Picking on Detroit Automakers and Workers

Washington Matters

Picking on Detroit Automakers and Workers

The American auto industry and its unionized employees have become a national punching bag, and not without reason. For far too long they ignored the huge problems facing them and kept putting out small fires while a blaze was building behind their backs. But there's an awful lot of piling on going on as politicians and others get indignant at the thought of using taxpayer money to keep GM and Chrysler out of bankruptcy (and perhaps Ford down the road). And there's a lot of dangerous misinformation and simplistic thinking going on, too.

I suspect that some of this is "enough is enough" drawing of lines in the dirt. After all, while most Americans begrudgingly backed the idea of the $700 billion package for the financial industry they don't see the results they expected and they see plenty of evidence that oversight of the money has been lax. So it's not surprising to me that most Americans (55%) oppose the auto bailout. But there is an even more significant number in the same Washington Post poll that I find deeply worrisome: 60% think that forcing one or more of the auto companies to restructure under Chapter 11 bankruptcy proceedings would do no harm to the economy or would even be good for it.

That's a little scary. There may be legitimate arguments to be made that bankruptcy may ultimately benefit the country and the industry, but it's an open question as to whether anyone will buy a car from a company in bankruptcy proceedings. And no one should fool themselves about the brutal impact of yet another massive loss of jobs in the middle of a terrible recession. It wouldn't just be out of work autoworkers or their bosses who would be hit -- suppliers and dealers would go under, local economies near plants would be in jeopardy, state jobless funds and health care programs would be further strained. The recession would almost certainly be deeper and longer.

But there is more at work here than what might be called bailout fatigue. New York Times columnist William Kristol pointed out this week that there's a special kind of disdain for unionized autoworkers and the industry -- disdain that rises far above anything laid onto the financial industry, despite the fact that its rescue package was infinitely larger and that its excesses had everything to do with making our situation a genuine crisis instead of a cyclical slowdown. The United Autoworkers Union is portrayed as not just selfish, but almost willfully destructive by those who trace the industry's woes to labor costs. 

There are several things wrong with that line of thinking: First, as Kristol points out, labor costs are only about 10% of the total cost of making a domestic auto. Second, the figures commonly used to illustrate how autoworkers are overcompensated are inflated. Times Business columnist David Leonhardt last week dissected the $73 an hour wage package that is so often cited in outrage and found that the average pay and benefits package is closer to $55 an hour. (Nonunion Toyota workers in the United States receive roughly $48 an hour in pay and benefits.) Most of the remaining money is for retiree benefits that are fixed  -- not compensation to current workers.

Another argument against aiding the Detroit Three is that the government will be subsidizing the industry and that U.S. automakers will never be lean and mean enough to compete. Detroit certainly has hurt itself in multiple ways and made it less competitive than many foreign automakers. But GM, Chrysler and Ford and their supporters point out that their foreign competition has some significant advantages not provided to them. Most of the large auto plants operated in the South by the likes of Toyota, Nissan and Honda were lured not just by a cheaper nonunion labor force, cheaper land and other lower costs, but by huge tax breaks and incentives offered by local and state governments. Many auto companies receive direct subsidies from their government and some indirect ones as well -- Japan pays for the cost of health insurance for employees, for example. Finally, while Detroit still has its hat in hand, many of its competitors overseas are already receiving bailouts of their own. China, Brazil and much of Europe has already created or are crafting rescue plans.

Saving a company or an industry can be a very bad idea. It takes away the fighting edge that is needed to produce an affordable product that people want. But letting huge companies fail in particularly hard times can be disastrous, too. The debate over which path to take ought to be based on facts and clear vision, not exaggerations or feelings of resentment.