Buried Planet

I’ve been following the auto bailout story for the last few weeks and had some observations I wanted to share. First, do I really care if the CEOs come in private jets, cars, bicycles or electric cars? Does that really matter? It’s almost as if the reporters would rather talk about some superficial detail than the real meat of the story.

I also noticed that while auto industry CEOs are forced to beg Congress for money and Congress decries their ‘bad management’ (as though the government were masterful managers of time and treasure) there were no union leaders put through the same public trials. The CEOs are lambasted for ‘poor management’ and ‘not creating cars that Americans want to buy’ — which may or may not be entirely true.

It simply does not make sense to think that the CEOs aren’t at least partly responsible for the poor financial states of their respective companies, but two groups have been left out of this Congressional blamestorming session — the auto workers unions and their government enablers.

The Heritage Foundation published a study back in early November that outlined how ‘Big Three’ auto workers were paid compared to other auto workers, and the results surprised even me.

UAW workers earn $75 an hour in wages and benefits–almost triple the earnings of the average private sector worker. Detroit autoworkers have substantially more health, retirement, and paid time off benefits than most Americans. These benefits, and a JOBS bank that pays UAW workers nearly full wages to not work, have been a major force driving the Detroit automakers’ current fiscal woes. Consequently, Congress should not force all Americans to pay for high wages and benefits for UAW workers.

If the Big Three were to be driven by market forces into bankruptcy, that would not necessarily be the end of the companies. All bankruptcy does is give a company a break from paying off their creditors long enough to restructure the company and gets its financial picture straight. Often this means creditors don’t get paid, or get paid only a fraction of what they were owed. During bankruptcy a strict legal order is defined on which creditors get paid first and by what amount of the original amount owed. Naturally, the government is at the top of the list. And then they work down the list, paying off creditors when possible, often pennies on the dollar.

So it only makes sense that bankruptcy is regarded as a black letter against a company (or individual’s) credit rating, so it is not something to be entered into lightly.

What makes the Big Three so special that they deserve a bailout from the federal government? Their biggest creditors are probably the unionized auto workers. Even as the union workers have crashed their gravy train they expect the federal government to get them back on the road — and all without union leaders getting so much as a dressing down from Congress.

The Heritage Foundation reported that the average compensation for other auto workers was hardly slave labor wages:

The average private sector worker earned $25.36 an hour in 2006–$17.91 an hour in cash wages and $7.45 an hour in benefits such as pensions, paid time off, and health insurance.[1] Autoworkers at Japanese plants located in the United States earn substantially more than this: between $42 and $48 an hour in wages and benefits, which amounts to over $80,000 a year in total compensation–hardly cheap labor.[2]

The typical UAW worker at the Big Three earned between $71 and $76 an hour in 2006. This amount is triple the earnings of the typical worker in the private sector and $25 to $30 an hour more than American workers at Japanese auto plants. The average unionized worker at the Big Three earns over $130,000 a year in wages and benefits.[3]

I’d be glad to see the Big Three go under if only it means that the unions go under with them. Then it would all be worth it. Instead of forcing the Big Three to build electric cars as a precondition to a bailout, just let them go into bankruptcy. It would be the knockout punch that labor unions richly deserve.