The media have been terrible in explaining how the homegrown car companies landed in their present fix, when other U.S. manufacturers (Boeing, GE, Caterpillar) manage to survive and thrive in global competition. Critics beat up Detroit for building SUVs and pickups (which earn profits) and scrimping on fuel-sippers (which don't). They call for management's head (fine -- but irrelevant).
These pre-mortems miss the point. Critics might more justifiably flay the Big Three for failing long ago to seek a showdown with the UAW to break its labor monopoly. In truth, though, politicians have repeatedly intervened to prevent the crisis that would finally settle matters.
The issue at hand is the future of the UAW, not the future of automobile manufacturing in the United States. Nonunion shops like Honda, Nissan, Toyota, BMW and Daimler (minus Chrysler) are doing fine making and selling cars in the US despite miserable sales.
Once upon a time, businesses facing economic hardship were reorgainzed by the courts in a process known as bankruptcy. Chapter 11 would give GM, Ford and Chrysler the opportunity to void their UAW contracts and compete for labor like everyone else. The Dems will instead seek to keep the courts, normally their preferred forum for political change, far from this issue to protect their Big Labor patrons.On the side we note and interpret the convergence of two seemingly unrelated elements of all this. One is that Obama leaked to the press (via surrogates, no doubt, but doubtless from him, as he was the only person in the room with Bush) that Bush asked for support for free trade with Colombia in exchange for support for the Big Three Bailout. The other is that Caterpillar is an example of a company that has reorganized under financial difficulty, managed to keep a UAW workforce, and is very profitable in manufacturing. As it happens, Caterpillar is one of the companies that would stand to profit most from free trade with Colombia, along with its UAW workforce.
Will Obama, Pelosi and the UAW do the reasonable thing in all this? The leak suggests not.
Our President-Elect appears to be set to "rule" in precisely the way that his thin but consistent legislative record suggests.
7 comments:
It is hard to see how a labor monopoly is any better than a business monopoly--or why we would tolerate one and not the other.
Two points:
1. It is car companies themselves that have been loathe to reorganize under chapter 11. This has been explained to me as primarily a marketing decision.
2a. You really need some historical perspective on the role unions played in creating the middle class wealth in this country that you and I enjoy and to give them a bit of a break. Not a lot of a break, but you and many others desperately need a more critical eye for matters related to labor.
2b. Union or non-union it is the responsibility of a company to manage itself and its contracts. Blaming things explicitly on unions as though they themselves drive companies into the ground is ridiculous.* Last time I checked the president of the UAW wasn't the CEO of Ford Motor Co.
*I'm being a wee bit disingenious there because when manufacturing was a growth industry and companies were more than willing to throw money at labor problems to make them go away no one could have predicted the problems it would cause 50 years later. Well actually a lot of these problems were predicted (For example rust belt states tried to create pension and health care funds that would be funded from shared pools in order to save companies from having to shoulder these responsibilities individually (much the way unemployment insurance works now) but companies themselves (not the labor unions) fought these measures. Companies believed that this kind of collectivization was a threat. Maybe they were right, I don't know. But had these measures been accepted it wouldn't be companies that would now be paying out the nose to keep aging retirees afloat.
@JB Unions hardly constitute a labor monopoly in this country, they've never represented more than probably 30% of workers in the US (20% in 1983 the first year available from the Bureau of Labor) As of 2007 union membership is 12% and is largely comprised of Educators, librarians, fire fighters, and police men.
And finally this is not a defense of unions. As they exist today they are vile parasites working hard to steal from companies, union members, and the government all at the same time. Nice work if you can get it.
But, as always context matters and its in that spirit that I offer these thoughts.
Did we express ourself opaquely? We have no use for the management of the Big Three either. They should've been complaining about all this CAFE nonsense for decades, and fighting like crazy to overcome the UAW's control of their financial structure. That's different, though, from the myth that they didn't make the green cars that people really want to buy.
The shortsightedness that led to the present economic impasse for the Big Three is endemic. Humans manage companies. That's why big companies inevitably either fail or change. For a tutorial (and we direct this to gentle readers at large, not to our esteemed commenters in particular), compare the composition of the Dow 30 Industrials decade by decade and see how the mighty fall.
So the issue is whether we will let these companies reorganize as others do or spend lots of money propping them up so that they can fail later, or be propped up again. The quick pain of a bankruptcy seems to us to be preferable to the extravagance of a bailout that just makes the business failure slow down a bit.
Pat: My point wasn't that unions constitute a monopoly on labor in this country, but that the UAW constitutes a monopoly on labor in the auto industry. There are several different auto companies, but only one union. By the way, I'm not anti-union. I belong to two.
"The quick pain of a bankruptcy seems to us to be preferable to the extravagance of a bailout that just makes the business failure slow down a bit."
On this we agree. Chapter 11 reorganization makes the most sense.
In 1979, as you know better than me, Chrysler took money from government rather than file bankruptcy. They then did everything a company in bankruptcy does: restructure debt ie stiff creditors and fire 50% of its workforce. All subsidized by the tax payer of course.
Would we have been better at that time if we had simply let nature take its course?
I really don't know. I can't think of a similar sized business that was allowed to go bankrupt with all its attendant consequences that I can compare it to.
You clearly think they should go through the normal path of bankruptcy, for better or worse, why do you think that's preferable? Yes they could restructure their labor contracts, but at what cost to their market? This is a genuine question.
And no, you weren't opaque, I failed to make a clear connection. I was really taking exception to the idea that the future of the UAW is at stake. Or that the "big three should have forced a showdown"
The future of a heckuva lot of UAW workers is at stake but I'm sure the UAW itself will linger like a case of herpes.
The big three never needed to force a showdown, they only ever needed to manage their labor relations. This isn't the wild west (well unless a union member pours sugar into an exec's gas tank) its business. I get exasperated at all this tough talk about unions. The press and public make both too much and too little of unions at the same time.
Additionally the big three have been free to compete for labor on the free market for decades. In other countries. (badumdum). Seriously why do you think all the parts for your car are made in Mexico?
To reiterate it is the car companies themselves that don't want to file bankruptcy. Its not the lobbying power of the UAW.
@JB, my apology, I misread you. But again, I fail to see how its a labor monopoly when the big three themselves signed those contracts, and have had opportunities to restructure them. Consider Ford last year who was able to successfully offload benefits for retirees from Ford's books onto the UAW's books.
Pat: Of course you're right that the auto companies themselves have a hand in the labor contracts. But each one deals separately not with separate unions, but with the same union: the UAW. That's what makes the UAW a monopoly. There is no other organization negotiating on behalf of the employees of those companies. (The companies themselves, remember, negotiate on behalf of their shareholders.) Consequently, the UAW has an inordinate amount of power, one result of which is the ability to strong-arm the companies it negotiates with into signing unfeasible contracts. Another, is a stagnation of ideas about what constitutes the real interests of the employees that results from a lack of competition. So, like you, I'm sympathetic to unions. But I think they become counterproductive when they acquire a monopoly on the labor of a whole sector of the economy.
Until recently the UAW and other traditional labor unions have been loath to admit that they had common cause with their employers. Even now the president of the UAW brags about how generous the union was in its last negotiations, even though they left the Big Three with hourly labor costs still 50% higher than their Japanese-owned domestic competitors. Both for the sake of the union and the workers, a "showdown" would have been in order for earlier, bigger concessions to make the Big Three competitive and their jobs more secure for longer. But it was a showdown indeed that was necessary, as the union had no perspective except an adversarial one and no goal except the enrichment and expansion of its membership over the short term.
A bailout that doesn't address the fundamental competitive inequities of the legacy automakers will prolong the agony and bring us around to the same problem yet again. A bankruptcy is more likely to get it done with dispatch. This is what bankruptcy courts do, but it's not what Congress or any office of the executive branch does.
We suppose the alternative is to legislate that all domestic manufacturers raise salaries and benefits to match the expenses of the Big Three, while simultaneously slapping big tariffs on imported vehicles. There's a savory choice.
The 1979 bailout of Chrysler did involve reorganization, though one wonders whether it was any better than a court-supervised reorganization. We know it was more expensive to taxpayers.
The problem with this issue being handled by politicians is that politicians think politically. Their political will is to preserve as many jobs as possible in the short term so that they can be re-elected. Whether doing so means throwing good money after bad is of little concern to them, as the bills come due long after anyone remembers spending the money.
We note that politicians and unions have demonstrated shortsightedness. So has management, of course. But the issue isn't blame. It's whether a bailout is a good idea now, regardless of blame.
Once upon a time, when there were four big auto manufacturers in the US, they all negotiated with one union. That union would alternately strike one company and then another, extracting the best deal it could from the one and using that deal as the benchmark for all the others. The companies were happy to operate this way. It was a competitive disadvantage that affected all roughly equally. It's OK to run a race with 20-pound weights on your legs, as long as everyone else has the same weights.
Then one day the Japanese came along. They had no weights on their legs.
They've proved more nimble in other ways as well, to their credit. But those guys with the weights can't win no matter how nimble they become.
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