A popular saying claims there are no atheists in foxholes. Perhaps you have heard the political hacks on television claim that there are no libertarians in a recession, either. I would disagree with that last sentiment, because I think libertarians have better solutions for our current economic crisis than both Democrats and Republicans.
A couple weeks ago, executives of the big- three automakers – General Motors, Ford and Chrysler – showed up in Washington begging lawmakers for a handout. They flew there in private jets to ask for money.
Maybe you haven’t enjoyed this spectacle as much as I have – the one where corporations in America privatize profits and attempt to socialize losses by demanding bailouts, forgetting that in a free market stocks go down as well as up – but let me be clear: the American automobile industry neither deserves nor needs a financial bailout.
A bailout is the worst possible option on the table for the Big Three automakers. It will do nothing but reward poor management by corporate bureaucrats and incompetent union bosses that pushed for inflexible contractual commitments.
As of writing this column, congressional Democrats are attempting to cobble together a $15 to $25 billion bailout of the auto industry. According to his testimony on Capitol Hill, General Motors CEO Rick Wagoner indicated that GM blows $2 billion a month. At the rate the Big Three are burning through cash, this gargantuan sum of money will only last four months, five tops.
It’s impossible, not unlikely, for Detroit to turn it around and become profitable in that time span. Then they’ll be back asking for another handout from taxpayers.
A government bailout of the Big Three automakers does not help the automakers at all. A bailout will, in essence, allow the Big Three to continue operating as sluggish behemoths and delay any real cost cutting streamlining.
One of the biggest obstacles to the future of the Big Three is the United Auto Workers union and their inflexible and increasingly burdensome contractual demands. Ron Gettelfinger, current president of the UAW, was in Washington with the corporate cronies he normally opposes begging for a handout. He claimed that without immediate assistance, one or more of the Big Three could collapse in less than a year.
Part of the blame sits on your shoulders, Ron. According to the UAW, the average base salary at the Big Three topped $39 per hour. When one tacks on the additional $33 per hour in health care, pension and other benefits the unions have successfully wrangled out of the companies, the total cost for these workers comes to a staggering $72 per hour.
Line workers aren’t the only ones amassing large paychecks, either. A forklift operator for GM that belongs to the UAW reported making $103,000 in 2007. It doesn’t take a genius, or a congressman for that matter, to determine that paying inflated wages and providing benefits a company can’t afford are bad ideas. Union leaders advocated for benefits packages that the companies’ could barely afford during good times, and now that the domestic auto industry is on the verge of collapse, they refuse to offer further benefit concessions.
Libertarians recognize some of the delicious irony that is playing out on Capitol Hill right now. In the lead up to the Iraq War, congressional Democrats accused Republicans of using fear tactics to push the nation toward war. I don’t deny that President Bush and some members of his cabinet are guilty of this transgression, but now the shoe is on the other foot. Now Democrats, led by their fearless Messiah, President-elect Obama, are trying to scare the American people into thinking the auto industry is too important to fail, and thus deserves a handout. It’s rather amusing. Instead of championing American intervention in another country’s affairs, our leaders in Washington are advocating further government intervention in the market.
So exactly what is it going to take to turn the domestic auto industry around? It’s going to take real, drastic change. I’ve come to hate that word in 2008. The solution I offer is unpopular, but proven effective: chapter 11 bankruptcy.
Now try to understand something. Chapter 11 bankruptcy does not mean total liquidation. Auto industry executives and politicians in Washington refuse to consider that bankruptcy might provide the best opportunity for the industry to recover. I won’t pretend that bankruptcy will be painless. On the contrary, bankruptcy proceedings will lead to more job loss in the auto industry, with thousands of workers getting pink slips. Chapter 11 bankruptcies will allow the Big Three to completely throw out existing union contracts and cease paying burdensome health care and pension plans. If the unions want to remain viable players in the labor field, they must temper their demands and work out reasonable wage and benefit packages.
Don’t think corporate executives that led the Big Three toward financial ruin will get off easy. Under chapter 11 bankruptcy, automakers would fire those leaders responsible for this mess, and streamline their corporate leadership. Jack Welch, the former chairman and CEO of General Electric and a master at corporate streamlining, suggests that in addition to chapter 11 bankruptcy, a merger between GM and Chrysler could cut annual costs by $15 billion.
I recognize that my solution will bring further economic pain. I recognize thousands of jobs will disappear, shareholders will witness investments vanish, wages will go down, health and pension benefits will be greatly reduced and many of you will think that I’m just another heartless libertarian with no concern for the men and women who will lose if these companies file for bankruptcy. Before you do that, consider two points: first, the airline industry faced the same struggle recently, and major players like United and US Airways have emerged from chapter 11 proceedings leaner and more competitive. The auto industry can do the same. Secondly, and perhaps more importantly, a bailout is a temporary solution to a long-term problem. The auto industry experienced a “one-time bailout” in the 1970’s. That clearly didn’t fix the problem, and now they’re back for seconds.
Sometimes we heartless libertarians know what we’re talking about. Hopefully politicians in Washington will listen this time, and leave the Big Three to fend for themselves.
Joe Hunt is a history and economics senior. His column usually appeared every other Thursday.
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dbh 3 years, 5 months ago
I agree with most of your article and you make some excellent points that the Auto Industry Management Team should heed.
But I do think loans to be repaid by the Auto Industry makes sense in these tough uncertain economic times? Save as many US manufacturing jobs or jobs period in the next 180 days is critical for America..
libertarian 3 years, 5 months ago
I've enjoyed reading Joe Hunt's columns this semester. It's satisfying knowing that there is a libertarian at OU who not only understands the issues, but has the ability to clearly explain his position, and the heart to publish his beliefs, knowing full well that the majority of the campus probably disagrees.
I hope he writes again next semester - its refreshing to know that you don't have to be a liberal or a conservative and still have a valid argument.
libertarian 3 years, 5 months ago
The auto bailout failed today in the Senate because the UAW was unwilling to make wage concessions. Mr. Hunt, thank you again for writing this piece. Thanks to the Daily for printing the column as well.