America Needs a Strong, Unionized Auto Industry -- That Requires Government Action

As the debate over federal help for the auto industry has heated up, we've heard a lot from those who believe that the problem with the auto industry is "bloated union contracts." They see those contracts as a reason not to provide federal loans that could prevent one or more of the "Big Three" from falling into bankruptcy.

In fact, it is precisely this fact -- that unionized automobile manufacturers provide their workers with middle class incomes -- that makes it critical for government to assure the long-term survival of this industry in particular, and the U.S. manufacturing sector in general.

The core failure of the radical-right-Bush economic policy is that the "markets uber alles" economic philosophy led them to lower incomes for most Americans while siphoning off all of the fruits of economic growth for the top two-percent of the population. Of course, that is a terrible outcome because the point of our economy should be to improve the lives of everyone -- not just the gang on Wall Street. But it has also been a disaster because widely-spread income growth is necessary to provide the demand that fuels long-term economic growth in the entire economy.

It's really simple: good economic policy requires that more and more Americans make higher wages, not that more and more Americans make lower wages.

Unfortunately, market forces by themselves do not yield that result. For that to be the case, you have to have strong unions like the United Auto Workers -- whose demands for good wages helped create the American middle class after World War II.

If we allow the unionized American automobile industry to collapse, we will accelerate the reduction of middle class incomes for everyone. That collapse would start a tidal wave of lower wages and, in turn, lower buying power throughout the economy. The auto industry and its suppliers represent a huge chunk of the American manufacturing sector. The collapse of GM or Chrysler would throw hundreds of thousands of workers onto the shrinking job market. It would start a domino effect of bankruptcies and layoffs among suppliers and dealers all over the country.

Any attempt to reorganize one of these companies under the bankruptcy laws would almost certainly result in massive layoffs. Consumers don't by cars from companies that they worry won't be around to service them. The workers that remain would see reduced wages as union contracts are abrogated by the bankruptcy court.

If a foreign manufacturer expanded auto production in the U.S. in order to fill the void, it would no doubt pay lower wages with no guarantee of union representation.

All of this would be bad at any time. But at this precarious time it could serve as the precipitating event that pushes the economy into a long, deep recession. It could easily be remembered as the most foolhardy, risky policy choice in modern economic history.

Should the government make capital available without strings? Absolutely not. The taxpayers should demand a plan that guarantees the American auto industry has long-term viability. But that doesn't mean it should become a low wage industry. Its problems have very little to do with "bloated union contracts." And they certainly were not caused by "overregulation" or the intrusion of government into the decisions of the "private sector."

The economic problems of today's American auto industry are grounded in two catastrophically bad management decisions -- both rooted in the view that unregulated markets always yield correct outcomes. These have been exacerbated by the recent collapse of the financial markets.

1). Following World War II, GM's Chair Charlie Wilson had a major battle with the president of the UAW, Walter Reuther. Reuther wanted the government to set up a federal insurance program to provide health care for all . He also wanted to expand Social Security with a federally administered pension system that was not wholly dependent on the economic health of particular employers.

Wilson -- and other titans of American industry -- fought Reuther tooth and nail. They believed that these programs would undermine the "private market." To head him off, they offered a program of employer-based health and pension benefits. Sixty years later those privately funded health and pension benefits have become an economic albatross. That is not because we are over-generous with health care and pensions in the U.S. In fact, our costs for health care, pensions and unemployment are average for the industrial world. The difference is how we fund them.

In Canada, Europe and Japan, the risks of providing these benefits is spread to everyone through the government. In the U.S. they are associated with specific employers. As the auto industry automated and needed fewer workers to produce a car, it meant that for every car sold, the cost of the benefits -- the "legacy costs" for retirees in particular -- skyrocketed relative to the foreign competition. Health care costs alone now add $1,000 to the cost of every American made car.

In countries where these costs are spread to all through government action, companies are free to succeed or fail based on the qualities of the products and their efficiency -- not the number of their retirees.

Wilson's private sector solution for health care and pensions was a disaster for the long-term health of the auto industry. Reuther's public sector solution must finally be adopted to insure a viable auto industry in the future.

2). Auto industry executives failed to invest in technologies that prepared the industry for the future. They took few steps to eliminate their dependence on hydrocarbon fuels -- and have stubbornly prevented government from imposing tougher emission standards and other regulations that would force them to do so. Now, as we get to the end of the hydrocarbon era, the Big Three are mainly geared to produce huge gas guzzlers.

The major reason for this failure to invest for the future has been the incessant desire for short-term returns. There is very little patient capital in the modern financial marketplace. Private capital is highly mobile. Most investments made by pension funds and large equity investors are securitized as investment instruments (not investments in fixed plant and equipment), so it can move on a moment's notice. There is incredible pressure for immediate high yields. That pressure has been exacerbated by the speculative fever of the last ten years and the bubble it generated.

There was simply more short-term return in big vehicles with gasoline-based combustion engines than there was producing smaller vehicles or in making long-term investments in new propulsion systems. Once again, the market, by itself, failed to generate the decisions that would lead the auto industry to long-term economic health.

3). The collapse of world financial markets and last summer's oil price shock have exacerbated both of these underlying problems. The auto industry's own shortsighted opposition to tougher fuel efficiency standards helped spur the oil price shock, which has been mitigated only temporarily by the current economic collapse. The collapse of the financial market has made it very difficult for these companies to raise capital -- or for their consumers to borrow money to buy cars. That, coupled with the broader economic slowdown, has pushed sales over a cliff. In October car sales dropped 35% from the year previous. That is a recipe for bankruptcy.

Of course everyone now admits that the financial market collapse resulted from the deregulation of financial markets and the failure of government to regulate the international financial system. It flows from exactly the same philosophy of unfettered private markets that lead to the auto industry's underlying problems in the first place.

This week Congress needs to do what is necessary to prevent the short-term collapse of the American auto industry. But over the long term a viable auto industry requires more than capital for auto companies. It requires a federal program to guarantee health care for all, a new approach to private pensions and a crash program to free us from our dependence on oil-powered vehicles.

It will also require a renewed commitment to strong unions and a high-wage economy that grows from the bottom up. After all, the health of every American business is ultimately grounded in the existence of consumers with enough money to buy their products.

Robert Creamer is a long-time political organizer and strategist, and author of the recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com

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Comments

[Quitcherbichin]

Labor unions are nothing more than legalized extortion. That is quite evident by the difference in their compensation compared to the non-unionized trades. They have no one to blame but themselves for the fiasco that Detroit has become.

I am a former union member. The only thing the union did was protect the jobs of people who should have been fired, file grievances every time they did not get their way, or like the job they were told to do, and generally accept high levels of pay for low levels of work. Their mantra should be do as little as possible, for as long as possible, for as much money as possible.

There was a time that unions were needed. That time has long since passed. The are dinosaurs. They need to be extinct like dinosaurs.

[JRE1]

Quitcherbichin, Have you ever heard that 10% of the people cause 90% of the problem. That is true of Union members but is also true of all Industries. The 90% portion of UAW members are hard working, good people and we simply come and go to work each day. Being an ex union member, you should know that most of the demands are made by a small group of leaders making decisions for us. We simply vote. I don't know of too many in America, who would turn down a job with the Big 3 in recent times. As I'm sure you also know, most of the gains and big contracts occurred during much different times when it was us against Ford and Chrysler. To write such a simplistic, arrogant view of unions and all they've accomplished, diminishes all of the efforts by those who went on strike, were beaten and some died fighting for the wages and labor laws that most Americans now take for granted...­..........­...I'm guessing you're in that 10%

[kstuff]

I'm pretty sure union workers made those private jets.

[0emissions]

These companies spend BILLIONS a year just on Advertising to get us to buy their products.
These products are viewed as a necessity of life. They are NOT.
They destroy lives. One car costs over $8000 a year (on average) just to maintain. They have created a terrible moral malaise. They are ubiquitous.
These things create horrendous NOISE, stench, pollution and filthy streets.
Not only do they cost us in lives and injuries, these weapons of mass destruction cost us TRILLIONS in medical expenses, hospitals, rehab centres, coroners, funerals, court cases, police surveillance, roads and road maintenance, street cleaning, etc.
Why ? oh Why?? do we permit the use of such Health Hazards???

[adaugeo]

How Dead does GM need to be to be declared Dead? We really need another $25billion in debt like we need to keep pretending that it does not take more energy (burn) to make ethanol for use in Big-3's less efficient pretend "hybrids".

And Then There Were TWO... No worries 0-e GM is dead with or without the bailout.

[indy100]

Unions can and do benefit everyone, not just union workers, because higher union wages and better benefits influence the non-union sector as well. Have the unions become bloated? Possibly. Is everyone in America going to be required to make sacrifices in the next couple of years? Absolutely. Cutbacks however, should start at the seriously bloated and overpaid TOP sector and work their way down, not the other way around. Unions and their benefits aren't the major problem, and most other countries also have unions, the real problem with American car makers and American corporations in general is greed, mismanagement and refusal to change. If those issues are not dealt with there is no amount of money that can save American car makers or any other industry.

[suzc]

Unions do NOT benefit "everyone" though if you're a too-highly-paid union worker or exec, I'm sure you'd like us to believe that. Unions have in the past done well for their workers -- but there is NO worker who deserves $85/hour for working on an assembly line -- any more than there is ANY corporate executive who deserves tens of millions of dollars for raping and pillaging the economy and the rest of us in the name of his stockholders! Unions were needed at one point. Now they are simply another bloated part of the problem! What is needed NOW is a return to common sense and reasonable wages and incomes for those who have been eating at the trough for far too long, at the expense of the majority, whether union hall or board room. Incredibly overpaid personnel have forced prices up while incomes for the majority of us have stagnated.

[richfair]

There is always the tendency to blame others from the bottom up. Why? I have no idea.
Let's try the opposite.
Who has allowed the top executives of major corporations (like, GM, Ford & Chrysler) to pull down mutli-millions in salaries and benefits and fly around in their own corporate jets?????
Start with them reducing their pay to say - oh, 25x the average worker in their factory.
Then, perhaps we will already not have to worry about union workers reducing $50./hour.

PS: The income tax system used to go as high as 90% (less "loopholes"): If we returned to this, perhaps instead of 10 million dollar salaries, the CEOs would be satisfied with 1 million...­.well, gee, guess they each would no longer have 7 luxury mansion arond the world.

[PigLipstick]

We were all astounded a few years back when it was disclosed that the head of Mitsubishi, Japan's primary auto manufacturer, was compensated at an unbelievable $500,000 a year, and they have since kicked our auto industries ass! Pretty much supports the argument of “Pigs at the Trough” !

[PigLipstick]

Ironic that Lee Iacocca, former head of Chrysler in the 1980s, is remembered for his successful negotiation of a business loan from the federal government in 1979, five years later the loan was completely repaid to the government, with interest, potentially saving the taxpayers of Canada and the U.S. countless millions due to layoffs, sub-contractor shutdowns, lost tax revenue, and a probable general economic downturn. In addition, Lee was an outspoken supporter of labor and commented publicly about the plight of hourly workers who ultimately have to pay the price of salary and benefit reductions, or possible layoffs, due to incompetent management.

Lee wrote a book last year called "Where have all the leaders gone ?". In this book he lamented his decision to give up his head role at Chrysler and that if he had known that his replacement was going to sell the company to a foreign car maker, he would have never resigned. His resignation was primarily justified by advancing age and the death of his long time wife. Lee bridges his discussion on the ultimate outcome for Chrysler to the pitiful decline of our government and business leadership over the past thirty years. Salaries, bonuses, and benefits have drastically increased as the quality of leadership has reached an all time low. Read the book, it’s a great historical perspective of how we got in this current mess !

[SensibleCentrist]

One argument which is fundamentally flawed is that consumers won't buy cars from GM if it goes through a Chapter 11 reorganization. This is absurd. How stupid do you think consumers are? They are far less likely to buy GM cars now, with the threat of bankruptcy hanging over the company. Once the company is restructured for long-term viability, consumers will be FAR MORE LIKELY to buy GM cars!
There is no question here that the UAW has contributed to the problem, and provides an example of how unions are job-killers. All those non-union competitors in the south paying $37/hr are succeeding in making cars consumers want at an affordable price, and the wages provide a reasonable middle class income, not bad for assembly line work. Detroit, thanks to the UAW holding a gun to their head, and incompetent management, who acquiesced, has bloated union contracts and the workers are no better off....wou­ldn't the workforce rather make less and have a secure, long-term job? Unions need to realize their goal should be to make sure the company is competitive and viable, and get a fair compensation for the worker. It should not be to rape and pillage the company and leave it bankrupt.
The unions are not the only problem, management's inability to see the need for fuel-efficient cars also contributed, but it is undeniable that the UAW has poorly served its membership and continues to by proclaiming "no concessions". Are they nuts?

[rayboston]

The Christian Science monitor paints a horrific picture of Detroit as a city so blighted that it actually has a pheasant hunting season http://www.csmonitor.com/2008/1119/p09s01-coop.htmll) This is a chilling portrait of what happens when one's basic philosophy is flawed.

The basic philosophy of Detroit has been that of strong unions and ossified industries. More of the same will not help. Especially not more unions.

Creamer says, "It's really simple: good economic policy requires that more and more Americans make higher wages, not that more and more Americans make lower wages."

He is dead wrong.

Good economic policy requires that more and more Americans EARN higher wages by producing more value than they use. This has not been the case in Detroit where the Unions have allowed workers (and retirees) to make incomes (and pensions) far in excess of what they produce. The result is a city that looks like an outtake from "I Am Legend"

Unions were once essential to creating fair workplaces. They allowed employees to negotiate for a fair share of the value being produced by their industry. But, they overplayed their hand and took more from the companies in pensions and work rules than the companies can afford. Now, they are part of the problem.

Foreign automakers are now doing a much better job at creating an industrial middle class and they are doing it without unions. It's time for unions to step aside and stop throttling our industries.

[Articulator]

Whether there are unions or not makes no difference at all. Globalization has successfully circumvented the labor movement that gave us the 40 hour work week with vacations and benefits. Before the labor movement, 12 year old girls were working 80 hours a week, 52 weeks a year, for pennies with no benefits. Wealth was concentrated into the hands of the very few. All the same arguments now about loss of competitiveness were made then. It was after the violent labor movement succeeded, that America grew into a superpower. Unless the American worker agrees to go back to the pre-labor movement conditions, no US industry will survive globalization. As long as other contries are allowed to abuse their workers, employing their 12 year old girls in harsh conditions, there is no competing. Unions are irrelevant, the outcome is the same. It saddens me to see so many people cheerleading the demise of an industry created in America when it is clearly a rigged game with no chance of winning. I would rather see an effort to promote workers rights worldwide than to scold the very hard working American worker for not wanting to see his/her standard of living chopped to pieces before their very eyes. There has to be fixes to globalization along the lines of workers rights.

[ciceroette]

Back in the early 1900s, Henry Ford paid his workers the unheard of rate of $5.00 a day. With that, they could afford to buy what they were making. Unfortunately, the Wal-Mart mentality has overtaken America...­.MORE is not necessairly better, and Wal-Mart is proof of that. I would hate to see the car makers disappear, if only because they make a product. What do we make in America in 2008? Not much. We are no longer self sufficient in anything, except buying cheap consumer goods.The service economy became the corp. mantra. Anybody had any real service lately? In WWI, England stopped manufacturing and became a service economy too, until a rising Germany took over, and almost changed the world permanetly.
One would hope that having a nation remain self sufficient in producing its own goods , would be a hallmark of real Homeland Security. If ben laden wants to use a cell phone, make him buy American!

[DonCosenza]

I'm all for a nation that produces, but I'd like us to produce stuff that people want, instead of government­-subsidize­d crap.

Thankfully, this country already does produce cars that people want- via the Japanese-owned manufacturers who produce cars right in this country, and aren't jetting to Washington to beg for the Treasury's spare change.

[aspizon]

The UK made decent cars in the 50's and 60's, until the unions and management killed the industry: the unions because they lost the connection between productivity and wages; management because it didn't have the backbone to stand up to the unions. Sounds familiar? In contrast the US airline industry at least reformed itself. Yes, it isn't what it once was but at least the unions took their lumps as management pushed for pay and benefit cuts. It wasn't easy but the stronger companies survived. There is no room in the US for three domestic car producers with umpteen brands. GMC needs to become Chevvy and either Pontiac or Buick must go, along with Mercury at Ford. The Jeep brand could be sold to Ford or GM, who would no doubt reduce the incomprehensible range of models, while Chrysler should be allowed to finally die its natural death. Ironically GM and Ford both produce far better and more efficient cars in Europe. They should be told that we don't want anything less in the US.

[Artos]

I'm always amazed at how selfless so many people sound regardless of wether they're Democrats or Republicans. You all want more money, but you hate it when someone else has more than you do. Republicans hate that Union types get paid so much but don't mind when their class gets more, as in millions. On the other side of it Democrats hate that the Wealthy upper class gets millions but would like to make anywhere near as much if they could. Everybody resents Government employees because they seem to have secure jobs and benefits, that is somewhat of an illusion, but people still think that they do better than they do simply because they work for the government. Why doesn't everyone just admit it, you're all just about you, yourself and I. As long as I got mine that's all everyone cares about. Maybe that more than anything else is what is wrong with America and why we are all headed downhill. I guess we deserve what we get.

[MomfromTexas]

Actually, Obama won the vote of people making over $250,000 a year. 52% of them voted for him, which was up 17% from Kerry, so, maybe, people care a little more than you think they do?

[BuckeyeGal]

Why do Democrats hate that the wealthy upper class gets millions?
Because they have clearly redistributed the wealth from the poor and middle classes to themselves, all the while taunting and belittling and dividing us on the way to the bank.

[PigLipstick]

OMG ! That's rich, a Republican talking about the other party's attemps at division. The GOP, the all time master of smoke and mirrors for 32 of the last 40 years !

[bubbuh]

The first thing the UAW had to say in this crisis is that the UAW "would make no concession­s." "Make no Concession­s." That's been the rallying cry of the entire industry, boardroom to basement. The Big Three and the UAW have had fifty years to meet the standards of the competition. Instead of making better cars, they chose to invest in better marketing. Instead of making more efficient cars, they chose to employ efficient DC lobbyists. Instead of reforming workplace and financial practices, they chose the same old sh*t., featherbedding and quarterly goals.

A lot of cars look alike externally. But, one can always tell the American car by taking it apart. It 's the one which requires the most parts. It's the one which requires single purpose tools.

I feel sorry for UAW families as I feel sorry for those of folks being laid off by the banks. But, the UAW colluded with management to make meltdown more immediate for Detroit. The UAW has long viewed the fact that its workers are the highest paid in the world as its great accomplishment. Toyota's workers, Honda's workers, Nissan's workers, Volvo's workers, BMW's workers, even Fiat's workers are proud because they think they make the best cars.

The Big 3 should be unsurprised that , when asking for public funds, the public wants to know what good will come of these funds and will make no concessions when answers aren't forthcoming.

[Articulator]

I dont agree. I think the claim that American cars are not as good is at least a decade old. Times have changed, the American auto industry responded to that.

[mtflyer]

Great article! Without a unionized auto industry (or any other for that matter) the slide into the abyss will come sooner than anyone can imagine. Glad Charlie Wilson was mentioned. Some of us older folks will remember his infamous statement "what's good for GM is good for the country!". Whether it was arrogance or a statement of truth is still debated by many, but in the context of our ongoing raveling out of the economy it seems that he was right. Collapse of any one of the "Big Three" would trigger a chain reaction with no way to stop it. During our rise to industrial "dominance" in the early 20th century, all our major industries­-railroads­, steel, coal, auto were interdependent. When one suffered, all did. Nothing has changed. John Donne said "no man is an island" and thus no industry is either. They rise and fall together and us with them. The failure of our (somebody's) Federal government to protect our industries and allow massive outsourcing to other countries is really the cause of what has happened (Dems and Repubs alike). Now is the time for them to redeem themselves by legislating prudent aid to the companies with clear stipulations as to what conditions must be met-higher mileage,lower prices, reduced pollution, no bonuses or "golden parachutes" for the irresponsible executives who brought the companies to virtual ruin, if not in fact prosecution in some cases. It is up to US to pressure Congress to do this!

[skaterdon66]

It does my heart good to see so many anti bailout posters on the Huff Po...maybe there is a Santa Claus...