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Auto union drove GM to trouble

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

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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Mr. Hassett characterizes GM's story as a simple one. "Simple" certainly describe Mr. Hassett's analysis, which is oversimplified to the point of ignoring an imposing array of facts. What's the line they use on "Car Talk?" Oh, yes - "...unencumbered by the thought process." That tidily sums up Mr. Hassett's analysis.

I love listening to Marketplace, but I am disappointed that Marketplace allowed this report to air because Kevin Hassett is ignorant of what GM is going through. I’m willing to bet $6 Billion in bailout money he has never lived in Michigan nor worked in the auto industry, as someone who lives in Michigan and has once worked for GM as a white collared worker. The problems GM is having is the result of managements’ lack of vision for the future. In 2003, has oil prices were steadily increasing, GM unveiled their new bigger lines of SUV’s and expending the Hummer brand! Final in 2007 they realized their mistake and were scrambling to change there product lines so they could be profitable again, when September 15, 2008 occurred and froze up the credit market. There are Americans willing to buy GM products but can’t get the loans to buy one. Next, time Kevin Hassett know what you’re talking about!

mr. hassett must think that the public has the brains of a retarded ameoba. when the ship ends up on the rocks it is due to the captain's miscalculation. the management at gm have cleverly shot themselves in the foot over and over. then they reloaded. the american enterprise institute should work harder on their fairy tales if they expect them to be believable.

Although most of what I would say has been said already, I couldn't help but add my comments. What I would like to say the most is that I hope that Marketplace allows someone who is not such an anti-union ideologue make a more balanced analysis of the causes of GM's problems. Among the many failings of GM enumerated by others in these responses I'd like to point out a few more. GM tied its fortunes to the sales of huge SUVs on which it made large profits. Part of the reason for these profits was the lower regulation on these cars, a loophole that GM was happy to exploit and preserve. Their management had no Plan B - unlike Toyota, VW, Nissan and Fiat, who all have a wide variety of cars that they can sell, both large and small. When fuel prices soared over the summer and the economy tanked many people finally realized that these huge cars were a liability. Although gas prices have one down few have forgotten how quickly they went up and are simply not buying these cars like they used to. GM has talked about the Volt like its the second coming of the company but if they had truly been interested in alternatives to the cars they've been selling they would have had it on the market years ago, before the Prius.

Mr. Hasset's dissection of GM's problems conveniently left out a large part of the equation. Collective Bargaining Agreements are not negotiated at the wrong end of a gun barrel. The UAW didn't force or dictate the terms of fiscal surrender to GM - the Corporation willingly signed CBO after CBO, like clockwork, every few years.

The American Enterprise Institute is just a shell for the right-wing extremists ideologues. Shame on them!

In my opinion, the reason GM is in trouble is because they made cars nobody wanted to buy. Oh, maybe a few in the Mid-West did, but not us on the coasts.

It is so refreshing to read so many comments here from so many people who saw right through Kevin Hassert's game.

Please add me to the list of those who were INFURIATED by Mr. Hassett's anti-worker rant.

In 1967, my 25 year-old dad left his job as a tool-and-die maker at GM's UK subsidiary, Vauxhall, to come to the U.S. and work for one of its non-union parts suppliers. Within a year, he had found out what UAW scale was, and switched to a job at Ford's Woodhaven, MI stamping plant. The additional income allowed him to buy a house, maintain two cars, and eventually raise four kids -- including two former prosecutors and one police officer, with a total of three B.A.s and two advanced degrees between us.

Why did the American Dream work for us? Because the Union worked for us. Organized labor is the best model for generational upward mobility that this country has ever been blessed with. When Mr. Hasset spits on union auto workers, he denigrates not only industry men and women who, quite literally, fought, bled and died for the right to organize; he also spits on people like me, their literal and figurative descendants, who now occupy white-collar and professional jobs only because of their sacrafices.

Fortunately, in the 1930s, when those workers were sacraficing so much, our new national leaders ignored the same advice Mr. Hassett now offers. If they hadn't, the Henry Fords and the Chryslers might have ended up swinging from lamposts -- and we might have a quite different system of government in this country.

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.

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