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.

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The union didn't dig GM's grave alone -- management dug with the ferocity of John Henry. Adding brands instead of subtracting, rolling out one mediocre design after another, and never EVER taking on the union Hassett claims was killing the company. It's amazing what labor and management can do when they work together.

Since Mr. Hasset is against union members getting health care through work, does that mean he supports the nationalization of health care in the US?

I'd also like to know if it was the union workers who fought every technological innovation from seat belts to exhaust limits, to CAFE standards. Infamously was it the UAW who thought $11/car was too much to keep people from dying in car fires in the Ford Pinto?

For decades the heads of the Big 3 have stood behind a "Can Don't" motto. Even now US automakers use leased hybrid technology from Toyota.

I'm not, totally, against letting these companies go bankrupt. But lets keeps some perspective and place blame where it belongs, with Same Stuff Different Day practices of the people at the top.

Here are some facts. Automobiles are durable goods and are subject to the business cycle. They are HIGHLY regulated. Those of you who don't like unions have never worked a dangerous job. Otherwise, you would know why Unions are important. The editor on this story did a very poor job.

Thanks for the preview on how some will try to spin Obama's ouster of Wagoner.
But the problem with Hassett's argument is that is rests on a laughable assumption: that GM's union (or Obama) has somehow prevented GM from filing for bankrupcy.

If bankruptcy really would be better for GM (by giving it the leverage to reform the union contracts that Hassett says are "mostly" to blame for its predicament), why doesn't GM just file already?

I'm astonished that this kind of fact-challenged nonsense gets on the air at all. I could count at least one outright falsehood in each paragraph I painfully listened to. If I wanted to read or listen to right-wing drivel I'd read the Wall St Journal editorial page or Glenn Beck !!

Whoa! Marketplace!
In the future please note that Mr. Hassett's curriculum vitae includes co-authorship of "Dow 36,000..."
His perspicacity should be on view for all!

Mr Hassett's commentary is breathtaking in its oversimplification. The most glaring one: "History will tell a simple story about GM: Union bosses successfully negotiated sweetheart packages that destroyed GM's competitiveness."

As others have pointed out, management in other industries has been able to be successful while partnering with unions. Also, to ignore the quality chasm that existed betwen GM cars and imports over the past 20 years (my car-driving years) is just silly. Like Ed Strenge, I drove a Chevette. It rusted away to the point where I could see the road beneath my feet. Same with my parent's Chevy Celebrity (within 5 years!)

Now, I drive a VW Passatt diesel wagon (37 mpg on highway), nary a problem at 60,000 miles. My wife's 1996 Honda Civic is at 120,000 miles, and despite a ding in the door that we've elected not to bother with, almost no rust.

Most of my peers have similar experiences- we grew up driving lousy GM cars. We now have the money to be able to choose from among a host of well-built, reliable imports. And yet somehow I'm supposed to ignore all of this and just blame the union? Please...

Absolutely pathetic reporting. No context and no perspectives from union members or leaders, who have been absent from the mass media's discussion of union/automaker relationships. I listen to NPR so that I can have DIFFERENT perspectives than the ones I receive in the mainstream media, and as such, I would have expected something a little more thoughtful than this from NPR.

Japan- What would you like to drive? (Listening)
GM- You should drive what we make, right?

I would like to enlighten all of you that live outside of the auto industry and preach like you know what has been going on for the past 3+ decades.
Listen... I have lived nearly a half century in the auto industry and have seen it from all ends.
The results that you see happening in the auto industry are from several decades of fighting between the union and management. Who's to blame? BOTH! We as a country have to stop fighting about who owes us and figure out how to work together to build our futures TOGETHER.
The auto companies and unions have polarized and galvanized their respective positions for generations. The Union says the rich management owes them a better living. Management says that manual labor can't tell them how to run a company... between the fighting, they forgot about building quality cars and a making a business thrive.
Have the unions hurt the auto industry? YES! Their pay and benefits have been like landing a government job for life for generations. Has management attitude hurt the auto industry? YES! Accountants that don't know how to build cars or work with people have been running the companies like they were on Wall Street.
I have watched labor and management act like children fighting over the favorite toy until it broke ...

... Now the toy is broken and nobody can play with it.


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