GM, Ford, and Chrysler have been begging for loans from the federal government in order to avoid declaring bankruptcy. But the government has been reluctant to grant them these loans without a viable restructuring plan. So far, it’s hard for anyone to see how these companies can avoid bankruptcy and (in Chrysler’s case) even liquidation even with the loans.
Many people blame the unions for everything–at least when they’re not blaming Detroit for failing to offer competitive products. In comparison, I’m no union-basher. I’m aware that the unions came into being because of how poorly manufacturers treated their workers pre-union, and how poorly they’d treat them again if the union went away.
But the fact of the matter is that Detroit cannot avoid bankruptcy with the current wages and the inflexibility forced upon them by the need to keep paying workers even when they’re not working and the rigid job classifications in the plants.
These companies also cannot be competitive paying for the healthcare of hundreds of thousands of retirees the way they do.
So, major concessions from the UAW will have to be part of any viable plan. We hear that if Detroit can only survive until 2010, when the 2007 labor contract’s savings really kick in, they’ll be okay. Well, how about pulling that contract forward to 2009? Why does it fall to the U.S. government to pay out the terms of the old contract for another year?
Actually, that contract mostly helps by letting the manufacturers hire new workers at a much lower wage. But there aren’t going to be any new workers unless sales really pick up. What they really need: a wage reduction for current workers, and the ability to let those they don’t need go without huge payouts.
Taxpayers earning lower wages and enjoying no such job security have little desire to help maintain the wages and security enjoyed by UAW members.
The retiree issue is supposedly handled by the VEBA fund, where the UAW will get a lump-sum payment in the tens of billions and pay for these costs going forward. Can Detroit afford to fund VEBA, though? Clearly not. VEBA is in danger of lining up with other creditors if and when an automaker declares bankruptcy. So for some reason the U.S. government gets to fund this one, too.
Of course, GM did agree to pay these costs in decades past. They fell down by not properly calculating these costs, and failing to put nearly enough money away towards paying these costs back when they were still making it. The current healthcare costs of a guy who worked on the line in the 1960s and 1970s should actually have been covered by revenues during those decades, not current revenues.
Of course, the Social Security system suffers from the same fundamental flaw, and threatens to bankrupt the U.S. government. But that doesn’t make it right.
In a perfectly just world, the executives and stockholders who received larger bonuses and returns than they should have back in those past decades would foot the bill. But of course this never happens.
All we’re left with is the least unjust of a number of unjust solutions. Detroit wants the U.S. government to enable it to keep going pretty much the same way it has been going, with no one taking a severe hit. That’s not going to happen.
So we have two other alternatives:
1. The various parties involved sort out how they can sacrifice their way to a viable operation, and so avoid bankruptcy.
2. These companies go into Chapter 11, at which point a bankruptcy judge forces them toward an outcome similar to #1.
I suspect that, in the current job climate, Detroit’s white collars will sacrifice quite a bit to keep the companies afloat. In a stronger economy, they could jump ship, but not now. So pay and benefits cuts should be easily doable.
Same with suppliers. Of course, they’ve already been squeezed, and then squeezed some more. But in an economy on the brink of deflationary, more squeezing should now be possible.
What concerns me is that I haven’t heard a hint of concessions from the UAW, with regard to both current workers and retirees. It’s time.