Credit crunch, job uncertainty troubling America
(FinalCall.com) – America recognizes the last part of the year as a holiday, reserved for parties and gift giving, but many are wondering what’s to celebrate when they are suffering the worst economic crisis in decades?
Just a week before Christmas Day, President George Bush authorized $17.4 billion in loans to help two of the top U.S. automakers avoid rock bottom. The move came shortly after Ford, Chrysler and General Motors had announced that they would shut down plants as they sort things out. Ford, GM and Chrysler announced month long shutdowns.
Despite the emergency bridge loans, the shutdowns will stand. GM’s closures amount to 20 factories and cuts to its vehicle production. Chrysler extended two-week holiday shutdowns to Jan. 19 at all 30 factories and four others beyond that date–two plants in Toledo, Ohio, one in Ontario and one in Detroit.
Ford, which will shut down 10 of its North American plants for an extra week next month, passed on the government loan because it doesn’t face a near-term liquidity issue nor is it seeking governmental short-term assistance, a spokesperson said. But it is seeking a $9 billion line of credit to help safeguard against worsening conditions.
Fallout from auto industry troubles
Failing auto industry companies will have a major impact on Blacks and Latinos because they’ve been the most hired over the years, said Bill Fletcher, Jr., a prominent labor movement activist and senior scholar with the Institute for Policy Studies. In fact, he said, “We were very important in unionizing the auto industry because we threw down and went union and often made the real difference, so auto is very much a part of the Black American experience.”
“When people talk about ‘nah, let the industry collapse,’ then I would say take a guided tour of Flint, Michigan or Detroit, Michigan and see what’s happened in the chaotic unraveling of the auto industry over the last 30 years and then come back and talk about letting this thing collapse,” said Mr. Fletcher.
Under the Bush plan, the manufacturers will receive $13.4 billion in short term financing from the taxpayers’ $700 billion bailout money initially targeted at the financial industry. They will receive another $4 billion in February, depending on final draw downs from the Troubled Asset Relief Program funds.
The money is supposed to help restructure the country’s auto industry, prevent bankruptcies and protect taxpayers by only giving aid to firms that can fully repay the government loans or will become able to repay by March 31. President Bush also proposed that the car giants match their wages with foreign automakers that have plants in the U.S.
Big loss for auto workers?
“Bush’s announcement is sort of a temporary reprieve from the worst aspects of what could have happened, but what is critical to realize is that his proposal represents a major defeat for the auto workers.He is forcing them to accept cuts that put them on par with the non-union facilities,” Mr. Fletcher said.
He argued that such cuts have always been the goal of the Republican right and he is urging President-Elect Barack Obama to reverse the cuts as soon as he takes office. Yes, auto workers are accustomed to shutdowns around this time, but not for extended periods, Mr. Fletcher explained.
“There’s going to be no Merry Christmas, no Happy Kwanzaa, no Happy Hanukah. This is bad and the ripples are very significant, which is something that has been raised, but I think a lot of people don’t get. This is not simply about what happens in one industry. There’s a spin off, so if the auto industry is in big trouble, so will the steel industry, so will the rubber industry, parts suppliers, dealers, etc.,” Mr. Fletcher added.
Industry analysts said the auto industry tanked because car buyers could not get credit for loans, and sales dropped. Things could get worse and not better if federal bailout money doesn’t move the credit market as the government has promised, they said.
In a recent interview with April Ryan of the American Urban Radio Network, Nation of Islam leader Minister Louis Farrakhan noted that his teacher, the Honorable Elijah Muhammad, warned many years ago that the factories would close and Blacks would be out of work. Mr. Muhammad said Blacks should not be like grasshoppers who play all summer long, never prepare for their future, but die from the first blast of a cold winter, the Minister said.
“He said to us that we have got to strike out and do for ourselves because we cannot expect a benevolent White president or a Black president to do for us what we must unite and do for ourselves,” Min. Farrakhan added.
“The Black community has $700-800 billion that goes through our hands each year now, but it is our disunity and disrespect of ourselves and each other that disallows us to pool some of these resources to start creating that which will supply our needs,” Min. Farrakhan continued. A better way to spend time during this part of the year is enjoying family, rather than frivolously spending hard earned dollars, he said.
Dr. Harry Davidson, of the National Association of Black Psychologists, said the latest crisis could not have come at a worse time.
As of November, the Department of Labor reported 10.3 million people were unemployed and the rate of unemployment continued to jump beyond 6.7 percent.
The overall thrust of the current auto company matter is Mr. Bush’s attempts to press the auto union and reduce worker wages and benefits, said Dr. Davidson.
He echoed Min. Farrakhan’s sentiments on family, saying the so-called holiday season offers an opportunity for closeness, if for no other reason than a survival need. People are feeling pressure now because of their dependency on the false god of materialism and capitalism, Dr. Davidson explained. “That image of security has been destroyed, which means you have to go to another source, be that with each other and family drawing closer or re-establishing a relationship with God,” Dr. Davidson said.
Calls to nationalize auto industry
Like Mr. Fletcher, some in the labor movement agree with President Bush’s idea of loans to the auto companies, but they also believe a viable solution would be to nationalize the U.S. auto industry. One, they argue, there’s no basis for confidence in the companies over the long term because of how they’ve destroyed the industry, and two; a mounting economic and environmental threat is increasing.
When the U.S. entered World War II, Mr. Fletcher recalled, within two months, there was an economic conversion of the auto industry from civilian to military production. Today, that could happen by producing various types of cars, light rails, and rapid city transit, he said.
President Bush said the emergency loan was also necessary to prevent more than a one percent reduction in the Gross Domestic Product, loss of employment to about 1.1 million workers and new unemployment claims worth almost $13 billion.
“While we appreciate that President Bush has taken the emergency action needed to help America’s auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers,” said Ron Gettelfinger, president of the United Auto Workers.
The auto industry, however, isn’t the only economic trouble spot. Many fear the next collapse will come from Americans overwhelmed by credit card debt, usually a staple of holiday spending. Consumers are facing instant credit card rate hikes from eight or nine percent to at least 17 percent. Legislative attempts had not succeeded in ending the card companies’ practice of rate jacking and shortening bill cycles. But on Dec. 18, the Federal Reserve approved rules to better protect credit card users. They include:
– Protecting consumers from unexpected interest charges, including increases in the rate during the first year after account opening and increases in the rate charged on pre-existing credit card balances;
– Forbidding banks from imposing interest charges using the “two-cycle” billing method and requiring that consumers receive a reasonable amount of time to make their credit card payments; and
– Prohibiting the use of payment allocation methods that unfairly maximize interest charges and address subprime credit cards by limiting the fees that reduce the amount of available credit.
But shopping news wasn’t good at the time of year retailers and other businesses usually count on to make a profit, meaning bad times in 2008 will spill over into 2009.
The International Council of Shopping Centers expected established stores to post their worst performance for the holidays since at least 1969, when it began tracking such data, said the Associated Press. It predicted same-store sales–or sales at stores open at least a year–would drop as much as one percent for the November and December period, and feared the decline could even be steeper, AP noted.
ComScore, a Virginia-based company that tracks online spending, said purchases through cyberspace were down one percent from last year. Online spending has grown rapidly, spending increasing some 20 percent between 2006 and 2007, said ComScore. Online sales totaled $24.03 billion between Nov. 1 and Dec. 19, ComScore said.