AEI: It's all the union's fault

Kevin Hasset, of the AEI, advances the standard corporatist line that GM's problems are entirely the fault of the UAW.

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.

Nowhere in this screed does Hassett see fit to mention GM's short-sighted strategy of betting the farm on continued high demand for full-sized SUVs.*

Nor does Hassett seem to think that GM's woes were aggravated by its stated resistance, as late as November, 2008, to accelerating the development of hybrids

Still, production of the new cars will be limited. GM, for instance, plans to produce only a little more than 10,000 Volts in the model’s first year.

“People ask us when will we produce not just 10,000 but 50,000,” said Frank Weber, GM’s chief engineer for E-flex systems. “I say when the battery and power train costs have come down significantly.”

This, in a year that Toyota sold nearly 160,000 Prius hybrids.

And no anti-union demagoguery would be complete without the requisite misrepresentation of union members' wages and benefits. Hassett suggests that a severance agreement between GM and the UAW helped to drive the company to brink of bankruptcy.

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.

Oh, my! All that money!

Except that Hassset's characterization of the agreement is, what a surprise, less than completely accurate.

The United Auto Workers said Wednesday it had negotiated a staff reduction program with the automaker that gives GM employees with 10 or more years seniority the option of a one-time $140,000 'buy out' to sever all ties to GM and Delphi, including healthcare and other post-retirement benefits.

And speaking of healthcare, did you catch Hasset's reference to the advantages that Japanese automakers enjoy on that front?

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.

If I didn't know better, I would think that the AEI's Mr. Hassett was making the case for a national health care system. Why else bring up that particular disparity between U.S. and foreign companies? Unless it is to argue that American workers shouldn't have access to health care. But, really, what kind of monster would suggest a thing like that?


_{* Seriously, click on the link and listen to this GM flack as he boasts to NPR in 2005 about the company's plan to ignore crossovers in favor of more full-sized SUVs. No honest person can listen to that and then blame organized labor for GM's problems.}