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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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While I agree that the Obama administration's actions will be influenced by their debt to the unions for election support, I cannot let Kevin Hasset's later statements go unanswered. He says "History will tell a simple story about GM: Union bosses successfully negotiated sweetheart packages that destroyed GM's competitiveness." This is far less then the full story. If someone is willing to pay me twice what others make for the same job, should I refuse it? My career was in a unionized business and I have to fault the company management for giving away the store to the point that they "destroyed GM's competitiveness". The union always asks; it is the function of management to draw the line.
Empty of logic.
Would Mr. Hassett blame the unions for causing the HUGE gulf between executives' salaries and employees' wages? A gap that continues to grow geometrically? How many $140,000 severance packages (if this is factual) could Mr. Wagoner cover with his single good-bye check?
You have to marvel at the chutzpah -- and unabashed hypocrisy -- of folks like Mr. Hassett and the American Enterprise Institute for placing the blame of the failed auto industry at the doorstep of labor. They react with outrage at "$140,000 in severance to a worker whose position was eliminated" yet never even mention the severance of $20 MILLION dollars in pension that will be paid to failed CEO Wagoner. Go ahead and keep putting sole blame on the unions -- it's a strategy that's proven as effective over the last century as Rick Wagoner's have proven for GM.
We live in a freemarket society with simple rules ...“Compete free or die†these are the rules of the free market . When we focus on our own interest rather than what is best for the consumer no matter what the industry or product we will fail . Those companies who work together (management and unions) who decide to begin with the end ( "what does the consumer want" ?) in mind and both agree and focus on the same goal with vested ownership in the outcome (a satisfied consumer ) served profitably everyone wins . The domestic auto industry has not done this . Why ? …..does it really matter at this point ? Who is right , who is wrong ? …..while we try to figure out who is to blame , I can assure you there is a company right now who will be the next GM who is focusing on one thing …..“what does the consumer want and need and can we produce it profitably†? What “I†want and need should be considered AFTER the previous questions can be answered and agreed on by all involved . We are reaping what we have sown , we have become a nation of “consumers†…..no , “over -consumer “ . This is proven by our national savings rate . The real question is ..."will we change"????? ...history will tell .
If the Unions are so smart, why are they almost out of work? If the CEO's are so smart, why they so screwed? Both parties did this out of thier own greed. If GM fails I will have some champagne to celebrate, a whole compnay of managers and unions getting what they deserve after years of mismnagement. Yea.
Mr. Hassett, you cannot compare the U.S. and Japanese auto industries. The Japanese auto industry has a younger, healthier workforce, and their workers in Japan have national healthcare, which is a huge burden lifted from the Japanese industry. Also, Japanese CEO's earn way less than their U.S. counterparts.
The U.S. auto industry obviously did not have any trouble meeting their union contract obligations until the economy tanked. The problems they face now have more to do with the current state of the economy and the lack of product innovation than they do with the unions. It's easy to bash the employees and the unions; how about coming up with some more thoughtful insights/solutions?
To all you that think we need unions today for work safety you probably work in a union. Unions have outlived their time we have goverment agencys that monitor those problems today. (OSHA,IMSA,Ect.) I work in the energy business so their can be situations that can be dangerous. I think health care is fine but pay some of it out of your own pocket just like the rest of us and work till your 62 before you demand all your benefits. I beleave your close a plant and you get laid of that mean you go file for unemployment benefits, not get paid 80 percent of your salary and stay at home. Unions destroyed the steel industry in the United States and it will do the same with the Auto Industry, so wake up people. I think the President should stay out of the Auto makers business and stick to the goverment side because their are people that can then their are people that run for goverment offices.
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