Auto Bailout II-->Bad For America But Obama Will Push it Through Anyway

When chief architect of the Global Economic Collapse Barney Frank, appeared on 60 Minutes in December we learned what the Auto bailout was really about. It had nothing to to with propping up ailing car companies. Frank insisted it is about the individual, that the government needs to help the people in the car companies. In other words it is welfare for the UAW:

"No. We’re not propping up companies. That’s your mistake," he tells Stahl, who had asked him about taxpayer money going to prop up companies that had made bad decisions. "We’re propping up individuals. The world doesn't consist of companies. The world is people. The country is people."

When Stahl points out that Frank is then talking about welfare, he responds, "Yeah, I’m for welfare. You’re not? Are you for letting people starve?"

Some argued that bankruptcy was the way for Detroit to work out its troubles and reformulate their businesses. Frank is against that as well because it also hurts the individual. "There's only one thing you can do in bankruptcy: break your word, break your deals," says Frank. "It allows you to say to the small businesses who have been catering lunches for you…the workers, 'Sorry, we’re not paying you,'" he tells Stahl.

Two months later we are quickly approaching the time when we will need to bail out the UAW once again. This bail out will be bad for the Auto Industry, and bad for America, but the president will push it through, because it is good for the unions that helped to put him in office:

Don't Bail Out the UAW (Again)
by Jed Babbin (more by this author)


In all but one circumstance, it’s almost unknown for an investment by government to return dividends quickly. That one circumstance is when the government invests in failure. When government invests in failure -- as it did with the automakers’ bailout last fall -- the investment creates more failure almost instantly.


It was less than three months ago that Congress and the Bush administration decided to subsidize the failure of General Motors and Chrysler by propping up their industry-killing deals with the United Auto Workers’ union. GM, which said it would file for bankruptcy and never recover, got the boar’s share of the money, about $13.5 billion. Chrysler, in as bad a situation, got about $4 billion. All of that money came out of the so-called “TARP” financial system bailout of $700 billion.


That December, money was made available on the condition that both companies came back with a plan this week to show how they would become commercially viable by extracting concessions from bond holders and from the UAW. But the UAW -- the real beneficiary of the bailout -- saw the government blink. It has refused to give up any significant pension or health benefits, which are the costs that make U.S, automakers uncompetitive even in the domestic market.


The UAW-GM talks broke off on February 14 on the issue of the health care fund (called VEBA), which is supposed to move the health care costs off the books of the companies and into private hands.


Now, the UAW -- with GM and Chrysler hugging its ankles -- is confident that the Obama administration will throw good money after bad. And that confidence is well-founded.


One of the plans bandied about last year was to have a government “car czar” put in charge of running the automakers through their readjustment period to ensure the government bailout money wasn’t wasted. But instead of putting someone who actually might be able to run a business in charge, the Obama administration has signaled that it won’t appoint a “car czar.”


Instead, Obama wants to appoint a task force headed up by Treasury Secretary Geithner and National Economic Council director Lawrence Summers. But, according to a Wall Street Journal report, “Treasury is expected to bring in Ron Bloom, a special assistant to the president of United Steelworkers union and a former investment banker, as a senior adviser to help handle auto-related issues…”


Messers. Geithner and Summers, however, are quite busy spending the trillion dollars of the Obama stimulus plan, so Mr. Bloom will have the most influence on how to restructure the companies and their union contracts. Which is tantamount to putting a drunk in charge of a distillery.


A more complete default to the union and abandonment of free market capitalism is hard to imagine. If the Obama White House and Speaker Pelosi’s Congress grant more bailout money to the automakers without compelling them to do the one thing that can actually save them -- a structured reorganization in bankruptcy -- these companies will become permanent wards of the state.


As I first wrote in November, Fortune magazine reported that the big reason for Ford’s $12.7 billion loss in 2006 was labor costs. It said GM pays $1635 per vehicle on health costs alone for active and retired workers. Toyota paid nothing for retired workers (it had none at the time) and only $215 per vehicle for active workers.


The magnitude of the problem is explained in the Heritage Foundation’s November 19 report. It shows that UAW members earn an average of $75/hour in wages and benefits, “…almost triple the earnings of the average private sector worker.”


Because those benefits are commercially unjustifiable, they must not be taxpayer-subsidized. And the only way for the companies to rid themselves of these burdens is the way the airlines did years ago: through bankruptcy reorganization which will empower a bankruptcy judge to redo the labor agreements so that the companies can compete.


But that will not be done because the Obama administration has in its mind the president’s goal of reforming the economy through his stimulus plan.


The stimulus bill is, at its heart, an ideological bill, not an economic one. For example, there is an appropriation of $1 billion to “improve” the census. Which must be judged in the context of Obama’s move to take the responsibility for running the census from the Commerce Department and place it in the hands of his hyperpartisan chief of staff, Rahm Emanuel.


That billion dollars isn’t going to create jobs: it’s going to be used politically to ensure Democrats get a big advantage in redistricting congress after the 2010 census.


The stimulus package -- which Obama is scheduled to sign into law today -- isn’t aimed at creating jobs. Its purpose is to buy votes for Democrats and create more government-dependent constituencies. So it will go with the automakers.


Obama packaged the stimulus plan cleverly, claiming it would “create or save” up to 4 million jobs. But how can you measure “created or saved” jobs objectively?


At the end of January, unemployment stood at about 7.6% according to the Bureau of Labor Statistics. On Fox News Sunday, senior Obama advisor David Axelrod said that the administration’s goal for the stimulus package was to prevent unemployment hitting double digits. But he fairly sprinted away from the question of forcing the automakers into bankruptcy.


Bankruptcy reorganization for the automakers isn’t in the cards because the president wants to end the year claiming to have saved millions of auto workers’ jobs. And he will make that claim even though most of those jobs would be saved for the long term if the companies were forced into a reorganization that would rid them of the labor cost burden that prevents their achieving competitiveness.


And so another government-dependent constituency will be created. Welfare state automakers will succeed as well as their predecessors did. Remember those great Soviet cars, the Volga and the Moskvitch? Nobody else does, either.