Jeff Polhill

December 12, 2008. By Jeff Polhill

So we were told that the $14 billion U.S. automaker bailout plan that was approved by the House of Representatives (House Speaker Nancy Pelosi called the bailout legislation “tough love”) and agreed to in negotiations with the White House was going to be a harder sell in the Senate where enough Republicans were expected to balk on giving money to the U.S.automakers without major concessions from the autoworkers and creditors.

Well it happened. And who is the culprit? None other than the United Auto Workers union. The Republicans required that for their support, among other things, the union agree to slash wages at a specified date in 2009 to be in line with those of Japanese automakers in America. The “Big Three ” automakers vehicles cost on average $1500 more to produce than the Japanese automakers. The UAW was willing to make the cuts but not until 2011 when the autoworkers contract expires.

So what’s next? It appears at this time that if the union does not capitulate, there will not be the 60 votes needed in the Senate to get the “Big Three” bailout advanced, though a test vote was expected. Senator Cris Dodd, D-Connecticut, said, “In the midst of already deep and troubling economic times, we are about to add to that by walking away.” Senate Majority Leader Harry Reid, D-Nevada, added that he was “terribly disappointed” about the demise of the bipartisan deal. Senator Bob Corker, R-Tennessee, remarked that the two sides “… were about three words away from a deal.” Corker didn’t say what those words were.

Are we to see bankruptcy for General Motors and Chrysler, who have said they will be out of cash by year-end? Will the union come around to the 2009 wage cuts mandate? Will the White House step in to get the negotiations back on track? Or will the Senate and union agree to wage cuts before 2011 but later than what the 2009 Senate is requiring? There are just a lot of if’s.

My view is that bankruptcy may be the best for GM and Chrysler and the taxpayers. Sure it will hurt an already weakened economy and add to more layoffs in the auto industry, suppliers and dealerships. But the truth of it all is that as the U.S automakers are currently structured, they have shown that they cannot compete. In addition, all automakers are experiencing sagging sales. Buyers are hesitant to buy when many families have either experienced a job layoff, reduced wages, have a concern for their jobs, and with restricted bank credit.

GM, Chrysler and Ford (who has sufficient cash for 2009) got themselves into this mess by relying on truck and SUV sales, which they couldn’t move when gas prices went to $4 per gallon, refused to retool their factories to make vehicles that could compete with Honda and Toyota, agreed to contracts with the UAW that allowed laid-off workers to receive 90-95 percent of their pay through the end of the contracts and paid wages and benefits that caused their vehicle costs to be non-competitive.

In the short term, bankruptcy and job losses will be tough for economy to swallow, and for those that lose their jobs. But if the automakers can restructure and become profitable and competitive, then in the long term this is best for the economy and the taxpayer.

And in a free market economy, which we have, if you can’t compete, you either figure out how to or you perish.