Obama beholden to UAW in handling GM

[engine9 1]

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President Obama has a huge political debt to the unions and that's why he's avoiding the obvious solution to the auto crisis.

Historically, failing American companies like GM have entered bankruptcy. In bankruptcy, they either liquidate or, if the firm is worth saving, reorganize.

Bankruptcy reorganizations are painful for stakeholders. Hard-nosed judges give workers, managers and debtors severe haircuts in order to reshape a firm into a new organism that can thrive again. But bankruptcy can work. Most everyone has flown on an airline that has emerged from a successful bankruptcy.

This economic crisis is unique in history in that troubled firms have sought protection from politicians, rather than bankruptcy courts. Why? Because if you're politically connected, you can expect a much better deal from politicians than you would ever get from a worldly and experienced bankruptcy judge.

GM is in deep trouble mostly because the United Auto Workers have festooned the company with rigid work rules and extravagant costs. The 2007 collective-bargaining agreement, for example, required the automaker to pay up to $140,000 in severance to a worker whose position was eliminated. And that is nothing compared to the enormous health-care costs these companies are laden with. The average cost of employing a worker at the Big Three, including benefits, was nearly twice that of Japanese automakers. No wonder the automakers are hemorrhaging cash.

A bankruptcy judge would bring some reason to labor costs and create a GM that could emerge stronger. But the unions have a better idea. They plan to use taxpayer money to fund their juicy compensation. And they know they can count on Obama and the Democrats to help them. All told, organized labor contributed over $74 million in the 2008 campaign cycle, 92 percent of that went to Democrats.

History will tell a simple story about GM: Union bosses successfully negotiated sweetheart packages that destroyed GM's competitiveness. If Obama was serious about creating an enterprise that can thrive in the future, he would have demanded that the union bosses resign along with Wagoner. Instead, it's payback time.

Kevin Hassett is the director of economic studies at the American Enterprise Institute in Washington, D.C.

[Murph 479]

Kevin Hassett has just got a hit put out on him.

[Panthro 9,764]

He may already be floating in Lake Erie

[mmmbeans 443]

to be fair, the airlines are a poor example given that we've bailed them out a number of times apiece. GM is to some extent an industry in and of itself in this country. Talking about it as though GM's liquidation at this point in time would be comparable in any way to any one of a number of airlines failing during flush times is oversimplification at best.

But the unions are going to make significant concessions....

[engine9 1]

to be fair, the airlines are a poor example given that we've bailed them out a number of times apiece. GM is to some extent an industry in and of itself in this country. Talking about it as though GM's liquidation at this point in time would be comparable in any way to any one of a number of airlines failing during flush times is oversimplification at best.

But the unions are going to make significant concessions....

His opinions on the UAW's level of blame and the comparisons to the airlines' past woes may not be universal, but GM eventually having to bite the bullet and file for bankruptcy are pretty popular.

[Davidson Deac II 4,075]

Listening to the discussion on NPR today, it seems that GM will likely survive, albeit in a reduced form. But Chrysler might be toast.

[cookinwithgas 6,885]

The UAW agreements have been a real financial burden on the company, but to say that they are "mostly" the cause is silly. 40 years of rusty planned obsolescence pitted against Japanese and German quality, and the arrogance to think that Americans would not know the difference, is what put them in a hole.

[Guest]

The UAW agreements have been a real financial burden on the company, but to say that they are "mostly" the cause is silly. 40 years of rusty planned obsolescence pitted against Japanese and German quality, and the arrogance to think that Americans would not know the difference, is what put them in a hole.

This was definitely true 20 years ago, but initial quality now for american cars (GM and Ford anyway) is on par with japanese cars. How they hold up in the future remains to be seen. Regarding the Germans - outstanding engineering and fantastic driving experience, but every german car I've owned has had it's share of troubles, more than than problems with any american car I've owned, and at twice the price to repair.

Speak with someone outside the unions that lives in Detroit. You'll be amazed at how much legacy costs go into each car/truck GM sells.

[SCP 30,136]

I blame it all on duelly pick up trucks.

[Carolina Husker 396]

The only shot GM has is to file Chapter 11. Obama's kidding himself if he thinks there's another way.