Bankruptcy, Not Bailout For The Big 3

by John Hawkins | November 17, 2008 9:41 am

One of the big questions of the day is whether or not you, me, and the rest of the American taxpayers should be bailing out the Big 3 Automakers. Not only should we not be bailing them out, we shouldn’t even be asking the question. It’s not the job of the government to decide which businesses succeed and which businesses fail — although they do it all too often through subsidies, tariffs, and corporate welfare. Those are areas we need to work on as a country, too, but for the moment, let’s concentrate on the bailout.

First, why do they need a bailout in the first place? I’d suggest to you that there is one simple factor causing the entire problem: unions. Over the years, because Congress has rigged the game to give them ridiculous leverage when they negotiate with companies, the unions have managed to put together such great deals for their members that they’re literally destroying the auto industry[1].

Just about every problem that the automakers have can be traced back to those issues. From USA Today[2],

The three automakers lost $15 billion last year. Chrysler pays an average $75.86 an hour in wages, pension and health care benefits, GM pays $73.26 and Ford pays $70.51. Toyota pays U.S. workers about $48, U.S. automakers say.

Health care: The three companies have $90.5 billion in unfunded retiree health care obligations.

All we’d be doing with a bailout would be kicking the can down the road because the underlying problems would still exist. How in the world are these companies ever going to be competitive when they are paying $22-$25 more per hour to their workers than their competitors?

So, why continue this farce with a bailout? Because the Democrats would be able to pay back their union allies for the hundreds of millions of dollars and hundreds of thousands of man hours they put into the Dems’ election efforts this year. In other words, your tax dollars would be used as a political payoff from the Democrats to the unions.

But, here’s the thing: Chapter 11 bankruptcies would create a huge mess on a lot of different levels, but it would also give the big car companies a chance to renegotiate their health care and pension benefits.

Would that be fair to the workers who have already retired? No, but they’re at a point now where somebody is going to have to take a bath. Either the companies go out of business, the taxpayers lose billions today and probably billions more when the latest infusion of cash runs out, or the retirees take a hit.

The option that makes the most sense because it’s the only sustainable option over the long-term, is for the retirees to have their benefits whittled down significantly. Incidentally, since the government shouldn’t be in the business of bailing out companies in the first place, it also makes more sense on that level.

What will probably happen? You, me, and the rest of the American people will get soaked — and just you watch: it won’t be the last time.

  1. literally destroying the auto industry:
  2. USA Today:

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