It would be easy, but wrong, to lay the entire blame for the current state of the Detroit Three at the feet of the UAW. A number of factors contributed to the crisis: mediocre vehicle designs, a reputation for poorly-built cars, an excess of dealerships and needlessly strict environmental and fuel economy regulations all played a part. Even in the area where the UAW has the most influence — labor costs — Detroit Three executives have to share some of the blame; they agreed to the contracts after all.
But it is hard not to be dismayed by the recent comments of UAW President Ron Gettelfinger, whose public stance over the last several days has been to rule out wage and benefit concessions at a time when Congressional committees are contemplating a bailout of the Detroit Three, a bailout that is supposedly necessary to avoid the annihilation of Chrysler, Ford and GM. His prepared comments to a Senate committee included the following statement: "We do not believe there is any justification for conditioning assistance to the Detroit-based auto companies on further deep cuts in wages and benefits for active and retired workers."
It is perfectly understandable that Gettelfinger would want to make it clear to all that he is not eager to make further concessions. But it seems fairly obvious that some sort of concessions will be needed for any bailout or reorganization to work. The only question is how much and in what form. University of Michigan-Flint economist Mark Perry estimates that total compensation costs for the Detroit Three are still 65 percent higher than they are for their foreign competition. The Detroit Three expect to see much of that gap diminish, thanks to wage and benefit changes in their 2007 agreement with the UAW, but the full effects of those changes are not expected to kick in until 2010 or 2011.
One doesn't need an MBA to see that this discrepancy is just too big to ignore. That high labor cost either has to be tacked on to the cost of cars, taken out of research, development and design of new vehicles or taken out of profits, making the Detroit Three even less attractive to investors. Eliminating this gap in labor costs immediately wouldn't necessarily guarantee survival for any of the automakers, but it would buy them a little time and time is supposed to be what they really need.
This refusal to make significant concessions up front leads one to question: Is Gettelfinger serious? Is the UAW ready to do what it can to keep the Detroit Three afloat?
There are philosophical objections to government loans to save large companies — bailing out failing businesses drains money that could go to growing firms that are creating jobs. There is also reason to question the assumption that bankruptcy would result in liquidation — reorganization under Chapter 11 could give the companies the tools they need to restructure their operations and become stable and profitable.
But setting these aside, the point of any bailout is to save jobs, not oversized wage and benefit programs for unionized workers. When labor costs are more than half again as high for the Detroit Three as they are for other companies in the same industry, then it seems pretty logical that any bailout should be predicated on those labor costs being brought in line with those of the rest of the auto industry — now, not in two or three more years.
One does not expect a union official to be an advocate for pure free-market solutions, or to embrace economic competition, red in tooth-and-claw. To a large extent unions exist to protect workers from the effects of that competition. But one would hope that a leader of a large union would at least show an understanding of how a market economy works and what the state of the market is — the better to provide that protection. Right now all indications in the automotive markets point to the conclusion that labor costs at the Detroit Three will need to come down now, not later. It would be easier to take the UAW seriously if its leadership would acknowledge that much.
Paul Kersey is director of labor policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.