Welcome, Big Three, to the real world

THE NEWS TRIBUNE
Last updated: November 21st, 2008 12:25 AM (PST)

Their executives keep saying that the problem is the world, not them. And that the world depends on them. General Motors CEO Rick Wagoner told the U.S. Senate Tuesday that only a $25 billion rescue package would “save the U.S. economy from a catastrophic collapse.”

That increasingly looks like a risk worth taking.

So far, the arguments against the bailout have been prevailing in Congress. That’s because they’re persuasive:

 • GM, Chrysler and Ford have been mismanaged for decades. With the possible exception of Ford under Alan Mullaly’s leadership, they’ve dug themselves into a deep hole and may be past the point of no return. There is no guarantee whatsoever that $25 billion will save them; they could be back asking for another $25 billion in short order.

 • GM – the closest to bankruptcy – has been arguing that buyers would run away from its vehicles if they perceived that it had gone bust. But customers’ concerns about promised warrantees, service, etc., could be addressed by pooling funds or obtaining federal guarantees to back those promises.

 • Chapter 11 allows for arrangements that keep companies alive. The idea is to restructure their debts and contract obligations to allow their survival. U.S. airlines have repeatedly been through Chapter 11 and emerged stronger.

 • The Big Three’s stunningly lavish labor contracts now all but prevent them from competing with Japanese and Korean automakers. GM compensates its workers at $73 an hour, Toyota at $48 an hour in its U.S. factories.

Old contracts negotiated by the United Auto Workers allow laid-off workers to collect salaries while not working and provide Cadillac health plans for early retirees. New hires aren’t offered so rich a deal – but the Big Three are laying off people, not hiring them. Chapter 11 would help them shed some of the most ridiculous excesses in these contracts.

 • American workers who make far less money and enjoy far fewer benefits than UAW members shouldn’t be asked to subsidize labor’s royal class.

 • Where does it stop? Congress chose to bail out core financial institutions because the credit they provide is the essential lubricant of the entire economy. The Big Three constitute roughly half of a single industry (the foreign-owned automakers constitute the other half). They represent a lot of payrolls, but so do other distressed companies that don’t have a prayer of getting bailed out by Congress.

The alignment of support for the bailout – virtually all Democratic and union-beholden – makes this look more like a rescue of the UAW than of the American economy.

The Big Three and UAW ought to assume responsibility for their decisions and face the discipline of the market. In other words, welcome to the world less-connected industries must survive in.

Originally published: November 21st, 2008 12:25 AM (PST)