Tuesday, November 11, 2008

An Opportunity for "Fundamental Change"

By Phil Fraietta

Throughout this election season President-elect Barack Obama constantly hammered the idea of “fundamental change” and bi-partisanship. With the current American automaker crisis, President-elect Obama has the chance to bring this “fundamental change” and bi-partisanship to life by finally rejecting the political wishes of lobbyists and those in his own Party.

Prominent Democratic leaders in Congress, in particular, Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid, have lobbied for a federal bailout of the auto companies. This is not the way to restore the auto companies. Contrary to their belief, the current troubles the auto companies face are not due to the current credit crisis, but are instead due to the all-powerful labor union United Auto Workers (UAW). To give an example of the power of this union we can compare data on the average labor cost per U.S. hourly worker reported by General Motors (GM) and Toyota.

In the year 2005, this data was as follows: General Motors $73.73, Toyota $48. Anybody familiar with economics should immediately take note that in a free-market equilibrium system, such a drastic difference in these statistics would not be possible. It is the power of the UAW that allows for such a drastic difference. Also, American auto laborers belonging to the UAW are often times paid to not work! In fact, according to The Detroit News, as of 2005, 12,000 UAW workers were paid to not work.

In addition, current federal mileage standards also force American automakers to produce small cars that make almost zero profit, at plants organized by the UAW. This is why we see American automakers continually produce cars that do not sell. These are just a few of the problems American auto companies suffer, but what is most important is that none of these problems have to do with people being unable to receive credit to purchase automobiles.

In fact, even when the economy was thriving in 2005, GM reported a third-quarter loss of $1.7 billion, according to The Washington Times. What this data tells us is clear—American automakers are hammered by their labor contracts. One would think that Pelosi and Reid would recognize this and demand that the bailout will only be provided if these labor contracts are re-written. However, we are talking about the far-left ideologues of the United States. What have they decided to do to ensure the taxpayer money goes to good use? Place limits on executive pay. What a shocker!

Also, not by coincidence, Pelosi and Reid are only fighting for bailouts for the American automakers stationed in the blue-state of Michigan and controlled by the largely Democratic union, the UAW. This despite the fact that nearly 113,000 Americans work for “foreign” auto companies, which are not doing so great right now either. In fact, Toyota is reporting a 70% fall in profits in the third-quarter according to The Guardian. So then if the proposed auto bailout is meant to protect American jobs, why not provide money for companies such as Toyota as well? This answer is simple; these companies are stationed in the red-states of Alabama, Kentucky and Tennessee. This proposed bailout bill by Pelosi and Reid is entirely partisan-based and has been created in order to please the lobbyists for the UAW, as well as, the voters of the blue-state of Michigan.

Assuming President Bush decides to end his term as a conservative (which is a broad assumption) and veto this bailout proposal, it will be the first piece of legislation before President-elect Obama. If Obama truly wants to bring fundamental change and bi-partisanship he should stand-up to Nancy Pelosi, Harry Reid, the UAW and partisan-based politics in general and veto this proposed bailout for failing to address the issue of labor contracts.


DSKohn said...

I completely agree. If, in the end, the government bails out the 'Big Three,' it may, in principle not be as against our traditions as it may seem because most of it was not caused by bad business practice but by government protection of labor unions. There are two automobile industries in America. The first is the Detroit industry which is considered the icon of America's former industrial might. But there is another, in the South. Almost all foreign car manufacturers that sell in the United States have factories spread throughout the southern states where they do not have to worry about labor unions. Any BMW you buy in America is produced in Alabama. Toyota, Honda and many other foreign car manufacturers produce in the south. This is not a bailout in the sense that Paulson's was, this would be a rectification of poor government policy that was sympathetic to mafia backed labor unions.

Phil said...

Well I should probably have made it clear in the post itself, I am in no way in favor of a bailout for the American automakers. But, I do realize that given political pressures such bailout will eventually happen, so I hope that it includes a destruction of those poor labor contracts because that will at least ensure these companies succeed and we, the taxpayers, get our money back. Personally, however, I think it would be best to simply let these companies go under and allow them to restructure that way. Yes, it will cost the jobs of thousands of Americans, but in the long-run, these jobs will be back and without the ridiculous labor contracts even more jobs could be created.

DSKohn said...

I am against bailing out the auto industry as well. But make no mistake it is in now way a good thing. Any capital that is reposessed in the event of a Big Three bankruptcy will just be sent to Asia. There will be no new American growth to be found from this, no new jobs no positive impact in the long run. Free trade has desroyed significant parts of American Manufacturing. As Pat Buchanan recently said. "great nations do not have trade partners, only competitors."

Phil said...

Let me also make it clear that I am a total and complete supporter of free trade. I admire Pat Buchanan for some of his positions, but strongly disagree with his ideas on trade. Free trade betters every consumer because it increases goods quality and decreases price. If it so happens that the United States can not compete with the Japanese in automobile production, either because of quality of cars or economies of scale, then so be it. Trade and specialization is best for all.