Poison

By: Joe Oglesby

The bubble has burst and now the giant ball of yarn is unraveling. The latest victim is the auto industry. Not the auto industry as a whole, however. The companies that are at capitol hill begging for a bailout of their own are what will be referred to for the remainder of this blog as the big three; Chrysler, Ford, and GM.

This past week the big three have been asking for a twenty five billion dollar lifeline that would be appropriated from the seven hundred billion dollar bailout afforded to Wall Street to aid in the credit crisis. But why is it only these three companies who are out being vocal, where are Toyota, Hyundai, and Nissan? The latter three companies do not have the financial burden that the big three do. The financial burden is coming from within a single source, the United Auto Workers union (UAW).

The UAW and the big three have a contract over a half century old that is suffocating and stunting the growth of these companies in the states. The blame is not a blanket on the whole union, but rather on one aspect; legacy costs. Legacy costs are the retirement plans and benefits defined under the current contract. Mike Rosen of 850 KOA spoke about this in the first hour on his morning radio program on Thursday the 13th of November. He cited two people Greg Lewis and Mark Perry during the segment.

Greg Lewis of the Washington Times wrote “The financial burden thus incurred weighs down their balance sheets to such a degree that, even if the industry in which they compete were thriving, it would be extremely difficult to maintain long-term profitability.” Greg continues on the article about compensation. GM currently has around 450,000 retirees; this is three times the amount of current employees. GM must provide pension plans and medical care for all of these retirees. It is estimated that the total cost comes out to around eighty billion dollars per year. Toyota, on the other hand, currently has approximately one thousand retirees and as the number of retirees grows the cost of pension plans from Toyota will be zero. The reason for this is that the employee is responsible for their retirement account and not the employer.

Mark Perry is professor of economics and finance at the School of Management at the University of Michigan. He brings up that the average labor cost of the big three is around $145,000 per year while the average labor cost at Nissan per year is only $96,000. Mark also discusses the average pay relative to other careers. The average UAW employee with a high school diploma makes 57.6 percent more compensation than the average university professor with a PhD and 52.6 percent more than average worker at Toyota, Honda, or Nissan.

Mike Rosen also briefly cites Steve Miller. Steve Miller is a turnaround specialist and was in charge of the restructuring of Del Phi after it severed from GM. Steve said “we can not continue to pay sixty five dollars an hour for someone to cut the grass and have the company remain competitive.” What Steve is referring to is that under the current contract the UAW employees that mow the grass and clean the toilets receive the same compensation, both in pay and pension, as a worker on the assembly line.

Throwing more money at the auto companies only puts the companies on life support as long as they have to throw away eighty billion dollars a year on retirees; a number that will continually grow exponentially if left unchecked. By having the companies file bankruptcy the company can be restructured to emulate the new state of the art factories that are not currently possible because of the unions. The underlying problem must be addressed in order for the companies to not only survive but prosper. The poison that is the United Auto Workers union must be flushed out of the system.

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6 Comments

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6 responses to “Poison

  1. Heather Ellerbrock

    Joe,
    While I appreciate your commentary, being so hateful to unions (the same organizations that gave you any rights you have at work) is downright terrible.
    My first observation is that you are attacking the pensions that provide people who have worked 25-30 years of hard labor for the same company a comfortable and deserving retirement. You approach your argument against the pensions as if it is money that goes to a 35 year old who worked only 5 years for the company. This money is for men and women who stayed in the same place for a 1/3 of their life. My grandfather worked as an engineer for the City and County of Denver for 30 years and designed half of this city. He also saved and receives social security. Now that he is retired, him and my grandma are able to jump in their RV and travel across America. Since Gpa worked so diligently for 30 years for the same company, they never were able to travel when he was working. Is he not deserving of his pension? A pension is not a free ride. It is a reward to the people that give 1/3 of their life to the same company.
    Also, the “big 3” factory workers make “so much money per hour” then why does it seem that factory workers struggle just like the rest of us? What I am taking from your argument Joe is that you would rather see corporate exes get all the money and still have the company go under as opposed to the hard workers who are just trying to make ends meet. I am not saying one deserves more than the other but hard work deserves “perks” as well.
    Joe, I know that this class is about hearing other opinions without attacking but your post disgusts me. You literally say “Throwing more money at the auto companies only puts the companies on life support as long as they have to throw away eighty billion dollars a year on retirees”. So much for taking care of others who actually worked their entire life to earn a little help.
    I now know that you don’t know what it is like to work a hard day just to pay for rent, groceries, tuition, energy bills, etc… for a company that does not appreciate you. That is why unions still exist.

  2. Shawn_Scanlon

    The current pension system in America is a mess. There is a proposal floating around that would guarantee inflation plus 3 percent to workers for retirement.

    I believe that businesses should not have to give healthcare or pensions to employees; it is the job of the government to guarantee those basic services. That way, the Big 3 can get back to doing what they are supposed to: market cars that people want to buy.

    Universal HC and government pensions: business-friendly ideas from your neighborhood socialist. 😉

  3. Diego Del Campo

    I don’t think the poison killing the big 3 is the UAW–it is the result of years and years and years of mismanagement at the corporate level, who insisted on producing gas-guzzling SUVs, who elevated corporate pay to obscene levels, who insist, even as the companies are tanking, to live their lives in the lap of luxury. THAT’s the poison. There’s no denying that the pension problem is a serious one–but that’s UAW’s fault.
    It’s a tough market out there, and if people don’t want to buy what you’re selling, then tough luck.
    Instead of bailing out GM, Ford, and Chrysler, Congress should allocate that money into retraining people for infrastructure jobs–that should shield somewhat the economy from whatever repercussions of a bankruptcy by all three.

  4. Tony Robinson

    Thanks for this provocative and well-argued post, Joe. As always, the class can count on your to advance a principled conservative opinion that forces everyone to think carefully about their values, about the actual facts, and about their unquestioned assumptions, etc. I know that the class as a whole, and certainly myself as the prof, appreciate your perspective….

    You also have some good links and data in this post to support your argument about the UAW being the source the troubles.

    Having said all that, I think Diego raises critical points. The UAW has actually engaged in decades of contract renegotiations, wage restraint and cut-backs, pension downscaling, etc. since the 1980s, as they have been pressured to help the industry remain competitive. Meanwhile what has happened to executive salaries and stock dividends, etc? They have soared to outrageous levels, which execs today earning hundreds of times what the average worker earns (a historically unusual fact) without evoking similar arguments on the right that exec salaries and stock gains are a poisen that must be flushed from the system, etc.

    A supply-side argument claims that there is too much capital and money concentrated in the middle class and working class, in the form of wages and pensions, so that the big investors don’t have enough capital to start new businesses and compete globally. This is essentially Joe’s argument as I read it.

    A demand-side, keynesian argument is that there is not enough capital and consumer power in the working class and middle class, so that they are no longer earning enough to consume the cars they produce, they can no longer afford to take on new credit, etc. This crisis on mainstreet is trickling up to create crisis on Wall Street, as the investor class realizes that people can’t actually afford to keep borrowing and buying, because the fact is that their wages and pensions are disintegrating.

    Keynes argued back during the Great Depression that the real crisis was brought about because common workers weren’t paid enough and didn’t have enough capital to sustain the top-heavy investor class sitting on their shoulders. He was right then, and right today. The solution to the growing national economic crisis, and the looming bankruptcy of auto companies is NOT to cut the wages and pensions of the working class, as Joe suggests. When we have passed through a few decades of immense profit taking and wealth distribution upwards to the top 5% of our society, it is hard to argue that we need to squeeze the social base even tighter and make the rich even richer in order to save the day.

    It’s time for a political pendulum swing back to the days of Keynes, and while the Joe Oglesbys of the world will keep the supply-side flame alive for the days when it is needed once again (and it will be), voters today seem to have realized that now is not the supply-siders time, and the old argument of kill the unions, cut wages, reduce pensions just isn’t relevant in an era when multi-billionaire execs are busy buying private islands to retreat to while arguing all along that US wages need to be scaled back to compete with near slave labor in the Maquiladoras and the Marianas.

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  6. Joseph Martinez

    I agree with Tony, Joe can always be counted on to provide a solid conservative argument. Something that is desperately needed in academia. That is not to say that others such as Heather did not have legitimate concerns with Joe and the state of the auto industry.
    The issue I have with Joe’s argument is that he places most of the blame on “The financial burden is coming from within a single source, the United Auto Workers union (UAW).” Joe, my man, the Union is the entity that keeps the American work-force from becoming Wal-Mart jobs. The auto-industry created the burden of Unionization.
    All industries that are tied to either collective-bargaining agreements or to unions are connected to them beacuse of unfair labor practices. Entities like UAW are created by the conditions inside the industry before the Union.
    Due to our capitalistic nature business can not be trusted to ensure their work force is paid or treated fairly.
    Big Joe, I love you dude, you always bring your “A” game to everyone of your arguments, but let us not forget that AIG, Fannie MAE , and Freddie MAC were not “burdened” by a Union and they crashed like an Al-Qaeda piloted 757. Not only that, the Union are the same folks who brought you an eight-hour work day, weekends, and a minimum wage!
    I think that the core of Joe’s frustration about this situation is that the United States government is handing out corporate well-fare. As I stated earlier we have a capitalist nature and as such, businesses should be allowed to fail. It is out of one company or “Big Three” for that matter that allows for the FREE MARKET to work. I have also heard inklings to the effect of a Federal “Car Czar” if the government decides to “bailout” Detroit. Do we really want the Feds in charge of making cars? Any one remember the Yugo?
    Finally, Toyota, Hyundai, and Nissan are not asking for money because they are not strapped to Unions that drain profit. The fact is Toyota, Hyundai, and Nissan make cars people will buy. While GM keeps pooping out Hummers convinced people still want those things. If you a need real world example look at the campus parking lots. The youth turns to Toyota, Hyundai, and Nissan. The days of the 100 foot long Cadillac, or the 1.5 mile per gallon Nova Super sports are gone! But the Union is not to blame.

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