The new viability plans were part of the bargain automakers struck with Congress in December, when the two U.S. car companies received $17.4 billion in U.S. Treasury Department loans.

GM requested up to $16.6 billion in additional funding, on top of the $13.4 billion it has already received from the government. The automaker said it needs $2 billion by March and $2.6 in April to avoid running out of cash.

GM also wants a $7.5 billion line of credit that could be drawn upon, if needed, and asked to defer repayment of a $4.5 billion credit line due in 2011.

In an effort to cut costs and return to profitability by 2011, GM plans to shutter another five U.S. plants, in addition to nine it closed in December. It will sell or wind down its Hummer and Saturn brands, and said that it was talking to the Swedish government and other parties about making Saab an “independent business entity.”

The company will cut its global workforce by 47,000 this year, a figure that includes the 10,000 white-collar job cuts announced last week.

Meanwhile, Chrysler, which received $4 billion in federal loans two months ago, renewed a request for $3 billion of additional aid and said it needs $2 billion to implement its restructuring plan, bringing its total bailout request to $9 billion.

Chrysler’s plan includes discontinuing its Chrysler Aspen and Dodge Durango sport-utility vehicles, as well as the once-white-hot PT Cruiser car.

Chrysler has also cut its workforce from 87,000 at the end of 2006 to less than 54,000 now. It has also eliminated 12 shifts at its plants, equal to roughly one-third of its production capacity.

Italy’s Fiat S.p.A. (OTC: FIATY) last month agreed to buy a 35% stake in the foundering Chrysler. The deal is expected to boost Chrysler’s small-car technology and give Italy-based Fiat access to the U.S. auto market. It will also give Chrysler access to Fiat’s global distribution network.

The United Auto Workers union (UAW) said Tuesday that it reached an agreement with GM, Chrysler and Ford Motor Co. on changes to its contracts with each of the car companies.

Ronald A. Gettelfinger, UAW president, said that the changes “will help these companies face the extraordinarily difficult economic climate in which they operate.”

Source: GM and Chrysler Request Another $22 Billion in Federal Aid

Long-suffering readers know that we’ve taken a contrarian position against hybrid and electric cars as evidence continues to mount against their short-term returns for investors. The flip side of our coin, however, is that we don’t know when these investments will start to show profits for shareholders.

Two data points popped up on our computers in recent days, further substantiating our gloomy view of battery-powered vehicles. The latest sales data on hybrid sales proved grim, while an article in the Wall Street Journal provides anecdotal evidence that the market uptake contradicts the market hype for electric cars.

Automobile Magazine recently reported that hybrid sales tumbled 9.9% in 2008. The consensus was that low fuel prices have deterred consumers shelling out the “hybrid premium,” in which these new fangled cars tend to cost more their gas-powered counterparts.

Even the segment-leading Toyota Prius suffered, with sales plunging nearly 30% in the second half of 2008.

The article quoted Andrew Brown Jr., chief technologist at Delphi Corp, as saying “People want the technology, but it’s got to be economical. That’s the challenge in the industry now: to get the cost of those components down.”

With fuel prices averaging around $1.62 nationwide in December 2008, it would take a Prius owner 70,000 miles to recoup the initial premium ($7000 base) over the similarly sized Corolla, according to the article.

One of the earliest causalities in this tough market is a Norwegian start-up Think Global AS. The Wall Street Journal described Think “as one of the front-runners” in the electric-car segment. Unfortunately, Think investors got caught in the squeeze between PR spin, no cash and cheap gas.

Just as Think was ready to ramp up manufacturing from 350 of its two-seater cars to 10,000, the bottom fell out of the market in every which way possible. The timing was horrible for Think. The worsening cash crunch forced creditors to demand faster payments. In the end, Think filed for bankruptcy protection.

Venture capitalists, the self-proclaimed smartest guys in the room, lost out on Think. The company’s demise came in the middle of venture drought as these super investors cut off cash infusions into green technology overall.

Now with significant incursions by the world biggest car makers into electric and hybrid vehicles, upstarts such as Think and others face more formidable obstacles to success. Still, regardless of how big the player, the economy and enduring low gas prices will continue to hammer green vehicles for investors.

Eventually, hybrid and electric vehicles will hit pay dirt. For the time being, you’re still better off putting your money into a bank CD.

This from Investment U:

President-elect Obama takes office in less than a week’s time. While many will be watching closely to see how he handles the ongoing financial crisis, I’ll be equally interested to see how he handles a far more ominous one: our ongoing energy and infrastructure crisis.

Regular readers know I believe energy and infrastructure are inextricably combined. We need cheap energy to fuel sustained economic growth. And we need infrastructure in place to move and dispense the energy from its source to its destination. Today I’m going to give you a perfect example of how the two are intertwined, and how one can play off the other to create a positive benefit for all.

In the face of gas prices that are less than half of what they were only a few months ago, it’s easy to think the “oil crisis” has passed. We can all return to “business and life as usual” – revert to our old driving habits – and just pay the lower price at the pump, right?

That would be a huge mistake. The real price we’ll pay will be our continued dependence on foreign oil. Last year, U.S. consumers and businesses spent over $475 billion hard-earned dollars for it.

Higher Gas Prices Are Around The Corner

With today’s lower prices forcing the cancellation or postponement of exploration projects around the world – and OPEC threatening more cuts – higher gas prices are just around the corner.

Just imagine for a minute, if – year after year – we took that nearly half a trillion dollars and reinvested it here. We’d have a stronger dollar, less susceptibility to economic downturns and recessions, and perhaps even a trade surplus as opposed to a trade deficit.

Well there’s one state that’s doing just that, setting an example the rest of the country should follow. As a result of their efforts, a growing percentage of money spent on auto fuel stays here. And car sales there are on fire. You see, these cars don’t burn gasoline. They run on a much cleaner fuel, one that’s found in abundance right here in the United States: natural gas.

We’re behind the natural gas as a fuel for cars curve, however. Worldwide, there are about eight million vehicles operating on natural gas. Here in the United States we only have 116,000. But Utah, with its estimated 6,000 vehicles, is breaking new ground. Even Utah’s Governor Jon Huntsman Jr. converted his state SUV to run on the clean burning fuel.

One word: cost.

Gas Prices In Utah – 85 Cents-A-Gallon

Natural gas prices at the pump in Utah are controlled, and are the cheapest in the nation, at the equivalent of roughly 85 cents-a-gallon. The other big advantage Utah has is the infrastructure to fill the cars. It’s fairly scarce in most other areas of the country.

And while natural gas is widely used in Europe at the consumer level, here its use is relegated to a few fleet vehicles. At the consumer level, it’s the classic Catch-22 situation. Carmakers – with Honda as the only notable exception – aren’t willing to make natural gas powered cars with so few filling stations available.

On the other side, filling stations don’t want to fork over the money to install expensive equipment to compress the gas, something that’s required in order to fill the tank on the car.

As is often the case, government intervention in the form of tax incentives or financing will go a long way towards breaking the logjam. California is leading the way, with legislation that offers a minimum $2,000 rebate to buyers of natural gas fueled cars.

Congress has legislation it will be considering this year that offers tax credits to consumers and producers alike, and mandates to install pumps at service stations across the country. The goal? Have the nation’s consumer fleet 10% powered by natural gas within 10 years.

Energy and Infrastructure Plays With a Natural Gas Bent

U.S. natural gas production remained stagnant for nearly nine years, and then in 2007, abruptly increased 9%. Improved drilling technology accounts for a large portion of the increase. Horizontal drilling and fracturing is fast becoming the preferred method of producing gas from difficult geological formations like shale.

And there’s plenty of it: Big shale deposits include the Marcellus, Bakken, Haynesville, Barnett and Woodford. Navigant Consulting, an industry consultant, estimates natural gas production can be ramped at least 50% to 30 trillion cubic feet per year between now and 2020, if necessary.

A simple way to play the gas game is to bet on one of the big producers, like:

• Chesapeake Energy (NYSE: CHK)
• Anadarko Petroleum (NYSE: APC)
• Or BP, PLC (NYSE: BP)

Once the gas is brought to the surface, it has to be distributed through our nation’s pipeline network. And that’s currently being expanded at a rapid rate to meet growing gas demand, primarily from utility customers. Take a look at three of the largest natural gas pipeline infrastructure companies in the United States:

• Kinder Morgan (NYSE: KMP)
• El Paso (NYSE: EP)
• Williams (NYSE: WMZ)

In summary, natural gas-burning vehicles represent a clean alternative to fossil fuels, and a good bridging solution until improved batteries enable meaningful numbers of plug-in electric hybrids. All the companies mentioned stand to score big if a serious natural gas auto mandate gets underway. And we’ll all be the better off for it.

Source: The Gas Prices Rollercoaster: Why Energy & Infrastructure Are Inextricably Combined

The thinking goes that if consumers are dumping SUVs there must be an equal and opposite reaction that would create a stampede to green cars. Well, maybe one day consumes will make that stampede. However, the Times’ article shows consumers’ reaction as more of a trickle.

Electric cars will attract a lot of attention at the Detroit Motor Show this week. The luscious booth babes of the muscle cars exhibits are being replaced deer robots in fake forests.

As the Times reports, the major automakers are feeling pressured to pour billions into the rapid development of electric cars when they can least afford it. Apparently, this mad rush into electric cars is driven more by the competition than by actual near-term demand.

The Times writes: “Strong consumer demand has to be part of that equation, too. And it remains unclear whether consumers will be comfortable with the idea of buying an electric car, or whether these vehicles will priced to compete with comparable gas-powered models.”

While Detroit expects financial help from President-elect Obama to both auto makers and consumers, the only subsidized market that really seems to make investors money is the military.

Currently, Ford plans to make only 10,000 of the electric vehicles a year at first — very few by Detroit standards — to test the market cautiously, according to the Times.

Now take into consideration that Toyota, Nissan, Mitsubishi, Subaru, GM, Chrysler and host of upstarts are rushing into this market, and you see that the casualty rate will be pretty, darn high (with triage coming from U.S. taxpayers).

Chevrolet has been touting the forthcoming Volt at a price of $40,000. With 2 million people losing their jobs and last, and another 2 million expected to join the ranks of the unemployed in 2009, who has the money to spend on that when their 2003 Chevy Trailblazer is chugging along just fine?

No one has money to spend on any new car…gas prices are still down…and battery technology still remains in its infancy.

If you contemplating an investment in electric cars, we recommend that you hit the brakes now.

** The dollar’s down, but it’s certainly not out.

• From mid-July to the end of November, the U.S. Dollar Index rose a whopping 23%. This tracks the value of a dollar against six major currencies.
• Anyone who knows anything about currency trading knows it’s not normal for a currency to move 23% in such a short time. Forex traders consider a one percent daily move to be big news.
• So it would make sense that the U.S. Dollar Index would have to see a rapid price decline after rising 23% so quickly. It has to go back to the mean, after all. And that’s exactly what happened. The dollar fell 11% between mid-November and mid-December.
• But this drop doesn’t necessarily signal the beginning of a new downtrend. As of now, it only signals a correction. We can see this by looking at a chart below

• As long as the dollar stays above its 200-day moving average, the recent uptrend will stick. But that’s not to say we won’t see dollar weakness ahead.
• It’s possible for the dollar index to trade between 78 and 88 for the next two or three years. It could even move past 88. But betting that it will move under 78 is premature. If you really want to capitalize on a drop in the dollar, wait for a confirmation of the downtrend by allowing the U.S. Dollar Index to trade under 78 before shorting.
• At that point, you could make some good money buying up the Rydex Weakening Dollar 2x Strategy H ETF (MUTF:RYWBX) . For every one percent the dollar losses, you gain two percent. And with Bernanke dropping money from helicopters, it is only a matter of time before the dollar starts seeing bigger drops.

** The Congressional Budget Office estimates that the 2009 budget deficit will reach $1.2 trillion.

• That was one day after President-elect Obama said, “Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point.”
• The government has already backstopped the financial markets to the tune of over $8 trillion. Now our politicians are starting to spend obscene amounts of money in a failed effort to “jump start” our economy.
• If the markets continue to suffer, the government will have to cover losses for years in the future. This means they will continue to create funny money to cover those losses. And inflation should become a big concern.

** According to Bloomberg, General Motors said it has enough government loans to cover its worst-case forecast for U.S. auto sales and won’t need more if the economy holds up.

• It’s extremely difficult to believe that a one-time loan to GM would be enough to fix their problems. A former Merrill Lynch auto analyst has said that GM’s plan “all depends on a lot of difficult-to-forecast factors, like the size of the market.” And during congressional testimony, another analyst said Detroit would need up to $125 billion to become whole again. This is very different from the less than $20 billion that GM and Chrysler got from the government in December.
• The truth is that GM is taking a big fat guess on the amount of taxpayers’ money it needs to stay afloat. And to make matters worse, it seems GM’s management is far too detached from reality to make a good business decision.
• Considering GM’s current predicament, why would anyone believe GM to be right about its super-ambitious forecast? Don’t believe a word of it. GM will ask the government for more money this year… more losses will force the government to create more money… and the politicians leading us will be “forced” to spend more to try and “buffer” a recession in vain. Buy gold.

It turns out, according to some analysts, shareholder equity could be wiped out if Washington gets its way. Shares of General Motors (NYSE:GM) are down by nearly 20% today thanks to a report from Credit Suisse that says shareholders may suffer as the company restructures.

The analyst that researched the report cut his outlook for the company’s shares to just $1 each, down from $2 per share. That is not the kind of news shareholders were looking to start the week with.

Toyota’s (NYSE:TM) bad news this morning is not helping the situation in Detroit. It slashed its earnings outlook for the second  time in less than two months. Now, the company expects its first ever annual loss. Its share price is down by 5% on the news the company will likely lose about $1.7 billion during its fiscal year ending in March.

Pay attention this time

As I said last week, this is not the time to be buying shares of automakers, but it is the perfect time to be buying shares of their suppliers. Companies like BorgWarner (NYSE:BWA), American Axle (NYSE:AXL) and Tenneco (NYSE:TEN) are all seeing cuts to their valuations on the recent negative news. It is creating a prime buying opportunity.

Just because Ford (NYSE:F), General Motors and Chrysler are forced to make concessions does not mean their suppliers will. In fact, the supply chain will be the chief benefactor of the bailout. UAW will lose power. Detroit bondholders will certainly suffer. And equity owners will lose even more money. But suppliers will be the first (maybe second after Uncle Sam) to get their money.

Do not try to speculate on the future of the Big Three. Once the government gets involved, logic and reasoning get tossed out the window. Forget about trying to pet the sharks and invest in the remoras that feed off their supply chain.

One of my favorites is Tenneco. With its solid Walker brand and the company’s focus on emissions technology, it will be a long-term winner as the industry cycles back to a stronger state. It is taking healthy steps to deal with its debt load and will emerge as a winner in 2009.

Start doing your research and take advantage of today’s low prices. Little Johnny’s toys are not the only things selling for a deep discount.

Source: For General Motors (GM) the News Keeps Getting Worse

Gold rose more than 2 percent in Europe on Monday as the dollar slipped to a fresh two-month low versus the euro, boosting interest in the precious metal as a currency hedge.

Gold was held below $830 an ounce for much of the day by technical resistance, but stops were triggered as the rising euro pushed prices higher, leading to a spike to a two-month high of $842.15 an ounce.

Spot gold was quoted at $840.05/842.05 an ounce at 1533 GMT, against $819.90 an ounce in New York late on Friday.

Traders are awaiting an announcement on interest rates from the U.S. Federal Reserve on Tuesday, which will have a significant impact on the foreign exchange market, and consequently on gold.

“On the currency side, the high yield has been dragging euro higher,” said Pradeep Unni, a senior analyst at Richcomm Global Services.

“If the Fed slashes rates again, the yield differentials between the euro zone and Fed would widen further.” The dollar slipped against both the yen and the euro, striking a two-month low against the single currency as traders continued to exit long dollar positions, spooked by uncertainty over the fate of U.S. automakers.

Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it.

The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday after the Federal Open Market Committee’s two-day policy meeting concludes.

“Everyone is banking on a lower interest rate in the U.S.,” said Afshin Nabavi, head of trading at MKS Finance in Geneva. “If the dollar continues to lose value, of course it will benefit gold.”

Oil, the other key external driver of gold, rose nearly 7 percent to $50 a barrel in afternoon trade. Crude prices have been boosted by expectations for a cut in OPEC production later this week.

EQUITIES SLIP

However, equity markets have shed gains, with European shares turning negative in the early afternoon after a lower opening on Wall Street.

U.S. stocks retreated as shares of big-cap tech companies declined while uncertainty over the fate of a possible rescue plan for ailing carmakers also weighed.

Among other precious metals, spot silver tracked gold higher to $10.51/10.59 an ounce, against $10.23 in New York late on Friday.

The platinum group metals benefited from hopes for a bail-out of the U.S. automotive industry. Carmakers are major buyers of PGMs and weakness in the sector has pushed prices sharply lower in recent months.

Major platinum producer Aquarius Platinum said on Monday it will keep its Everest mine in South Africa closed for at least six months.

“A six-month closure would result in 38,000 ounces of lost platinum output and 19,000 ounces of lost palladium output, less than 1 percent of global production of both metals,” said Barclays Capital.

“However, for now the market focus remains firmly centered on demand weakness, which is likely to expose prices to downside risk,” it added.

Spot platinum climbed to $833.50/853.50 an ounce from $805.50 an ounce, while palladium surged to a high of $178, before easing to $173.50/181.50 an ounce, up from $168 late on Friday.

Dollar weakens to two-month low versus euro… Oil climbs nearly 7 percent; OPEC supply cut expected

Jan Harvey
LONDON, Dec 15 (Reuters)

This from Investor’s Daily Edge:

It’s a bullish sign when the market turns its back on horrible economic news. How the market could ignore an historical loss of jobs and go up 259 points like it did last Friday is beyond me … unless the market has bottomed.

Maybe it has. Maybe my colleague Mr. Rick Pendergraft is right. He usually is.

But every fiber of my being is telling me, “Don’t believe it.”

When the dotcom fantasy caused the market to crash, Greenspan quickly lowered rates and gave the mortgage industry the green light to loan to everybody with a heartbeat. Even your pet dog could have gotten a loan.

Once again the economy was off to the races.

So what’s going to kick-start the economy this time?

The prevailing opinion is that looser credit and lower interest rates could do the trick. IF ONLY IT WERE THAT SIMPLE.

There are two “minor” flaws to this thinking…

1. Massive amounts of government handouts have already gone to the banks with disappointing results.

Banks have written off almost a trillion bucks. And they could have another trillion to go. OUCH!

Thirteen months into the credit crunch, it’s still not clear which are the “good” banks and which are the “bad” banks. There’s still a lot more septic debt that needs flushing out.

By the way, I haven’t recommended an American bank in my INCOME stock portfolio since September 2006, and I don’t plan on recommending one soon.

2. Lower interest rates? What good is that if credit card companies will be cutting your credit lines in half? It’s not a done deal yet, but that is where the credit industry is heading, “Banking on an Early Recovery? Think Again” (I wrote about banks not lending in May 2008).

Can the economy really rebound when households are getting poorer? What’s going to happen when the two-thirds of consumer spending which propels this economy gets cut back to one-half?

This fourth quarter has been one nasty ride. President-elect Obama is coming into a very difficult situation. I wish him luck. He’ll need it. Far from a let-up, next year the economy will get worse as in…

More jobs lost … housing prices slipping further … and a banking sector that unbelievably will continue to spin out of control while soaking up tens of billions of government dollars…

It won’t be pretty. And the government will do the one thing it always does: Throw loads of money at the multiplying problems.

It hasn’t worked so far. I see no reason why any of this money will stick to the wall next year. So how will some sectors do next year?

• Oil. Oil broke the $50 barrier decisively last week. $40 is next. Do you doubt that it will be broken? I don’t. $30 is another barrel of fish. If Russia and Mexico join OPEC in effectively reducing output, prices won’t go lower than $30-35. If not… be prepared for a new era of cheap gas and more SUVs on the road.

• Banks. The big money-earning days of banks are over. The price of getting government hand-outs will be much greater government supervision.

But before banks figure out their new business model, they have to stop writing down billions of dollars and closing down investment funds whose returns are negative.

Plus the banks are still on the hook for $50 trillion (this is basically insurance on the mortgages banks sliced and diced into groups with different levels of risk attached to them). If 40 percent of these exotic derivatives default, that’s $20 trillion that banks will have to pay the holders of the insurance contracts.

Where is that money coming from?

For those of you who think that losing 50-80 percent of your market cap is enough, think again. It ain’t over yet.

• Autos. Auto companies will probably get a lifeline from the government. But even with a new labor agreement in place, they still have to figure out how to be profitable with a 10-15 percent share of the market, “Is It Worth Saving the U.S. Auto Industry?”. Those days of supplying 30 percent of the market are gone.And how about this for irony. As the Big Three make the painful transition to smaller and more fuel-efficient cars, cheap gas will slow our hankering for such cars.Once again, American car companies will be out of touch with what Americans want.

  Home-grown companies have a place in this country. They can survive as a pared down but stronger industry. But getting from here to there won’t be easy – especially when demand is falling so fast.

I’ll leave it to my colleagues to find the silver (or gold) linings for next year. I hope it won’t be as tough a year as I think it will. The Dow is definitely heading into another swoon. 6,000 seems far away … but it’s only as far as 2009.

Source: Can It Really Get Worse Than This?

The dollar fell against other major currencies apart from the yen while demand for government bonds dropped.

European shares jumped, led by banks and oils, tracking gains in the United States and Asia.

The FTSEurofirst 300 index of top European shares traded 5.8 percent higher. Earlier, Japan’s Nikkei  climbed 5.2 percent to its highest close in a week.

U.S. president-elect Barack Obama said on Saturday that his plan to create at least 2.5 million new jobs included the largest infrastructure investment since the 1950s and a huge effort to reduce U.S. government energy use.

Lawmakers in the U.S. Congress are also working on draft legislation to help out the embattled auto industry.

“The central banks have done their job and now the focus is on governments — in addition to Obama’s plan we have stimulus packages from India, Australia and China,” said Thierry Lacraz, strategist at Pictet in Geneva. “While this will not avoid a recession, investors at least have the feeling that the people in charge are doing the right thing.”

Global stocks as measured by MSCI were up more than three percent. For the year to date, however, they remain down more than 46 percent.

HIGHER YIELDS

The dollar fell broadly, hitting its lowest against the euro and a basket of major currencies in more than a week as the steep rally in European shares indicated renewed risk appetite and boosted higher-yielding currencies.

The euro rose 1.1 percent to $1.2877 while the dollar index fell 1.1 percent.

However, the yen tumbled, hitting its lowest level against higher-yielding currencies including the Australian dollar, the euro and sterling in roughly a week due to the slight pullback in risk aversion which boosted European shares.

The dollar rose roughly 1 percent to 93.91 yen.

“Higher stocks are driving everything at the moment and currencies are trading in line with this, with higher yielders gaining and lower yielders on the defensive,” said Adam Cole, global head of FX Strategy at RBC Capital Markets in London.

Euro zone government bond yields rose sharply.

The interest rate-sensitive two-year Schatz yield was up 14.6 basis points at 2.226 percent. The Schatz is also sensitive to gains by equities as the short-end of the yield curve is more liquid and a gateway for equity investors to return to the stock market.

The 10-year Bund yield was up 13.2 basis points at 3.160 percent, as the yield curve flattened.

Jeremy Gaunt, Sitaraman Shankar, David Stamp
LONDON, Dec 8 (Reuters)

This from Investor’s Daily Edge:

Consumers drive the American economy. Give them confidence in their jobs and they work hard, create value, make money and exchange it gladly.

Take away their jobs, and it all stops.  The flow even stops when people who still have jobs become worried by the trouble they see around them. And that is exactly what is happening today.

This week, the Institute for Supply Management released numbers that should frighten consumers and freeze the economy even more. The ISM’s monthly index of manufacturing activity fell to 36.2 for November. Any reading below 50 means the economy is shriveling, and these numbers are extreme. It gets worse. The new orders index fell to the lowest level in 28 years.

And jobs… The ISM employment index fell to 34.2. It has fallen four months in a row, without a sign of improvement anywhere in sight.

Meanwhile, financial pundits and columnists who should know that two-thirds of the U.S. economy is rooted in consumer spending applaud every layoff and plot for more… they think this creates shareholder value.

Worse, they invent plans to save the world by inflicting more pain and job loss.

I’m not sure where they think consumer dollars come from, but it’s a crazy idea to kill the golden geese if you expect them to spend their nest eggs. And they promote this nutty notion by repeating crazy or outright false facts…

For instance, they think they could save Detroit if it weren’t for those $70 an hour autoworkers.

Aww, gee… The problem with their plan is that union autoworkers don’t make $70 an hour. Not even close. Do you want to know the real numbers?

In 2007, the United Auto Workers union renegotiated the base union wage to $14 an hour for new “second tier” hires. That was a full 50% cut from what pre-2007 (first tier) workers got.

This is old, old news—the pundits with the plans should know this. I’m not sure whether they missed the news or they just prefer to overlook it because it doesn’t fit their philosophy that labor is always the problem.  In the military, spreading stuff like this is called disinformation. In politics, it’s called propaganda. Out here where I live, it’s called stubborn.

But you still think that $70 an hour number must have some truth if everybody is spouting it? Well, it must be those fabulous benefits, then, huh? Sure… but if you think a blue-collar $28 an hour bolt tightener is really making $70 an hour, let me show you how to prove a $7 an hour burger flipper really makes $18.

You start with your actual base pay of $7.25 an hour at Hamburger McHeaven. Then you add the national average for benefit expenses such as health insurance, retirement and vacations. That would be 29% of his base pay (U.S. Department of Labor, Small Business Administration data). Now you’re up to $9.35 an hour in wage costs (not all pay!).

We still have a long way to go… but we can use the “evil autoworker” ploy—we’ll include the pensions for four ancestors in the burger flipper’s salary.

That’s how you get a $70 an hour autoworker. You take his salary, plus his benefits like Social Security, FICA, workers comp, and health. And then you add full benefits and pension costs for four retired workers to the total.

That’s the germ of the “truth” in the $70 number, even though UAW workers don’t personally make anything close to that figure.

True, pensions are a big overhead. In 1962, GM (NYSE:GM) employed 460,000 American workers, and provided retirement benefits to about 40,000 former employees. But by 2005, GM had about 140,000 employees and 450,000 retirees.  Their past success and size led to this upside-down mess.

But the current worker’s pay? Truth: the actual average for manufacturing workers in Big Three auto plants is $67,480 a year. Turnover is very low. Half of these workers are over 45 and have been on the job more than 20 years. So they’re up to $32.44 an hour, just a 16% raise from what a new worker hired in 2006 would get. (Source: Center for Automotive Research data, 2008.)

And what does a retiree get? The average is $31,000.

These numbers, by the way, include both skilled and production workers… the designers, engineers, programmers and mechanics as well as the bolt-tighteners.

Detroit and other auto towns may lose hundreds to thousands of jobs. We may not be able to avoid it. But don’t imagine for a minute it’s good.

Fire ‘em, furlough them, poison them or ship them to the moon and you are still not going to save $145,000 every time you get rid of a GM, Ford (NYSE:F) or Chrysler worker.

But you will lose a consumer, who might lose a house, who will pay less in taxes at state, local and federal levels.  You will gain a family that doesn’t buy a new car, take a Disney vacation or eat steak and go out to Red Lobster once in a while. Why the media propose that creating massive sudden unemployment is going to fix Detroit’s mess—or ours—is a mystery to me.  Maybe they don’t like blue-collar workers who make more than they do.

That’s just the obvious example of the day. Ditto the same in a dozen other industries and states.

Job losses eventually harm us all indirectly. Maybe even your own city’s budget—even if you live in Maine or California instead of Detroit. The New York Times reports that in October alone, 20,000 employees of auto dealerships lost their jobs nationwide. The auto dealers association estimates that new-car dealers produce a $54 billion annual payroll for 1.1 million workers. These dealers bring in nearly 20% of the retail sales and sales taxes in small and large communities alike, according to the Times.

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And there’s something else you should know about those autoworkers if you think the middle class matters. They’re college grads, too

That’s right, as of 2007, over 74,000 of the Big Three’s 129,000 manufacturing workers in Michigan had college degrees. The ratio is continually rising. Unskilled positions are becoming very hard to find in the industry.

Even among skilled workers with no college degrees, attaining their skilled job status required 8,000 hours of on the job training, plus 700-800 hours of classroom time. If you were applying for a US government job, that would constitute the “equivalent” of a bachelor’s degree at the very least.

“They” are us. Different part of the country, different industry, different work, but real, true middle class people. That was Henry Ford’s plan. And Henry Ford was a heck of a capitalist.

Ford paid his autoworkers $5 a day back when a machinist’s pay was 22 cents an hour and less skilled workers made 15 cents to 20 cents an hour. Ford wanted his workers to reach middle class and buy cars.

We’ve lost his vision. He understood that good jobs led to widespread prosperity. Trying to hire U.S. workers at mythical pay scales of Third-World countries that sell third-rate cars within their own borders, or even their Japanese counterparts over here is not the solution.

In fact, non-union autoworkers at the foreign carmakers in the U.S. now make just about the same as the Big Three’s union workers.

Of course they do. Supply and demand, baby. If they didn’t, every Toyota (NYSE:TM) plant in the country would vote to go union tomorrow. Why don’t the media know this? Are they eating the magical mushrooms?

But the disinformation campaign rages, and you should ignore it. These people got their theories from books, and think they are better than average working people, because as long as the AC is working they don’t sweat while sitting at those desks.

It’s simple. The economy will not turn around while unemployment is rising. We may have to lose jobs, but it’s like losing a leg to prevent the spread of gangrene. It’s a deterrent; it’s not a blessing.

So, let’s not be so quick to applaud every time we read about layoffs.

And let’s not be too high-minded about preferring desk-bound white-collar jobs to production-line jobs. Only some of those white-collar jobs are truly skilled, and most are learned on the job just like in factories—except the training period is shorter in the white-collar world.

These days, companies hire college grads to be customer service order takers, salesmen and marketing assistants—none of which truly requires 16 years of education. College grads are a dime a dozen. The average machinist is far more explicitly job-skilled and has much greater direct job training than the average new bank teller or loan officer.

And just look where all those loan officers got us, anyway.

We may not bring back the housing bubble that sent the economy into overdrive, and we don’t want to. But we do need to put most of the people who lose jobs in this recession back to work as quickly as possible. Only then can we get the momentum to create real, new jobs once spending unlocks again.

My only hope is that if state or federal governments do create jobs with infrastructure spending to get things going the money will be tightly managed. I’d suggest two criteria:

• Funding only projects that are “shovel-ready,” not in planning.
• Earmarking for projects that serve security needs, high-density areas, major shipping routes or critically worn infrastructure such as old water and sewer systems.  We don’t need more outer-outer beltways, airport parking lots, stadiums, or highways through nowhere.

And by the way, give those autoworkers some credit for a lot of good things the rest of us enjoy. If you are going to screw them, at least snap off a respectful salute first.

Because you owe a lot of benefits to organized labor–paid vacations, 40-hour standard weeks… and your health insurance. Almost nobody had it till unions fought for employee health insurance when President Harry Truman’s plan for national healthcare failed in the 1940s.

Source: A Consumer Economy Can’t Run Without Consumer Income