An effort by Congressional Democrats to throw money at the financially-struggling Detroit 3 automakers has been defeated by Senate Republicans. The sticking point was the refusal of the United Auto Workers to accept wage reductions that would put theirs on par with the competitive wages, as industrial companies go, paid by the foreign-owned automakers at their American plants. This development demonstrates that the Democrat bailout plan is really a “bailout” plan of the UAW’s uncompetitive wage level. As I wrote in an earlier post titled “No Bailout for Detroit Automakers If We Want Them to Survive” (here), the Detroit 3 companies “are now private social-welfare-plus-executive-stock-plan cooperatives, which finance themselves through the financing of increasingly uncompetitive motor vehicles that they manufacture at a loss. And now these social welfare cooperatives have run out of money and want American taxpayers to subsidize them.”Jennifer Rubin at Contentions blog at Commentary Magazine online sums it up today (here):
It was, by any measure, a stunning defeat for the Democrats – and more so for their Big Labor ally, the UAW. The UAW is now revealed as unwilling to make concessions needed to save their own members’ jobs, even in the face of a looming recession. It is not a move likely to endear them to anyone, even those sympathetic to the notion that the government should “do something” to help save the Big Three. [Republican] Sen. Bob Corker had tried to forge a last minute deal which would have forced the Big Three to cut debt obligations and promptly align their labor costs with foreign-owned domestic manufacturers. In the words of a Republican aide: “Corker tried to get a deal, but the UAW didn’t want to budge on wages within the next year, and many Republicans remained skeptical of the whole bill.”
Much of the fear about the consequences of no “bailout” is based on a faulty premise. I have heard many interviews in recent weeks in which the questioner asks a bailout opponent something like this: “are you willing to accept the demise of these companies and all of the jobs related to them?” To me, the question is based on the false choice that it’s either the bailout or the total disappearance of these companies and their jobs, and is meant to reinforce the common misperception that bankruptcy means disappearance of the companies. For these companies, it doesn’t mean that at all since the type of bankruptcy that would occur is court-ordered restructuring.
I wish interviewees would immediately object to such “false-choice” questions, avoid the misleading “B” word altogether, and call for a "court-ordered restructuring." This process would allow the companies to continue their operations uninterrupted and give new, fresh management the power to forge new labor and dealership arrangements that would make them competitive going forward. It is refreshing and reassuring to see Congressional Republicans stick together to assert common sense.
UPDATE: University of Michigan economics professor Mark J. Perry at Carpe Diem (link) cites two references for estimates of the annual extra costs to GM and Ford due to the higher wages they pay compared to domestic workers at foreign-owned plants, and concludes: "Both estimates suggest that the current pay gap between UAW workers and non-union workers at the foreign transplants impose additional labor costs on GM and Ford in the billions of dollars per year. And that's without legacy costs."
John M Greco
