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An Alternative to the Bailout By: Dr. Mark W. Hendrickson
FrontPageMagazine.com | Wednesday, November 26, 2008


I’ve already explained the problematical economics and ethics of a federal bailout for the Big Three (see "A Bailout for Detroit"). The demise of the pillar of metro Detroit’s economy saddens me—I’m from there; in fact, I was once a janitor for Chrysler. If there can be any profit from this pending tragedy, it will be if we learn what caused it and avoid repeating those fatal mistakes in the future. With that objective, I’ll present my two cents on where the responsibility lies, and then I’ll offer an outside-the-box alternative to a taxpayer-funded bailout.

The Big Three are terminal because their labor costs are too high. Toyota, Honda, or Volkswagen can manufacture automobiles profitably in the United States because their labor costs are lower. The difference is 100 percent due to the United Auto Workers union and the above-market compensation packages that its monopoly bargaining power has extracted from the Big Three for years.

I don’t buy the endlessly repeated refrain of condescending know-it-alls that the Big Three’s troubles were caused by stupid and irresponsible management choosing to produce high-priced gas guzzlers instead of low-priced, fuel-efficient vehicles. If management is “stupid,” then why have GM and Ford consistently earned profits in their foreign operations?

In “green” theology, SUVs are a cardinal sin, but from an economic standpoint, if you want to know why the Big Three has produced them, put yourself in management’s shoes for a moment; First, a lot of Americans preferred to buy gas guzzlers when the economy was booming and gas prices were low, and it has never been considered poor management to provide what customers want. Second, confronted with a $2,000 per-unit disadvantage against their competitors—due to labor and legacy costs imposed on them by UAW—the Big Three have been noncompetitive in low-price, low-markup cars, and their only hope of earning a profit domestically has been to build larger, high-markup vehicles. UAW is the culprit here, having painted the Big Three into a dangerous corner than has turned lethal.

Let me emphasize that my gripe is not with the rank-and-file laborer, but with the union brass. When I worked at Chrysler, I developed a great fondness for many of my co-workers. They were decent, upright, salt-of-the-earth, true-blue Americans. Sadly, the rank-and-file autoworkers have been betrayed by their own union bosses. In recent decades, the union has destroyed hundreds of thousands of UAW jobs by pricing them out of the market. Aren’t unions supposed to help workers? How are they helping their members if they kill off their jobs? Such cannibalism puts the lie to hollow rhetoric about the “solidarity of labor” and reveals the stone-cold heart of unionism, its utter selfishness and destructiveness.

We see that same ruthless selfishness now in UAW’s refusal to make any concessions, even as they warn that “millions” of jobs that depend on the Big Three will be lost if the companies aren’t saved. This smells of blackmail. UAW is playing a giant game of chicken with Uncle Sam—“We (UAW) refuse to accept less compensation (see "Too Little Too Late?"), so if you (Uncle Sam) don’t bail us out, you will cause an economic disaster in Michigan.” Huh? If UAW really cared about its home communities, it has long had it in its power to preserve the economic viability of the Big Three by accepting wages comparable to those paid to Americans who make Hondas and Toyotas in the States. Instead, it refuses to help save its own communities. This is the bitter reality of unionism.

That having been said, it’s time for a “hail Mary” pass in a last-ditch effort to rescue the Detroit auto industry, and here I’m going to flip-flop and sound pro-union. I propose that ownership of the Big Three be transferred to UAW. The current shareholders are already largely wiped out. Compensate them by giving them warrants that they can cash in if the Big Three return to profitability under UAW ownership.

It’s time for UAW to do the heavy lifting. Let it decide what is a “fair” wage for its members. If the union members set their own wages, that would end the poisonous adversary relationship that currently exists between management and labor, and that has culminated in UAW throttling the Big Three—the geese that have laid the autoworkers’ golden eggs. The union can quit wasting energy hating management for denying them “what they deserve,” and could pay themselves whatever they want. Let them run the show. That would be most illuminating and educational for other workers, unionized or not. Maybe, just maybe, a crash course in economic reality would impart the lesson that a worker is better off working 40 hours per week at $40 per hour compensation than zero hours per week at $70 per hour.

If the Big Three want to be saved, let them save themselves instead of asking us (the taxpayers) to subsidize their current compensation structure. If they try to save themselves, I truly hope they succeed.


Dr. Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College.


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