Connect with us
Obama wants to count autoworkers’ jobs as "saved."


Don’t Bail Out the UAW (Again)

Obama wants to count autoworkers’ jobs as "saved."

In all but one circumstance, it’s almost unknown for an investment by government to return dividends quickly. That one circumstance is when the government invests in failure. When government invests in failure — as it did with the automakers’ bailout last fall — the investment creates more failure almost instantly.

It was less than three months ago that Congress and the Bush administration decided to subsidize the failure of General Motors and Chrysler by propping up their industry-killing deals with the United Auto Workers’ union. GM, which said it would file for bankruptcy and never recover, got the boar’s share of the money, about $13.5 billion. Chrysler, in as bad a situation, got about $4 billion. All of that money came out of the so-called “TARP” financial system bailout of $700 billion.

That December, money was made available on the condition that both companies came back with a plan this week to show how they would become commercially viable by extracting concessions from bond holders and from the UAW. But the UAW — the real beneficiary of the bailout — saw the government blink. It has refused to give up any significant pension or health benefits, which are the costs that make U.S, automakers uncompetitive even in the domestic market.

The UAW-GM talks broke off on February 14 on the issue of the health care fund (called VEBA), which is supposed to move the health care costs off the books of the companies and into private hands.

Now, the UAW — with GM and Chrysler hugging its ankles — is confident that the Obama administration will throw good money after bad. And that confidence is well-founded.

One of the plans bandied about last year was to have a government “car czar” put in charge of running the automakers through their readjustment period to ensure the government bailout money wasn’t wasted. But instead of putting someone who actually might be able to run a business in charge, the Obama administration has signaled that it won’t appoint a “car czar.”

Instead, Obama wants to appoint a task force headed up by Treasury Secretary Geithner and National Economic Council director Lawrence Summers. But, according to a Wall Street Journal report, “Treasury is expected to bring in Ron Bloom, a special assistant to the president of United Steelworkers union and a former investment banker, as a senior adviser to help handle auto-related issues…”

Messers. Geithner and Summers, however, are quite busy spending the trillion dollars of the Obama stimulus plan, so Mr. Bloom will have the most influence on how to restructure the companies and their union contracts. Which is tantamount to putting a drunk in charge of a distillery.

A more complete default to the union and abandonment of free market capitalism is hard to imagine. If the Obama White House and Speaker Pelosi’s Congress grant more bailout money to the automakers without compelling them to do the one thing that can actually save them — a structured reorganization in bankruptcy — these companies will become permanent wards of the state.

As I first wrote in November, Fortune magazine reported that the big reason for Ford’s $12.7 billion loss in 2006 was labor costs. It said GM pays $1635 per vehicle on health costs alone for active and retired workers. Toyota paid nothing for retired workers (it had none at the time) and only $215 per vehicle for active workers.

The magnitude of the problem is explained in the Heritage Foundation’s November 19 report. It shows that UAW members earn an average of $75/hour in wages and benefits, “…almost triple the earnings of the average private sector worker.”

Because those benefits are commercially unjustifiable, they must not be taxpayer-subsidized. And the only way for the companies to rid themselves of these burdens is the way the airlines did years ago: through bankruptcy reorganization which will empower a bankruptcy judge to redo the labor agreements so that the companies can compete.

But that will not be done because the Obama administration has in its mind the president’s goal of reforming the economy through his stimulus plan.

The stimulus bill is, at its heart, an ideological bill, not an economic one. For example, there is an appropriation of $1 billion to “improve” the census. Which must be judged in the context of Obama’s move to take the responsibility for running the census from the Commerce Department and place it in the hands of his hyperpartisan chief of staff, Rahm Emanuel.

That billion dollars isn’t going to create jobs: it’s going to be used politically to ensure Democrats get a big advantage in redistricting congress after the 2010 census.

The stimulus package — which Obama is scheduled to sign into law today — isn’t aimed at creating jobs. Its purpose is to buy votes for Democrats and create more government-dependent constituencies. So it will go with the automakers.

Obama packaged the stimulus plan cleverly, claiming it would “create or save” up to 4 million jobs. But how can you measure “created or saved” jobs objectively?

At the end of January, unemployment stood at about 7.6% according to the Bureau of Labor Statistics. On Fox News Sunday, senior Obama advisor David Axelrod said that the administration’s goal for the stimulus package was to prevent unemployment hitting double digits. But he fairly sprinted away from the question of forcing the automakers into bankruptcy.

Bankruptcy reorganization for the automakers isn’t in the cards because the president wants to end the year claiming to have saved millions of auto workers’ jobs. And he will make that claim even though most of those jobs would be saved for the long term if the companies were forced into a reorganization that would rid them of the labor cost burden that prevents their achieving competitiveness.

And so another government-dependent constituency will be created. Welfare state automakers will succeed as well as their predecessors did. Remember those great Soviet cars, the Volga and the Moskvitch? Nobody else does, either.

Written By

Mr. Babbin is the former editor of Human Events and (Jan 2007-Mar 2010) and served as a deputy undersecretary of defense in President George H.W. Bush's administration. He is the author of "In the Words of our Enemies"(Regnery,2007) and (with Edward Timperlake) of "Showdown: Why China Wants War with the United States" (Regnery, 2006) and "Inside the Asylum: Why the UN and Old Europe are Worse than You Think" (Regnery, 2004).

Click to comment

Leave a Reply

Your email address will not be published.