Tuesday, November 11, 2008

The tick and the dead

On the heels of significant third quarter losses for General Motors and Ford, the automobile industry is sharpening up its sales pitch for a massive bailout - something on the order of $25 billion - to be charged to the $700 billion Treasury "rescue program."

And it appears that the proposal has found a receptive ear; according to the Washington Post, House Speaker Nancy Pelosi has indicated her support for a plan to provide "emergency cash" to the Big Three automakers.

In a written statement issued this afternoon, Pelosi said that because the failure of one or more of the Detroit automakers "would have a devastating impact on our economy, particularly on the men and women who work in that industry, Congress and the Bush Administration must take immediate action."
Pelosi went on to say, "[i]t is essential for the domestic automobile manufacturing industry to re-emerge as a global, competitive leader in fuel efficiency and in new, path-breaking energy-efficient technologies that protect our environment. For the automobile industry to be truly viable, it must continue to move in this direction."

Pelosi's case of bailout fever is indicative of the pestilence that seems to have afflicted all of Washington as of late. If an industry can no longer compete in its marketplace - or if a mortgagor cannot make payments to which he previously agreed - government providing some sort of financial security against responsibility is now seen as in order.
To be sure, House Democrats are interested in placing the same constraints on the Big Three as have been imposed on other beneficiaries of Treasury largess, to include "limits on executive compensation, a ban on golden parachutes and other 'taxpayer protections to ensure that any companies that benefit from this assistance -- and not the taxpayers -- bear the full burden of repaying any costs that are incurred.' "

In the case of the auto industry, the bailout looks to be of more benefit to the UAW than for the companies themselves, not unlike giving an anemic dog a blood transfusion so that its ticks don't die. As the CATO Institute has pointed out, prior to GM's most recent contract with auto workers, GM's costs were outsized compared to its competitors
Healthcare costs alone impose an average cost of $1,500 per GM vehicle. Unlike most U.S. private-sector workers, GM's unionized workers do not pay deductibles on their health coverage. According to the UAW contract in force until 2007, GM’s hourly workers pay only 7 percent of their total healthcare costs, compared to 27 to 32 percent paid by the average U.S. salaried worker. Recent "concessions" by GM's unions will slow the hemorrhaging, but they may be too little, too late.

In contrast, most foreign-owned auto plants in the United States are non-unionized. Their workers are not as generously compensated as GM's workers, but they are relatively well-paid with good benefits. And because their employers are not saddled with the uneconomic pension and healthcare costs of a UAW contract, they can produce cars at a more competitive price, creating more opportunity and job security for existing workers. Michigan-based GM's toughest competition these days is not from Japan, but from Ohio, Kentucky, Tennessee, Mississippi, South Carolina and the other states where foreign-owned auto companies have established production facilities.

And while the most recent UAW contract allows for reduced wages for new employees, as well as for the shifting of retiree healthcare costs to an independent trust, this has done little to slake the union's thirst for new cash. For without a source of ducats from something other than auto sales, the membership of the UAW will continue to dwindle.

The simple truth is that - as the American Enterprise Institute's Kevin A. Hassett put it -
"the UAW has finally acknowledged something that big labor has always been reluctant to: past practices were driving employers into bankruptcy." But leave it to Pelosi and her confederates to attempt to infuse Detroit's auto makers with cash entirely for the purpose of propping up an important Democratic constituency. One imagines that if GM were allowed to go into bankruptcy, it could void its contracts with the unions, and be back selling cars profitably within months. The wrench-turners of the UAW would hardly be so resilient.

Of course, the loan program would accomplish another goal of the Left. For years, they have sought to remake Detroit in their own image, as a
"competitive leader in fuel efficiency and in new, path-breaking energy-efficient technologies that protect our environment." While liberals see developing green vehicles as something not unlike putting a man on the moon, the analogy does not stand to scrutiny, as most of the technology used in manned space flight was already in existence or very close to being developed. If throwing money at GM would allow it to produce a car that ran on butterfly kisses, progressives would be hard-pressed to contain themselves. Alas, such a vehicle is many years (and untold billions of dollars) away.

Not that such an inconvenient fact matters to Ms. Pelosi. Her main goal is to keep the spigot open on the $48 million in campaign contributions that unions and other interest groups contributed to Barack Obama during the presidential race. If $48 million gets you $25 billion, it may be one of the best investments since Hillary Clinton's cattle futures.

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