What's good for GM is good for the country

Actually, GM President Charles Wilson didn't exactly say that. What he actually said, during his confirmation hearings to be Secretary of Defense in 1953, was that he'd always believed that

[w]hat’s good for the country is good for General Motors, and vice versa.

Still, it's close enough, especially when the health of GM and the rest of the Big 3 automakers may be so intertwined with the health of the economy as a whole.

So let's get right to the question: What about a bailout?

Actually, no, let's not. First, let me note here that it seems to me that as distasteful as a bailout of the industry may be to some, the alternative of bankruptcy would be worse: If I understand correctly, that would allow the court to restructure the company and in so doing break all existing union contracts, including any guarantees to pensioners - and since that would be an easy way to obtain assets to pay off GM's commercial creditors, who have first call on such assets, it seems a likely outcome. That is, past and present workers will get screwed to satisfy the banks. (If I am wrong about that, please someone tell me.)

Okay, then. So you support a bailout, yes?

Not quite so fast. There are several myths about the auto industry and particularly unionized autoworkers which need to dispelled before we get to that point.

The first, and the one of which people are likely the most aware, is the utter crap that UAW members are getting something like $70-plus an hour in pay and benefits.

Media Matters for America traced that particular inanity to New York Times columnist Andrew Ross Sorkin, who in a commentary in mid-November referred to workers' "gold-plated benefits" that are "off the charts" - and saw his bullshit fly straight into conventional wisdom.

Bullshit because first off, combining pay and benefits into one number is not the usual way to present income, especially when some other sources compared the number to wages alone. And second because it includes considerably more than what goes to individual workers.

The figure is obtained by starting with base pay, which is around $28-$30 an hour depending on the skill level. Then you add the cost of every benefit - not just health insurance, but sick time, vacation and holiday time, overtime, shift differential, everything. Then, and I bet you didn't think of this part of "benefits," you add

statutory costs, which employers are required to pay by law, such as federal contributions for Social Security and Medicare, and state payments to workers’ compensation and unemployment insurance funds.

And then on top of all that, you add "legacy costs," the benefits paid to retirees and the surviving spouses of retirees. That is, you take every expense for every employee past or present, including ones you're required by law to pay, and divide that total by the number of current employees, treating payments to retirees as if they were payments to current workers.

And it's misleading in a subtler way as well: In a post at The New Republic website on November 21, making the same point I made three days earlier in a comment at Lean Left, Jonathan Cohn notes that

[w]hile the transplants[, i.e., US-based factories of non-US companies] don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.

The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees.

GM, on the other hand, has over 325,000 retirees. Ford has over 120,000, Chrysler over 80,000.

Then consider another point: Forget all that for the moment. Embrace the $70 per hour figure - but only if you compare it to the value added per hour per average worker, i.e., productivity. That figure, according the the Census Bureau, is $206 per hour. Even at the falsely-inflated figure, workers are producing considerable added benefit to their companies' products.

And on top of it all, the union-busters fail to mention that in recent contract talks, the UAW has made a number of givebacks and concessions to help the Big 3 remain competitive.

Ford led the way years ago[, Cohn wrote the previous week,] by reaching site-specific "competitive operating agreements" with locals at different plants, rather than sticking to one national agreement, thereby enabling it loosen work rules and engage in the sort of collaborative quality management on which industry leader Toyota made its reputation. Then, last year, the UAW reached a breakthrough agreement in which it granted the companies similar flexibility, agreed to a two-tier wage structure for new hires, and set up a separate trust fund to finance future retiree health benefits.

In fact, the givebacks were do dramatic, the change so large, that

[i]f carried out as planned, by 2010 - the final year of this existing contract - total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory.

In other words and in short, the "greedy union" line is a big fat flaming lie, a purely manufactured number designed to attack and demonize unionized workers.

Okay, I get it. So what about a bailout?

Wait, there's still another point to consider: Why is the industry in trouble, if it's not the fault of greedy unions?

Simple: People aren't buying cars! That's the secret hidden away in the coverage of the problems of the Big 3: It's not just them. It's across the board.

GM's sales in September were down 16% from September 2007. Ford's were down 34% compared to a year before; at Chrysler, the drop was 33%. Dramatic and seemingly telling.

But at Toyota, the fourth largest domestic automaker, sales were down 32% compared to last September. At Honda, US sales fell 24%. And Nissan was down 37%, the largest drop of the six.

Fewer people are buying cars and fewer are able to. Bob Schnorbus, chief economist at J.D. Power and Associates,

said there were anecdotal reports from dealers that some consumers who wanted to buy cars were being turned away because they couldn't get financing. ...

GM earlier this year estimated that it is losing 10,000 to 12,000 potential sales a month as customers with weaker credit standing get shut out of the new-car market. The number is probably growing, said Mark LaNeve, GM's North American marketing chief. He said banks are requiring customers to contribute larger down payments to complete car loans.

Let me be clear: This is not to say that the troubles of the Big 3 are not to a fair extent self-inflicted wounds. It is to say that it's damn hard to blame unionized workers for the trouble when the non-unionized companies have seen drops in sales every bit as big.

Fine, fine, I get it. But what about a freaking bailout?

Not quite. I'm almost finished. We've established that the wage and benefit figure used to malign union workers is bogus. That the so-called "pay gap," while it does exist, is not nearly as wide as we've been lead to believe, is shrinking, and may disappear altogether in a few years. And that there has been a major drop in car sales across the board.

Now there is one area left to look at: management. And there we find a record of failure and bone-headedness that stretches literally across decades. Management that refused to re-tool to meet a changing market. Management that continued to produce and push gas-guzzlers, driven by the Detroit ethos that “small car equals small profit,” even as it became obvious that people wanted more fuel efficiency. Management that persistently, repeatedly, tried to make workers bear the brunt of the effect of its own bad decisions while protecting its own interests. (GM CEO Rick Wagoner is to be paid over $2 million for 2008, not counting incentive payments and stock options; in 2007, as GM lost nearly $40 billion, he got total compensation worth over $14 million.)

Management that, perhaps most egregiously, remained focused on short-term profit (what Leonard Silk, long time economics editor at the New York Times, called “the tyranny of the short-term”) at the expense of both long-term interests and, more importantly, market share. (As one particularly galling example of that and as an illustration of how far back this rigid thinking goes, in 1978 the dollar was devalued. That drove up the price of Japanese imported cars by, on average, $1000 each, which meant in turn the Big 3 could have significantly undersold the imports. Instead, they raised the prices on their so-called "import fighters," which increased short-term profit but undermined any hope of improving market share.)

Like the old saying has it, the fish rots from the head down. The failures and fiascoes that have marked the path of the US auto industry over the past decades can be laid clearly and firmly at the door of the upper management, the top executives, of those companies.

But other than some tut-tutting about what bad form it was for the CEOs to go to DC in their private jets, the main song we hear is the one that always gets sung when some company or industry gets in trouble: It’s all the workers’ fault. If only they would accept lower pay, slashed benefits, less job security, layoffs, “flexibility,” and more responsibilities all at the same time - that is, if only we could pay them like Wal-Mart and treat them like McDonald’s - everything would be fine.

But that's crap. Utter crap. It's not the line workers' fault. It's management's fault. It's management's fault for being pig-headed, stubborn, greedy, and incapable of seeing beyond the next quarter's bottom line. And any bailout has to take those two most basic facts into account.

But what about the damn - oh, wait, does that mean you support a bailout?

Maybe.

: Sound of loud groan :

Conditionally. It depends on the type of bailout and the terms under which it is provided. First, it should be, as UAW President Ron Gettelfinger has been at pains to point out the industry's proposal is, a loan, not a giveaway. Second, the companies should be required to open their books to independent scrutiny. They want the money, they allow confirmation of how bad things are and how much help is actually warranted and required.

The terms should include, before all else, a principle of "workers first." That is, the first use of any funds should be to protect the health care and pensions of workers. Promises made must be kept. Only after management sees their pay cuts, their slashed benefits, their eliminated bonuses, their firings, then and only then do we look to the workers who had no say in the corporate decisions that produced the mess.

That also would mean that this, as reported by the Latin American Herald Tribune last week, should go right out the window:

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

Get that? A high-level GM executive announced a company intention to use part of the hoped-for aid to build facilities in Brazil for the avowed purpose of avoiding paying union wages and benefits. No more. Not if they want the bucks.

Third, the industry must agree to allow direct employee input into both strategic management decisions and shop-floor operations, input that goes beyond being just for show. This includes, upfront, agreeing to higher fuel standards, improved safety measures (for both cars and factories), and concentrating on hybrid and other advanced model cars.

Fourth and probably necessary to do the third, there must be a complete change in management - and note very closely that I do not say managers, I say management. The change must be not only in personnel but in the way the companies do business. In the way they think about innovation, about the participation of employees in management, about a duty to the environment and to the public at large, about the long term.

Get those kinds of terms and yes, I will support a bailout. Fail to get them, most particularly the fourth, and I find it difficult to accept that a bailout of any sort will do anything other than stretch out the death throes and it would probably be better for all concerned to just go to bankruptcy now.

Thanks to Digby for the link to the 11/21 Cohn column and to the folks at Not Another Conspiracy for the link to the Latin American Herald Tribune story.

Footnote: It's slowly starting to soak through that the $70 an hour figure is phony. So of course, there's something to take its place: the tale of the "controversial jobs bank," one of those "bloated" union benefits.

The jobs bank pays workers who have been laid off most of their wage until the company either calls them back or offers them work not too far away. The UAW got the bank created in a contract with the idea of making extensive layoffs financially unproductive for the companies. I expect most people not part of the industry never heard of it but now it crops up frequently in news articles about the automakers' pleas for assistance, usually described as something along the lines of "paying people to do nothing." (I wonder who fed that bit of info, another way to make workers look greedy, to the media.)

There's only one thing: The number of workers in the job bank has dropped by over 95% over the past couple of years.

Ford has taken 40,000 workers out since 2005 and GM has removed about 47,000. Currently, Chrysler has 711 workers in the jobs bank, GM has 1,404 and Ford has 1,476.

"It's not gone yet but it's almost gone," Gettelfinger said. "We're on the verge of eliminating that provision." And new language in the 2007 contract stripped it to a "mere shadow of what it used to be."

According to company sources, the new restrictions placed on eligibiity for the program are severe enough that they might have been able to remove all the workers had not the downturn in sales lead them to (I refuse to say "forced them to") lay off more workers.