Excise unhealthy union greed with no auto bailout

With hat in hand, Shreveport Mayor Cedric Glover went to Washington to ask for (what is accurately termed even if he doesn’t like it) a “bailout” for American auto manufacturers. Shreveport was home to one of the largest General Motors production lines in the country until sagging company fortunes cut its production by over half. Glover equated the request with the loan Chrysler received almost three decades ago which it paid back, but this is a bailout because it throws American taxpayer dollars at a situation made untenable by the greed of unions.

As in almost every commercial enterprise, personnel costs are the largest single component for the automakers, and it is union demands which have escalated total compensation to absurd levels that have made American companies noncompetitive compared to their foreign rivals:

The average private sector worker earned $25.36 an hour in 2006 – $17.91 an hour in cash wages and $7.45 an hour in benefits such as pensions, paid time off, and health insurance. Autoworkers at Japanese plants located in the United States earn substantially more than this: between $42 and $48 an hour in wages and benefits. The typical United Automobile Workers member at the Big Three earned between $71 and $76 an hour in 2006 – almost $30 an hour in salary and over $45 in benefits.

Typical benefits include extraordinarily generous health care plans where a member pays less that $250 a year for family coverage, long paid vacations (15 –year employees at Chrysler got five weeks off in 2006), the JOBS Bank program that continues to pay almost all of a workers pre-layoff salary after their exhausting regular unemployment benefits that only recently was limited to two years, and “30-and-out” which until recently allowed all workers to retire after just 30 years service with generous benefits that means, for example, GM pays for three times the number of retirees than it had employees.

As a result, every American buying an auto made in Detroit pays an extra $700 to $1,000 to support health benefits far more generous than most Americans receive, and hundreds more per vehicle to support these other freebies, whereas the same car made by a foreign manufacturer in the country would cost over a thousand dollars less.

It is this perverse transfer of wealth from consumer to unionized workers that is the main cause for an ailing domestic auto industry, and a bailout only would compound the problem by allowing subsidization of this inefficiency. Fortunately, this bonanza at consumers’ and shareholders’ expenses partially was reined in by some reforms in the past couple of years, but too late to stave off these financial troubles.

In fact, in the current crisis provides a perfect opportunity to correct these wrongs. By declaring bankruptcy, the Big Three (likely with some different management) would have far greater latitude to do so. (Don’t forget that in declaring bankruptcy, it’s not like they’ll stop producing immediately: they’ll continue to make cars, even if slightly fewer – after all, Japanese manufacturing in the U.S. with its far lower compensation continues without major difficulties.) A bailout would do nothing more than transfer wealth from taxpayers to a privileged set of workers and prop up an diseased industry that will make its day of reckoning even more painful unless compensation is pegged at a realistic, sustainable level.

But that’s the entire point, isn’t it? With a new regime determined to “spread the wealth” coming to Washington that’s more interested in redistributing wealth to its allies such as unions and Democrat-run Michigan than in its creation for all, no doubt this bailout will occur in the early months of 2009, and the usual scapegoats will be blamed – society’s most productive people, for example. Naturally, the only thing that would be spread by this action would not be wealth, but economic malaise. Regardless, politicians like Glover need to quit chasing for votes and do the right and sensible thing instead by refusing to go along in recreation of the problems that got us to this juncture in the first place.