Auto union drove GM to trouble

Kevin Hassett, director of economic policy studies at the American Enterprise Institute


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.

Log in to post96 Comments


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?

It is a shame that NPR keeps giving a forum, to people that gets everything wrong all the time, to spread misinformation. Keep the good work, you may go the same way the newspapers are going….

Did you know that there are 150 million workers in the US? That's 150 million CHAIRS. Take away the CHAIRS, that's a savings of at least 150 million DOLLARS. This money could make us competitive with the JAPANESE! HELLO -- USE YOUR BRAINS, LEFTY WINGNUTS.

Why does Marketplace persist in airing the viewpoints of know radical right wing organizations such as the "American Enterprise Institute"? Is Ruperd Murdoch purchasing and controlling non-profit media too? Why do the producers of what use to be a reasonably unbiased business information program need to resort to such crass editorializing? If I want to listen to Rush Limbaugh I'll change stations. Please cease and decist this abuse of your listening audience.

Mr. Hassett should take his anti-union propaganda to Fox News; I hear he may find some fellow sympathizers there.

I think you should get rid of Kevin Hassett because he is a liar. He is perpetuating the myth that labor is what has damaged the US automakers; a myth that has been floating around since the Reagan Administration. The reality is, and has been for some time, that 90% of the labor cost to manufacture a car in the United States goes to management - not to the folks building the cars. One need only look at the divide between management salaries at Toyota, now the leading auto manufacturer in the world and GM, Chrysler, or Ford. It's management at the big 3 (didn't there used to be 4) that has damaged the U.S. auto industry - not the folks who really build the cars. Shame on you for allowing Hassett to spread the big lie. Your show lost more than a few points, in my book, by letting this guy have air time.


With Generous Support From...