Thoughts on the Auto Bailout Buzz

WagesWell, here we are on the edge of the new Great Depression.  My heart goes out to all those graduating seniors staring at a non-existent labor market.

I can’t add much to the heaps of commentary already out there.  But I would like to make an observation about all those “liberals” commenting on TPM and Robert Reich‘s blogs.

Attention liberals:  crushing the UAW will not solve the auto industry’s problems.  And for all of you who say “let the Big Three fail and fund retraining for the workers,” what exactly are we going to retrain them to do when there are no jobs in their states? Also, did you know that the “Job Bank” that you so despise actually allows workers to take classes and get an education?  Are the Big Three US automakers guilty of putting all their eggs in the same SUV?  Definitely.  Are their labor costs way out of line with non-union automakers in the U.S.?  Not so much anymore.  You can read David Moberg’s post-mortem on last year’s UAW contract.  The company off-loaded retiree health and pensions onto the union, and got lower wages for new hires and “non-core” workers.

If there is going to be a bailout for the Big Three, let’s pray it isn’t the no strings attached Hank Paulson variety.  It has been a long time since the U.S. had anything like an industrial policy.  This may be a moment of leverage.  If the companies want help, they’ll have to reinvest and reform.  And while we’re at it, how about health care reform?  That would radically restructure the “labor costs” of the automakers and everyone else.

But let’s take a moment to think about the underlying weakness of our economy.  It is not that banks and credit card companies can’t, or won’t, loan.  The problem is that for the past 30 years wages have not kept pace with inflation, and now the average family is tapped out and over leveraged with debt.  Forcing across the board cuts on a key sector of the workforce will not reverse this trend.  What can reverse the trend?  Raising wages, a lot.  How can we do that in a hurry?  One word: Unions.

Update:  The New Republic has a good piece on why a structured bailout is better than bankruptcy for the Big Three, for autoworkers, and for the rest of us.

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9 Responses to Thoughts on the Auto Bailout Buzz

  1. Tim Lacy says:

    This reminds me that, in watching Gov. Schwarzenneger over the weekend on Stephanapolous program (sp? for both names), that I almost threw my shoe at the tv. The Governor suggested in relation to the auto industry that Germany has lower labor costs than we do in the U.S.! Can you believe that? I mean, my knowledge here is mostly anecdotal, but doesn’t Germany provide some of the best union-like benefits in the world to its auto workers, and workers in general? Is this a myth? I know you’re not necessarily a “transnational labor historian,” but the Governor’s suggestion seemed absurd to me. – TL

  2. Toby Higbie says:

    Tim: Remember that Germany and every other industrialized country have national health care and pension systems. So although I don’t know the specific comparative labor cost, the Governator may have been indirectly referring to these aspects of the labor cost structure. GM owns the German carmaker Opel, which is profitable. And for that matter, GM is profitable in Canada. Why? National health care. Nevertheless, GM (and the Republican Party) has always opposed national health care in the US.

  3. Tim Lacy says:

    You’d think that, for the opportunity to lower costs through pooling money, that businesses across the U.S. would jump at an opportunity to nationalize our healthcare system. Since money isn’t talking to them, apparently ideology is. So much economists’ assumptions about “free markets.” – TL

  4. olegtumarkin says:

    You make a good point that economy cannot handle a wage cut right now. But I do not believe that answer is raising wages. Raising wages just makes the products even less competetive and forces everyone to automate, offshore even more. The answer is puting vision and systems in place that would allow us to create more value for the society and for the outside world. I assure you that, given sufficient liquidity, wages will follow.
    The problem with Unions (especially the labor kind) is that they add no value to the proposition. They do not provide training, or career development. They do little but protect the inept. I have no problem with Unions if they are merit (not senority) based and if they actually perform some kind of a function. Unfortunately, most do not.
    The fact that Management is non-union and there is a management vs. union conflict in most organizations, only adds to inefficiency.

  5. olegtumarkin says:

    In case you want to write back:

  6. olegtumarkin says:

    The secret to GM’s profitability outside US is not nationalized healthcare (we spend $3000 more than other countries per person per year even under Medicare, the fact we are a sick nation is a whole another matter). The secret is that they are far away from american (mis)managers and bad union arrangements.
    More importantly, in those markets GM actually makes products people actually want.
    German labor is higher than in US, but they are more productive, more automated and thus per car the labor costs are less. It’s called efficiency, something GM’s headquarters seem to only be able to observe from a distance.

  7. Toby Higbie says:

    I’m definitely not going to defend the management of the Big Three. But at this point I really don’t think the UAW is the problem. The last round of UAW contracts brought actual labor costs (as opposed to retiree costs) on par with the non union producers.

    Seniority vs. “merit”? Absent a viable social safety net “merit” just means firing people once they get too old to handle the line speeds. The system that emerged from UAW collective bargaining is far from perfect. But given the fact that the auto companies and their allies were actively fighting national health insurance, etc., this is what we got.

    I guess this all deserves another post.

  8. bevans623 says:

    Toyota makes about $1000 per vehicle in profit. GM loses $1000. The difference in indirect labor costs (health care, pensions, paying for workers who aren’t working) is about $2000. The auto industry is not a high profit one. The cost of supporting the UAW is the difference between profitability and bleeding money. The new UAW contract and the changes in their health care policies will help, but those don’t come into effect until 2010. I would much rather have the government come in and help fund the labor costs for a year rather than just giving the Big Three a $25 billion handout. Helping fund these liabilities will not cost $25 billion, and will be the most efficient form of government intervention. Then, starting in 2010, they can start repaying the money.

    Also, to me, the whole “it’s going to be a disaster if they go bankrupt” argument sounds a whole lot like the “we’ll fall into an abyss if we don’t approve the bailout” argument. We fell into an abyss anyway, probably a deeper and darker one to boot.

  9. Toby Higbie says:

    I agree that it would be better for the government to help fund the health care and pension costs, rather than give or loan the money no strings attached.

    But what chance is there for that to happen while Bush is still in the White House?

    We’re already in a deep recession. The question is how much deeper shall we go, and what reasonable policies can we take to mitigate the worst effects?

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