The "Not-So-Big Three" Beg for a Bailout | Citizens Against Government Waste

The "Not-So-Big Three" Beg for a Bailout

The WasteWatcher

The so-called “Big Three” domestic automakers, General Motors, Chrysler, and Ford have kicked into overdrive to lobby Congress to salvage what is left of their business operations using taxpayer funds.  General Motors, which has entered negative cash-flow territory, is widely predicted to go belly-up unless it receives massive infusions of money.  Analysts predict that GM’s demise would drag the other two down as well.  After two days of contentious hearings on Capital Hill on November 18 and 19, auto executives departed without a deal and, at least for now, Congress has slammed the brakes on a straight bailout.  Instead, lawmakers have tasked automakers with furnishing a detailed plan for long-term industry “viability and sustainability” before any legislative action is taken. 

During the hearings, there was virtually no discussion of allowing market forces to force GM into Chapter 11 bankruptcy where it could embark on much-needed restructuring while continuing to operate.  And right now, congressional allies of the auto industry who favor a political solution over the bankruptcy court aren’t even discussing the removal of the executives who took these companies to the brink of rack and ruin by negotiating extraordinarily rich retirement and healthcare benefits packages for union workers.  Those contracts are binding and unsustainable, with or without another $25 billion or even $50 billion in taxpayer money.

According to Michael Mandel, Business Week’s chief economist, because of GM’s huge unfunded healthcare and pension benefits for unionized retirees, its current 300,000 employees are supporting the number of retirees appropriate for a company with a workforce of 800,000, almost triple the size.  GM’s healthcare benefits to its retirees alone cost the company $103 billion between 1993 and 2007, an average of $7 billion a year.  The UAW, fully settling into its sheltered position as a result of a grateful new President, who received overwhelming organizational and financial support, and an even more deferential Congress, has already made it abundantly clear that there will be no union givebacks for the ailing Detroit-based car industry. 

UAW President Ron Gettelfinger was quoted in the November 17, 2008 Financial Times as saying that “the focus has to be on the economy as a whole as opposed to a UAW contract.”  UAW-represented autoworkers at Chrysler and GM make $75 and $73 per hour respectively.  The highest paid hourly worker at Toyota makes $47.60.  Most other hourly workers make an average of $25 per hour.  There is no justice in forcing other financially-stretched American workers to bailout grossly-overpaid autoworkers.

The domestic auto industry has continued to operate and pay its workers as if it was the 1960s and they dominated the markets.  They don’t.  GM’s market share has shrunk form 50 percent in the 1960s to 20 percent today.  In fact, neither GM nor the other domestic automakers will ever be the manufacturing behemoths they once were.

A taxpayer bailout will throw good money after bad and only delay what should have occurred years ago.  Without seismic restructuring and a downsizing of the exorbitant fixed union costs (which can and should be accomplished in bankruptcy court), GM and all the domestic car companies will continue to malfunction in a union-stitched strait-jacket, starving these companies of the resources and elasticity they need to evolve into  next-generation automobile manufacturers.  This is an evolution that should have gotten underway during the first oil shock of the 1970s, when the companies faced permanent foreign competition and could have foreseen that gas prices were going to be a problem.  Instead, they may be rewarded for their failures by their allies in Congress with billions in taxpayer dollars. 

The Associated Press reported on June 16, 2008 that CEO salaries across the board rose by 3.5 percent in 2007.  GM was forced to close four plants because of lack of demand for vehicles, the company posted a $39 billion loss and its stock price took a nosedive.  Yet, GM”s chief executive Rick Wagoner didn’t feel the pinch; his paycheck rose by 64 percent to a comfortable $15.7 million. 

Wagoner has no intention of resigning after ripping off the taxpayers to save a company he helped ruin.  He intends to take the handouts, but told Detroit-based Automotive News that he believes it is his job “to make sure we have the best management team to run GM. It's not clear to me what purpose would be served” by his resignation.  If Wagoner really thinks his company has been blessed with the best management team money can buy, he’s lost his ball bearings and is in need of immediate brain realignment.   

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