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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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Kevin Hassett is 100% correct. The unions have bought & paid for the DNC, and that is just as bad for the US as the oil industry's stranglehold on the GOP. The union-supporters on here carefully word their protests so as not to reveal the real inadequacies of their argument. The UAW boss should be the next to go, but he's bought his way in to a safe job.
Blaming only the unions for Detroit's troubles is a familiar and decades-old practice. But Mr. Hassett's assertion that GM's problems are "mostly" wrought by the UAW is specious. Ultimately, the problem for American car manufacturers is poor sales. Does he really believe that it's the fault of the unions that far fewer people want to buy American autos today than they did twenty years ago? If GM and Chrysler had offered cars which competed with the Hondas, Nissans, and Toyotas which gobbled up so much of the Big Three's market share, we wouldn't be looking to Ford as the last man standing. And I think even Mr Hassett would be hard-pressed to blame the folks on the assembly line for the consitently poor choices made in the design, development, and marketing departments of the American automobile industry.
Like his employer, AEI, Kevin Hassett would have been a welcome guest at Berchtesgaden, where they understood the value of the big lie. A few months ago the New York Times evaluated UAW salaries and found that the $75/hour figure widely circulated by people like Hassett is a lie, trumped up by adding pension and health contributions for retired workers to current workers' salaries. The actual number is $55 or $10 more per hour than U.S. auto workers in Japanese plants. Labor represents 10% of the cost of a car. If GM were currently earning 10% more per car or selling 10% more cars, would they be healthy? Of course not. Corporations continually resist union requests for their members to sit on boards and shape policy and direction, usually offering them more money to keep them out of the loop. Who sabotaged our auto business? The same geniuses who paid themselves handsomely and now ask for taxpayer bailout money; the same ones who donate to the American Enterprise Institute and the Republican party. We've had 30 years of AEI's policies. Have they worked?
Kevin Hassett (who, to admit my bias, looks to me like a Lad who's likely never seen the inside of any factory) claimed that Bankruptcy is the way most businesses facing such difficulties are reorganized. Like Chrysler did Kevin? Nice fabrication.
He also explains that Japan doesn't have to pay healthcare benefits. Because their government helps with the payments Kevin.
Like most things CEI floops out for the noise machine to trumpet: this one is FAILED.
Kevin Hassett provides a perfect example of the ideological idiocy which drove America to the point it has reached. The UAW has done nothing but give back to prop up a failing business model, but his anti-union myopia caused him to miss the fact that the biggest losers in any auto bankruptcy will be the auto dealers, often the biggest business in small and medium sized towns and cities. The franchise agreements will be torn asunder by "a worldly and experienced bankruptcy judge." In a choice between Wall Street and Main Street, Obama and Goolseby chose Wall Street. The UAW isn't even a factor. Too bad Hassett can't analyse politics any better than he can economics.
Mr. Hassett's assertion that the "simple" story benind GM is that the Union negotiated GM into bankrupcy infers that the businessmen who ran GM were a bunch of rubes who just fell off the turnip truck and got fleeced by a bunch of city slickers.
Please.... It takes two to sign a contract. I challenge Mr. Hassett to point to any real union contract signed by a large corporation that wasn't profitable for both sides.
If GM executives were so naive that they sign repeated bad contracts, maybe they SHOULD go?
Thank you for giving Kevin Hassett a voice on Marketplace today, it was very instructive to hear the kind of free market fundamentalist, blame everyone but the business owners or market structures ideology that he espouses — ideology which instrumentalized thinkers like Hassett so neatly package into the language of a science. The omissions of his commentary are most telling: for example his failure to subject his U.S. and Japanese auto-workers' salary comparison to cost of living differences between them; or his omission of any context when referencing auto-workers' large health care commitments, a context which is not the fault of unions but of the larger abrogation of governmental oversight when it comes to the ways health care is privatized, profit-ized and exploited, against which the unions have been strong enough to protect its members, unlike most other workers — which is exactly why unions are necessary. But his blindness to that context and his vision of workers' needs as a mere impediment to "competitiveness" (meaning profit) may have something to do with the insurers, health care companies and other big-businesses that think-tanks like the American Enterprise Institute are set up to promote. Woops, am I suggesting that his job is to think through, language and voice interpretations of the world that serve the interests of a specific class of individuals and businesses, rather than reason? Oh well, I guess my whole reason for writing this comment is to thank Marketplace for providing us with this insight by letting him speak.
My experience as an automobile consumer is that GM's failure in the marketplace is due to its cars of inferior quality. GM's cynical top management rolled out the Chevette, which I bought. After that experience, I never bought another new GM product. No, it's Honda and Toyota all the way now. One reason why Japanese "benefits" are less costly than the benefits, especially health care, that GM pays, is that Japan has a national health system, and medical costs in general are cheaper in Japan. Hassett's failure to mention this fact is intellectually dishonest and disengenuous.
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