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Auto union drove GM to trouble
Kevin Hassett, director of economic policy studies at the American Enterprise Institute
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TEXT OF COMMENTARY
Tess Vigeland: As we discussed earlier, the Obama administration forced General Motors CEO Rick Wagoner to resign this weekend as part of the government's effort to save the ailing automaker. The firing-by-any-other-name was positioned as being in the best interests of GM's future. But with or without Wagoner, GM's future remains in question. Commentator Kevin Hassett says there may be more politics than economics at work here.
KEVIN HASSETT: President Obama has a huge political debt to the unions and that's why he's avoiding the obvious solution to the auto crisis.
Historically, failing American companies like GM have entered bankruptcy. In bankruptcy, they either liquidate or, if the firm is worth saving, reorganize.
Bankruptcy reorganizations are painful for stakeholders. Hard-nosed judges give workers, managers and debtors severe haircuts in order to reshape a firm into a new organism that can thrive again. But bankruptcy can work. Most everyone has flown on an airline that has emerged from a successful bankruptcy.
This economic crisis is unique in history in that troubled firms have sought protection from politicians, rather than bankruptcy courts. Why? Because if you're politically connected, you can expect a much better deal from politicians than you would ever get from a worldly and experienced bankruptcy judge.
GM is in deep trouble mostly because the United Auto Workers have festooned the company with rigid work rules and extravagant costs. The 2007 collective-bargaining agreement, for example, required the automaker to pay up to $140,000 in severance to a worker whose position was eliminated. And that is nothing compared to the enormous health-care costs these companies are laden with. The average cost of employing a worker at the Big Three, including benefits, was nearly twice that of Japanese automakers. No wonder the automakers are hemorrhaging cash.
A bankruptcy judge would bring some reason to labor costs and create a GM that could emerge stronger. But the unions have a better idea. They plan to use taxpayer money to fund their juicy compensation. And they know they can count on Obama and the Democrats to help them. All told, organized labor contributed over $74 million in the 2008 campaign cycle, 92 percent of that went to Democrats.
History will tell a simple story about GM: Union bosses successfully negotiated sweetheart packages that destroyed GM's competitiveness. If Obama was serious about creating an enterprise that can thrive in the future, he would have demanded that the union bosses resign along with Wagoner. Instead, it's payback time.
VIGELAND: Kevin Hassett is the director of economic studies at the American Enterprise Institute in Washington, D.C.
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It really is disappointing that Marketplace would air this drivel - not because it's conservative but because it's intellectually dishonest, misleading, and an insult to workers across America who are struggling under the current economic crisis. As William Holstein wrote in yesterday's New York Times: "Fully one-half of the company’s unionized work force has been laid off or taken buyout packages, and the U.A.W. has agreed to a two-tier wage system in which new workers make only $15 an hour." There are lots of outdated rules and compensation requirements in current union arrangements, but the unions have repeatedly come back to the bargaining table and made concessions. It's in their *interest* for their companies to keep running effectively.
But it's also in their interest to make sure that their workers - America's workers - have adequate health insurance, and compensation when their jobs are eliminated and they face the daunting, possibly impossible task of finding a new job. Kevin Hassett is right that change is required for American auto companies to survive. But why on earth is it always workers who have to sacrifice their hard-earned benefits for the competitiveness of an abstract entity - the corporation? The U.S. ought to be finding ways to provide better health insurance and better unemployment benefits so that corporations aren't burdened entirely with the weight of the social safety net. But to suggest it's all the workers' fault for wanting too much health insurance, too much compensation? At a time when American workers are seeing their jobs and benefits disappear by the day, while the titans of Wall Street get a trillion dollars and lunch at the White House - that's cold, cruel, and insulting.
Excuse me, but could that have been a more obvious hatchet job on the unions?
If the commentator would have started with his actual interrogative saying, "Why remove only Waggoner? Why not also remove the union leadership?" reasoned discussion might have been allowed to follow.
Sadly, his commentary was a toxic waste of airtime that only furthered division rather than asked for engagement to solve the problem.
But he doesn't want to fix the problem. Or if he does, he has no imagination whatsoever. Please reconsider asking him for commentary in the future.
It bothers me that business is able to perpetuate the myth that the employees in America hold so much sway in politics. Any gains in rights for people in the workplace are immediately fought against by business using money. During the last election business gave $1,952,949,841 (from Center for Responsive Politics), over 25 times the money as labor. Also, I find it interesting that Mr. Hassett thinks it is wrong for a worker to get $140,000 in severance. What does he think about Wagner getting $20,000,000?
It's easy to blame the unions for everything, and that's just what patella response reactionaries like Mr. Hassett always do. Apparently facts don't matter. Here's a bunch of facts that contravene Mr. Hassett's claims.
Labor comprises less than 10% of the total cost of a motor vehicle. The non-union assemblers of foreign vehicles have very similar hourly wages as unionized American car manufacturing workers, although their fringe benefits aren't as great. However, workers who make many of the components for the foreign autos in their lands of origin (e.g. Japan, Germany) enjoy comparable wages plus even better fringe benefits (some of which are provided at lower cost by their respective governments). The components of foreign origin are also subject to shipping costs and tariffs unlike those of domestic origin.
So when all is said and done, the higher benefits of the unionized domestic auto workers does not account for the difference in real and perceived value that has driven down the sales of domestic, compared to foreign autos.
The unions had absolutely nothing to do with the following decisions that helped the decline of the market for domestic autos.
GM could have had a very competitive plug-in hybrid in production several years ago if it had pursued the technologies it demonstrated in the EV-1 electric vehicles it instead crushed in 2001-3. Instead it pushed the Hummer and other SUVs that are now a drug on the market and responsible for much of the loss GM has been experiencing. Instead of getting ahead of the greening and fuel economy trend as the foreign auto makers have, the big three have fought the 18 states seeking to improve fuel economy tooth and nail in court.
The big 3 also failed to pick up on the trend of many American drivers, especially younger drivers, seeking vehicles that are not only more fuel efficient, but have superior road holding and handling characteristics instead of providing a soft and "cushy ride".
Detroit has long resisted, instead of embracing the kind of innovation sought by consumers as accurately depicted in the cinematic biography "Tucker, The Man and His Dream." Almost all of the safety innovations introduced in the Tucker Torpedo, and resisted by Detroit were ultimately adopted by the latter, after first going into production on foreign vehicles. Sixty years after the Torpedo's signature innovation, the cyclops headlight that is aimed by steering wheel movement is now being introduced for the first time in a luxury Japanese Lexus.
Detroit management has long taken an innovation resistance and follower stance. It did so with quality, reliability, fuel economy, safety, handling etc. So if you want to lay blame for our once precious industry's decline, put the blame where it belongs, with the decision-makers.
Yesterday's editorial regarding CEO Waggoner, GM, and the UAW was highly insulting. The speakers comments should have been reserved for FOX News where they would have a friendly reception in their biased point of view.
Blaming the UAW (who should SHARE the blame) for all of GM'S fall reeks of unvarnished labor bashing.
These contracts were signed by both parties, and not at the point of a gun.
In addition Mr. Waggoner has been at hte head of GM for a long period of their decline. The company has not made money since 2004, losing billions in that time frame. This speaks to MANAGEMENT'S errors in judgement and strategy, not the men and women on the assembly line making cars.
I would remind the speaker that it is labor, through Unions and populist inititives that created strong middle class of this country.
Your speaker wishes the US to return to a two tier caste system, the haves (apparently like himself) and the rest of us peasents who would work for him, for minimum wage, and should be happy for his discarded bread crumbs.
Unlike many others, I for one am pleased to hear Kevin Hassett's take on the problems in Detroit. It is important to hear contrary opinions because it offers us the opportunity to refine and hone our opinions. And to further remind us of how completely absurd and out of touch with reality are the American Enterprise Institute and the Republican party in general.
But Mr. Hassett's opinion is not unique. During the past few months I have noticed a proliferation of articles with commentary whereby all of Detroit's woes are placed firmly at the feet of the UAW. To those folks, and now Mr. Hassett I say the following:
Yes, I too agree that UAW members perhaps made too much from their jobs. Did assembling a vehicle really need to pay as much and contain as much in the way of benefits as did the UAW contracts? Probably not. But what is interesting is that we don't know what are the pay/benefit packages of those working in the glass towers.
It's awfully easy to attack the workers with their publicly disclosed contracts. But it is impossible to do such with management (other than those at the very top). Why don't we take a look at how much is being made by those in the glass towers before we cast stones at only the workers in the factory?
But even more on-point, it isn't the UAW that decides what cars will and which cars won't be built. It isn't the UAW that determines the issue of quality engineering. It isn't the UAW that determines what other lines of business the company will engage in.
Ultimately the members of the UAW simply build the vehicles. Period. Everything else is controlled by the suits in the glass encased buildings. I find it incredibly difficult to understand how the demise of the Big 3 could be solely the fault of a bunch of men and women who simply assemble a product designed, engineered and marketed by others.
Mr. Hassett, and his fellow friends at the American Enterprise Institute, are clearly fools. And I hope every American who has ever, is currently or ever will work in a blue collar job will remember how this Republican party mouthpiece informed American workers that they are really the cause of our economics woes.
When will you stop giving the neocons a platform to scream eptithets in a class war they have been waging since the 1970's? Reagan, the union buster, is their hero. But union busting brought us a financial bust with no safety net - an idea that Freidman et al. shredded and then cbeered as Congress removed the last supports to it. Instead of looking like the 1950's, we now look more like the 1920s.
Unions have been criticized and bashed, sometimes for good reason but most currently,as Haslett demonstrates, in lying, craven and mean spirited way.
Unions did not provide massive rewards to executives planning the future of auto matkers. The sought to share in the profits. But consider if unions had dared criticize management's short sighted goal of maximizing short term profits at the expense of planning for the future, the Neocons would have derided and savaged them for bringing Swedish socialism to America.
If anyone wants to hear this unrelenting bashing of American labor, Fox news offers it round the clock. Get rid of the AEI and Cato Institute guys. They are ideologues who never let facts interfere with their ideas. After the fiascos in American finance and Iraq, can't we just close the door to their room?
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