We at Frugal Hoosiers have been fairly critical of the proposed bailout of the American auto industry. But, as Rex Early would say, it’s a mighty thin pancake that doesn’t have two sides. So here’s another take on the bailout from regular commenter and sometime contributor Danny Ernstes.
I am writing this post to the Frugal Hoosiers blog to address some misconceptions and maybe win over a few of our friends who are skeptical about this bailout package. I know my audience here is attuned to free market principles and is very quick pull the trigger on such items as a bailout for these companies especially when they involve labor unions.
Let me say first and foremost that the UAW understands that our companies have to be profitable and must have flexibility to adjust to the market. Over the years the UAW has adapted and bargained contracts that both give the company the flexibility it needs while working to meet the needs of our members.
Nevertheless, here are some thoughts about the auto-bailout and some perspectives that you may not have thought of.
In the face of a global credit crisis and a worldwide economic downturn, U.S. auto sales have slowed to a crawl. As insecurity spreads throughout the economy, consumers are delaying major purchases — and those who do visit auto showrooms are not finding credit available on reasonable terms.
The domestic auto industry simply cannot succeed in today’s unstable economic environment without immediate help from the federal government. And the costs of failure are unacceptable.
This isn’t just about three large Michigan-based companies and the 240,000 people who work for them, including 150,000 of our members. It’s also about thousands of car dealerships that are anchor businesses in cities and towns across America. It’s about thousands of small and medium-size businesses — employing millions of workers — that provide parts, logistics, research, engineering and other goods and services to Chrysler, Ford and General Motors. If a major domestic auto company were to fail, a significant number of supplier companies would also be in jeopardy. This would quickly affect all the companies that produce autos in the United States — including Toyota, Honda and Nissan — because many of them buy parts and services from the same group of suppliers.
A major disruption in the auto supply chain would quickly curtail production at auto plants, whether domestic or foreign-owned, throughout the United States. The cost of failure at even a single U.S. automaker would be millions of lost jobs and hundreds of billions of dollars’ worth of lost sales and revenue spread across all 50 states.
In a recent article in Bloomberg News Toyota executives spoke of what impact failure would have on their company. “We’re worried. We’re concerned about it,” said Mike Goss, a spokesman for Toyota’s North American manufacturing unit in Erlanger, Ky. “The vehicles we build in North America use about 75 percent local content, and much of that is coming from the same companies that supply the Detroit Three.” Mike Michels, Toyota’s U.S. vice president of media relations, said the failure of one or more of the U.S. automakers would be ‘devastating” for the entire industry.
Focusing back on the UAW I want to point out that, it is not the actions of our members that have caused the crisis in today’s auto industry; the crisis is being driven by economic factors that have nothing to do with labor costs or factory performance. To the contrary, our contracts have put our employers in a position to compete.
The reality of today’s auto industry is that union-made vehicles are winning quality awards and that union-represented factory workers are winning productivity awards. A Nov. 8 Post editorial claimed that unionized auto manufacturers pay “wages and benefits that far exceed those of non-union competitors,” but recent labor negotiations with Chrysler, Ford and GM addressed this alleged wage and benefit gap.
The 2007 labor negotiations with the companies transformed the domestic auto industry; when the agreements we reached have been fully implemented, they will largely or even completely eliminate the labor-cost gap between unionized auto plants and our nonunion competitors. One analyst has estimated that as a result of our contracts, GM will soon enjoy a labor-cost advantage over Toyota.
The various demands for cuts in the wages and benefits of active and retired autoworkers as a condition of federal assistance are curious — and extremely unbalanced. To our knowledge, no one has proposed cutting the compensation of everyday active or retired bankers, bond traders, and office or building personnel who work at AIG, Bear Stearns or the numerous banks that have received billions in federal aid. Why is it only autoworkers who are singled out for this dubious honor?
Besides being unfair, government-mandated wage and benefit cuts make no economic sense. In the midst of the most severe recession in decades, the last thing we should do is take money out of the pockets of working families, since it is consumer spending that drives two-thirds of all U.S. economic activity.
I hope that this helps clear up some misconceptions about the bailout program and we can begin an honest discussion about the bailout. I look forward to your posts.
DannyE