No-Fault Bailouts

I continue to shake my head as the bailout fever continues to grow:

President-elect Barack Obama yesterday urged President Bush to support immediate aid for struggling automakers and back a new stimulus package, even as congressional Democrats began drafting legislation to give the Detroit automakers quick access to $25 billion by adding them to the Treasury Department’s $700 billion economic rescue program.


The discussions raised the stakes for a lame-duck session of Congress that could begin next week and came as fears about General Motors’ financial condition yesterday pushed the company’s stock price to its lowest level in about 60 years. Obama said last week that passage of the economic stimulus package and help for American car companies are his top priorities.

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“There’s an urgent crisis. It’s a national issue. If the administration won’t act, we’ll have to. But they should act,” said Rep. Sander M. Levin (D-Mich.).

The entire auto industry is suffering these days, but GM has been particularly hard hit as sales have slowed and credit has tightened. Once the world’s largest automaker, the company said yesterday that it was in danger of running out of cash next year. The company is taking a series of steps to conserve cash, including cutting production and laying off 5,500 more factory workers. Yet one closely followed Deutsche Bank analyst cut his forecast on GM’s share price to zero, saying that even if GM manages to avert bankruptcy, “we believe that the company’s future path is likely to be bankruptcy-like.”

So how in the world did GM end up in this position?

You can blame it on many things, and rightfully so – bad management decisions, the economy, etc. But one of those things that has to be right up there at the top of the list is the UAW. While it is wonderful when, as a forklift operator, you can make $103,000, it might be a non-competitive wage when the average forklift operator wage in the U.S. is $26,000. Your salary may be a drain on your company.

$28 dollars an hour as a base wage isn’t bad at all is it? Probably competitive with the non-union auto plants that have located in the South in right-to-work states, wouldn’t you think? Well the answer is yes – if that’s what was actually paid as a total. But GM says the average reaches $39.68 an hour, including base pay, cost-of-living adjustments, night-shift premiums, overtime, holiday and vacation pay.

Even at about $40 an hour, GM remains in a competitive situation. Toyota pays about $40 an hour. But for Toyota, who continues to make money, that’s total compensation.

For GM, total compensation (health-care, pension and other benefits) adds another $33.58 an hour. $73.26 an hour total compensation vs. $40+ an hour in non-union automakers.

Hard to stay competitive when you’re saddled with a difference like that, isn’t it? And I don’t know about you, but $40+ an hour in total compensation seems to qualify for a “living wage” wouldn’t you say?

GM’s wage situation is an almost precise mirror of what the US steel industry faced when it headed into its demise. Unions had shackled it to the point that it was no longer able to compete. Buyers could buy and transport steel from foreign suppliers cheaper than getting it from the steel mill down the street. Consequently, the steel industry here disintegrated. Interestingly we didn’t consider it “too big to fail” at the time nor did we bail it out. It bottomed out, investors and entrepreneurs bought the good pieces (and let the antique and out-dated portions rust away) and got into the specialty steel business.

Apparently the auto industry never learned from that example. Yet now, we’re supposed to reward their ignorant conduct, mismanagement and union greed by further bailing them out?

No thanks.

[Crossposted at QandO]

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