Wednesday, November 12, 2008

The Great Auto Union Bailout

President-Elect Barack Obama and congressional Democrats are pushing hard for a bailout for U.S. automakers. Lack of support from President Bush and House Republicans will likely push back any bailout until after Obama takes office in late January, but that is not stopping the plan from moving forward.

Democrats argue that a bailout of U.S. automakers is necessary because they employ nearly three million workers. Opponents of the bailout believe that any financial support given to the big 3 will do nothing to correct their ultimately unsustainable business practices and will just open the door to future bailouts to the struggling industry. They believe the best solution for American automakers is bankruptcy, where they will be allowed to restructure their businesses.

What the Democrats won't tell you is that they are pushing for the bailout not to actually help automakers, but to prop up struggling and increasingly irrelevant unions.

The average autoworker in the big 3 makes $72 per hour including wages and benefits, or roughly $150,000 a year for each assembly line worker. Comparatively, Nissan and Toyota pay their workers in the U.S. an average of $46 per hour including wages and benefits. [1]

On top of that, U.S. automakers are being forced to pay more than 12,000 UAW members not to work. That's right, not to work. The agreement that is costing GM and Ford billions of dollars came in the 80's when the companies pushed hard for UAW to support efforts to increase productivity through automation.

The Democrat pushed auto bailout would reportedly provide U.S. automakers with the cash they claim to need to continue operating through the end of the year. On top of the financial boost, Democrats plan to push hard for national health care in an effort to offload the costs of providing the UAW members' health care from their employers to the American tax payer, a plan which is estimated to cost taxpayers of more than $36 billion a year.

While the big 3 are certainly to blame for their fair share of their current economic woes, UAW needs to recognize their part and be willing to drastic concessions that will allow U.S. automakers to become more competitive. This, in part, means bringing labor costs more in line with their competitors.

Since any current bailout plan being put forward by Democrats does not require labor renegotiation's, the bailouts will be doomed to failure. The big 3 need to be allowed to enter bankruptcy where the courts can force the restructuring of labor agreements and allow for the necessary fundamental restructuring that will save the once great industry and millions of American manufacturing jobs.


Warm Apple Pie said...

James, strangely we are in agreement here, except for the part that it's only the Dems pushing this pointless bilge. Both sides of the partisan apparatchik are losing their way on this bailout into the abyss. Paulson is wielding scary influence and deviating from the original plan. Amex today has pushed for 3.5 billion in help. Most of AIG is probably sitting in Turks and Caicos right now sucking down umbrella drinks on the bailout teet.


While my heart reaches out to the American autoworker, my brain asks where does the bailout buck stop? Don't some foolishly-run hulking entities have to fail?

Sheer madness! This is not a Republican or Democrat issue (though you may want to push that angle). This cuts to the core values of DC insiders, lobbyists and the cream of the corporate elite. It is an American issue, us vs. them - and the "us" includes all taxpayers regardless of party affiliation.

James said...

On bailouts in general, I couldn't agree more. It's definitely a bipartisan fleecing of the taxpayers.

On the auto issue, I think its falling along party lines a bit.

American Express... they diserve to fail. So do the other credit card companies if they try to reach their hands out. They have prayed on students, poor, and elderly to put people into debt and keep them their. Their is a great documentary about the credit card industry that everyone should see. It's called Maxed Out.

Warm Apple Pie said...

Maxed Out? Took it in last week. Shameful practices. They are turning the screws on me as we speak, cutting my available credit limits as I pay down my balance, thereby forcing me to take a score hit.

We'll see where the camps form on the auto industry. If Obama and the Democrats push for a no strings attached bailout, I will be the first to cry foul. Detroit's business methodology has been ass-backwards for 30 years. Foolish inflexibility without care or regard for the demands of the marketplace. Making union concessions that amount to a windfall. Putting out an inferior, inefficient product.

Perhaps there is room for maneuvering. I don't mind Friedman's idea for some sort of receivership or conditional funding based on R&D benchmarks. But I do not support anymore reflexive check writing without an eye for the next decade, the next century. Pelosi scares me. Paulson scares me. Lame duck Bush scares me. Hell, the only one who doesn't absolutely scare me right now is Obama. At least he has hamstrung by the lack of a formal office until January.