NCPA - National Center for Policy Analysis


December 15, 2008

For a full week, GOP lawmakers bore the brunt of the bitter battle waged over an aid package for GM and Chrysler.  Though the idea is wildly unpopular among voters, some Washington politicians were desperate to pass it -- particularly the Democrats, who are beholden to the United Auto Workers (UAW) and other unions for tens of millions in campaign donations, according to Investor's Business Daily (IBD).

In addition to major restructuring by the automakers, GOP senators insisted on givebacks by the United Auto Workers.  The UAW responded with a resolute "No."  But the bailout foes won, killing the $15 billion in aid.  And they were right to do so, says IDB.

Gold-plated union contracts are a big reason for U.S. automakers' woes (though managerial incompetence at the Big Three also played a role), says IBD:

  • The average Big Three worker made $73.26 an hour in 2006; the average worker at a foreign transplant, $44.20.
  • Bailout foes wanted the gap to be shrunk by the end of next year.

A chart making the rounds on the Internet tells it all, says IBD:

  • Last year, Toyota made 9.37 million vehicles; GM, virtually the same number.
  • Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the United States.

Even so, the UAW vowed to make no big changes unto 2011, when their current deal expires.  That basically would lock in the Big Three's lack of competitiveness for at least three more years, requiring billions and billions more in bailouts or bankruptcy, explains IBD.

Rather than a federal bailout, the Big Three automakers need to undergo bankruptcy reorganization. Contrary to popular opinion, workers won't suffer and the auto industry won't disappear.  The workers will still exist, as will their skills.  Unprofitable plants that can't be turned around will close.  A bankruptcy judge will sell unprofitable assets to those who can use them productively, says IDB.

They won't need a "car czar," or congressional oversight, or political micromanagement.  And out of this process, a slimmer, more competitive and, yes, even profitable Big Three can emerge if we let it -- one that will be able to compete with foreign companies on our own soil, says IDB.

Source: Editorial, "Rewarding Failure," Investor's Business Daily, December 15, 2008.


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