  While the UAW wanted consumers to pay more and get less.  So they could continue to enjoy their fat pay and benefit packages.  As the jobs went away so do did the taxes.  The cities bloated with all those government workers with their fat pay and benefit packages tried to maintain the size of their governments even while the tax base was declining.  Reducing other government services as they had little money left over after paying those fat pay and benefit packages.

With fewer and fewer jobs available people left these cities.  Empty houses dotted the horizon.  And housing prices fell.  With the tax base continuing to decline.  Poverty rates rose.  As did city services for the impoverished.  Leaving even less for other city services.  Causing a further exodus from the city.  Urban blight followed.  As did crime.  Causing a further decline in property values.

Low interest rates helped boost housing prices.  For awhile.  President Clinton’s Policy Statement on Discrimination in Lending kicked off subprime lending in earnest as lenders bowed to the Clinton Justice Department to put more low-income and minorities into homes they couldn’t afford.  Creating a huge housing bubble.  Built on easy credit.  Artificially low interest rates.  And the adjustable rate mortgage (ARM).  When rates went up all those low-income and minorities who bought houses they couldn’t afford defaulted on their higher mortgage payments.  Creating the subprime mortgage crisis.  Giving us the Great Recession.  Creating a flood of foreclosures.  A free fall in housing prices.  And more of the same that helped put those three Michigan cities into the top ten of Forbes’ America’s Most Miserable Cities 2013.

Michigan recently opted to become a Right-to-Work state.  Greatly angering the UAW and those public sector unions.  But it may be just what Michigan needs to reverse the great decline caused by the UAW and the public sector unions that devastated some of Michigan’s greatest cities.  One thing for sure it can’t get any worse.  Not when being a union state for so long secured three places in the top ten of Forbes’ America’s Most Miserable Cities 2013.

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