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Wednesday, Dec. 10, 2008

Do Not Bail Out the Auto Industry

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Last week, the CEOs of the big three American automobile companies made their nationally televised drive to Washington. In the case of at least one of these CEOs, that trip cost upwards of $8,000- based on his yearly salary and the time spent driving his hybrid vehicle to the proverbial beggar's banquet before Congress.

If the American taxpayer ends up bailing out the failing automakers based on this piece of feigned frugality and humility- blatantly staged for the caravans of media trucks and the helicopters following their trek- then this country has finally become too vacuous, shallow, and gullible to continue running itself. It might just be time to call the Chinese for advice.

Bailing out the American automakers is akin to setting a broken arm while you're still falling down the stairs. The automakers are afflicted with a cancer in the form of the United Auto Workers Union. The UAW has saddled these once-great titans of American manufacturing with job-banks (you don't even have to work to get paid by GM, Chrysler and Ford,) massive pension obligations, inflated wages, health care premiums for long-retired workers, and all of the other industry-killing trappings that are imposed by unions.

The current bailout proposal before Congress is about $15 billion, less than half of the original request for $34 billion. It is estimated that the $15 billion will last less than 6 months at the current rate at which these companies are hemorrhaging cash. The current proposal contains no concrete requirements for restructuring or changes to management. There is simply a March 21st deadline for the companies to submit their plans for cost cutting and overhauling their businesses.

The proposal fails to take into account the union problem. While the UAW has quietly mentioned that it would be willing to "renegotiate contracts," the union has not provided any specifics about what its members would be willing to give up to save their industry. It's difficult to imagine that an organization that has targeted factories in financial distress for strikes would rise to the occasion and make concessions that would allow the Big Three to produce vehicles at a profit. Currently, the American automakers spend thousands of dollars more to produce a vehicle than the foreign manufacturers operating in the US. Most of this discrepancy comes in the form of legacy costs to retired union workers- before the first sheet of metal hits the assembly line. Unions have proven again and again that they are willing to accelerate the demise of the company that employs their members- by striking against when the companies most need their support to survive.

And then there's Congress. The singsong litany from Congress is "The Big Three are just not building cars that Americans want to buy." Pelosi, Reid and the rest are simply wrong in this assertion. The Ford F-150 is, and has been for years, the best selling vehicle in America. Look at any list of the most fuel efficient vehicles being produced (www.fueleconomy.gov) and you'll find plenty of Detroit cars, trucks, and SUVs on the list. This is social engineering- liberal politicians trying to steer the American public toward the vehicles (and lifestyles) that THEY believe everyone should be driving (living). In promoting the plug-in electric car, the Democrats seem to have forgotten (much like the media forgot) the words of President-Elect Barack Obama in a January 2008 interview with the San Francisco Chronicle: "When I was asked earlier about the issue of coal, uh, you know, under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket." That ought to make everyone want to run out and purchase an electric car.

The liberal approach to business has become laughable. First, tax the corporations to the hilt. Second, heap loads of regulation on the industry (read: CAFE standards). Third, make it as easy as possible for the cancerous unions to infiltrate the industry. Then, after steps one through three have nearly destroyed the corporations and the industry as a whole, offer a taxpayer funded bailout, with the appropriate government oversight attached, of course. But don't require any real changes- except for CEO pay reductions. Take the crippled corporations and finally ensure that they'll never be able to attract the top-notch talent again.

To bail, or not to bail- that is the question. Whether 'tis nobler in the mind to suffer the slings and arrows of bankruptcy, or to take arms against the taxpayer and demand a bailout.

Bankruptcy would, at least, allow the Big Three to get out from under the union contracts that force them to produce vehicles at a cost that will never allow them to make a profit. The Pension Benefit Guaranty Corporation would assume the pension obligations of the bankrupt corporations- because it was evident even in 1974 that pensions are dangerous commitments for corporations to make. But it is important not to leave the pensioners out in the cold.

Post-bankruptcy, with restructuring of management, further efficiency innovations in the vehicles Americans have always wanted to buy- SUVs, pickups, and crossovers, and a commitment to cutting unnecessary and legacy costs, the Big Three might just stand a chance.

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