In a new column [link expires in a fortnight] for National Journal, I give some ground to the case for more aid for the Detroit Three. (I'll give Jonathan Cohn the credit, by the way: this is a great piece.) The point is that the bankruptcy process is impaired. Still, I think, the dire consequences of allowing GM to go bust are being exaggerated.
Now, bailout advocates say, consider the consequences. A note on this by the Center for Automotive Research (which you could say has a vested interest, but let that pass) has been widely cited in the past few days. It says that 3 million jobs could be lost. How does the center get to this number, when all three companies employ about 240,000 people, or less than one-tenth of that figure? It adds about 1 million more jobs at firms that supply the car manufacturers. Then it tacks on 1.7 million in "spin-off employment," which means jobs lost across the economy as a whole because of reduced spending by workers with Detroit's Big Three and their suppliers.
It would surely take more than the bankruptcy of GM to shut down all three companies and wipe out the industry's supplier network (which, remember, serves foreign-owned companies as well). The failure of one firm would help the survivors. The most-valuable assets of the failed company would most likely be acquired by its competitors. The technology for the forthcoming Chevy Volt -- the plug-in electric vehicle that some enthralled commentators seem to think justifies a $50 billion bailout all by itself -- would be snapped up by another company if it is as promising as its supporters say. Fiscal stimulus could reduce any spin-off unemployment. The collapse of GM would be a heavy blow all right, but not the end of life as we know it. Even if all three firms collapsed, the claim that this would destroy 3 million jobs is far-fetched.
Nonetheless, the view that the normal Chapter 11 process is likely to fail in this case has some weight. At a time when the economy is weak and the bankruptcy system impaired, when a good independent case can be made for a second fiscal stimulus of $500 billion or more to sustain demand and preserve jobs, it is difficult to argue with conviction that employers the size of the Big Three should be denied all help. But in coming to the rescue, if it does, the government should demand both a bankruptcy-like restructuring of the companies and a share in the upside.
Beyond the question of the bailout, what does the plight of the US car makers imply for the new administration's policy on unions?
The Democratic Party is allied with the unions, a marriage of head and heart. Obama has promised to support the "card-check" legislation that the unions see as vital for expanding their membership and bargaining power. The state of American auto manufacturing -- an example of union power in action -- ought to give him pause.
No doubt there is plenty of blame to go around for the mess that the industry is in. Epic management incompetence has played its part. So has shortsighted economic policy, which kept the price of gasoline in the U.S. at a fraction of what it was in other industrial countries. (If fuel is dirt cheap, you cannot fault consumers for wanting to drive SUVs, or car manufacturers for selling the vehicles that buyers want.) But on top of that, the unions raised wages and benefits to insupportable levels, and for years blocked efforts to cut costs and increase efficiency. Worst of all, by anointing themselves co-managers, they reduced the domestic industry's ability to react promptly to shifts in demand. Is this how the Democratic Party intends to strengthen the economy?
I think it is a mistake to discuss the state of the UAW/Big 3 relationship as parcel of a discussion about card check.
The Big 3 are not suffering as a result of the decisions jointly made between any or all of them and the UAW today. They are suffering as a result of decisions made by those entities in the 1950s and 1960s, when the Big 3 could be fairly said to have oligopoly power and could easily pass on these costs to consumers. Once that power was lost, these legacy costs were left over and the Big 3 could never quite figure out a way (until recently) to get out from under them.
Assuming we're talking about more competitive industries than 1950-60 Detroit, no new union today would be able to organize, say, Walmart and obtain a defined benefit pension plan or retiree health care benefits.
The converse of this rhetorical question would be whether Democrats (or Americans) trust the management teams of the likes of Citicorp, AIG, Washington Mutual, et. al. to raise the living standards of the typical American worker without giving that worker some increased bargaining power.
One suspects the answer lies somewhere in the middle but the idea that unions are antithetical to economic prosperity is one which would have been controversial prior to around 1980 in the United States.
It is just incredibly sad and disappointing that the change you can believe in is the old Chicago saw reward your friends and punish your enemies. Two days after the election, the leaders of rust belt including the UAW show up in the beltway with their fat palms up. If this isn't third world pay for play I don't know what is? The precedent is quite sad for our children and grandchildren.
If it's the unions, why isn't the German auto industry collapsing? And why isn't Boeing going belly-up? The downfall of the American auto industry is a cooperative venture. The villains are an arrogant and inept management team, short-sighted unions, greedy stock holders, and a lazy and ill-informed financial press. Why blame it all on the unions?
Whatever path we take - bankruptcy or bailout - our federal government needs to eliminate restrictions on the import of cars from at least the EU. There is no defensible reason to keep all these wierd re-tuning requirements and other bizarre trade barriers in place. Doing so has hurt our auto industry, not helped it.
All this nonsense does is prevent the exchange of ideas, by keeping both the EU and the US consumers ignorant of advances in technology. If we ever want an auto industry (or big industry generally) that is at least on par with that in the EU, we need to eliminate these completely pointless restrictions on the free flow of finished products.
With their documented history of dumping, the Asian manufacturers may be a different story, but there is no reason why an American should not be allowed to choose to go to Germany, pay more for a German-spec Mercedes, BMW, Audi or whatever, and pay to have it shipped back to the US. There is also no reason why someone moving from the US to the EU or vice-versa should be forced to sell their car and buy a new one if they are willing to pay for shipping. If you want to tax them at a reasonable rate on import to the US or EU, that's ok, of course. But making EU cars street-illegal in the states is just dumb.
Don't forget the cost of pensions and health care for retirees. My mother is 93 and still gets a pension and free health care from the automakers. My father died 22 years ago, he only collect his pesnion for seven years. If the automakers go down so do the pensions and health care. Even though my mother is the beneficiary of this program, it can not be justified or maintained in a restructured company.
Some excellent points. I supported Senator Obama, both with my vote and some volunteer work but I very much disagree with the idea of doing away with the secret ballot in organizing elections. I've been in human resources management for over 30 years, I've seen organizing drives and I've heard from employees in union free plants when they feel pressure from co-workers to sign cards.
The secret ballot at least gives the individual the opportunity to vote their true intent. I don't contend that managers have been totally "clean" in this process but unions also have the ability to file unfair labor practice charges if they have the evidence that unfair practices have been conducted. To take away the secret ballot is not the direction our country should be proceeding on this issue.
Now that the UAW has bankrupt the big three, Obama wants to let them rape and bankrupt the transplant auto companies. Obama's support for the bailout and the Employee Free choice Act is pay back for the UAW's election support of him. The UAW donated over a million, ran ads in key swing state which costs millions, had their union members volunteer for his campaign and fill up his rallies. Obama promised the UAW in 2007 that if elected he would provide federal aid to bail out the auto industries so the UAW can continue to rape them over. Chicago style politics. These greedy union workers don't deserve taxpayer's dollars. Let them get a pink slip like everyone else. No company in their right mind pays lifetime salary and medical benefits after layoff. The union ruined these companies and should not be rewarded. In order to pay for these outrageous wages and benefits, auto companies passed the cost to consumers and lowered quality of their cars which consumers paid for. Taxpayers have paid enough for these greedy union workers. They think they are entitled. I will never purchase an auto from the big Three. While the big three have been setting up foreign operations for years, the transplants have come to America providing quality autos and good paying jobs. My loyalty goes to the transplants. Obama hasn't even been sworn in yet and he has proven that his change is change you can not believe in. Obama's people are in the shadows in congress working to get this auto bailout passed. One of his advisers is governor of Michigan. Taxpayers don't want to pay for Obama's debt to the UAW. Obama may well get this passed for the UAW but he will be exposed within the year and won't get re-elected.
You also have to consider management decisions on how to fund those legacy costs, Clive. It's not different then Social Security. Where were they invested and how? Insured?
I still maintain that a single-payer health care system could and would solve much of a good portion of business's problem, including the auto's. It would certainly be a huge boost for small biz and anyone considering starting a business. Eliminating the administrative cost of billing and profit of insurance would be huge. (And the medicaid/medicare system already provide a model for managing it, a damn good one. I know, used to help manage the computer programs for the MA system.)
We're spending hundreds of billions bailing out this bank, that company. Isn't it time we bit the bullet, and simply pulled rot out of the middle of all of this? On average, it cost about $12,000 a year to insure a family now. That's outrageous. And that amount of insurance pays for less and less of the health care that family needs. It's no wonder we're failing financially. Work the numbers fro a working family up; there's no way to make it. No way for a company to provide insurance and a living wage; no way for people to afford a home. And the jobs that did make it? They were an illusion, a Wall Street illusion based on selling risk.
Take the health care problem away, and the family budget starts to balance again. Single payer; retrain the displaced workers. Demand better health-care outcomes from doctors based on patient results, not industry profits.
I'd frankly like to see GM file in a freefall involuntary, followed immediately by the auto suppliers, and then by Chrysler and eventually Ford. Let's blow out the UAW workforce, with their years of greedy money grabs like the Jobs Bank, and let's hose down the retirees non-secured healthcare OPEB benefits. Bankrupt the PBGC too, while we're at it. The human suffering would be immense, but it would stand as an eternal monument to how unionization destroys jobs, and would be a cautionary tale to the Democrats.