Why should the rest of us taxpayers -- who don't get the same privilege -- help GM cover those costs?
GM's new restructuring plan seeks an additional $16.6 billion in government aid -- for now. Chrysler wants an additional $5 billion. The $30 billion that General Motors (GM, news, msgs) has either received or requested since December doesn't count the $8 billion it wants to develop fuel-efficient cars, and another $6 billion it's soliciting from foreign governments.
For these taxpayer subsidies, the government could buy hundreds of thousands of GM cars a month and give them to deserving citizens. Make mine a Corvette, please.
Before deciding what to do with Detroit's demands, uh, requests, government officials first need to confront a fundamental question: How could so many smart people produce such a disastrous result?
Make no mistake, there have been many bright minds in the American auto industry over the years -- at the automakers, the United Auto Workers union and the components companies. Most of them saw today's troubles coming for years, even decades.
"I frankly don't see how we're going to meet the foreign competition," said Henry Ford II, then chairman and CEO of Ford Motor (F, news, msgs), on May 13, 1971, right after the annual shareholders' meeting. "We've only seen the beginning," he predicted. Regarding Americans' increasing preference for small cars, he declared: "Mini car, mini profits."
That was a couple of years before Detroit agreed to let autoworkers retire with full pension and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working.
It wasn't long before even union officials realized they had created a monster. In 1977, UAW Vice President Irving Bluestone said he was "flabbergasted" that so many workers were retiring at age 55 or younger.
"We were aware that the trend to early retirement was escalating . . . but we were surprised at the escalation in 1976," Bluestone declared. "It is astounding."
None of this is ancient history. The 30-and-out retirement program persists -- a sacred part of the inflated cost structure that makes it unprofitable for Detroit to make small cars in America.
Another example: Every Detroit factory still has dozens of union committeemen -- the bargaining committee, shop committee, health and safety committee, recreation committee, etc. -- who actually are paid by the car companies. This is a "legacy cost" that the nonunion Japanese, German and Korean car factories in America don't have to carry.
The union, though, shouldn't bear the entire blame for Detroit's disaster. It wasn't the UAW that pushed GM into the home-mortgage market, where it has incurred billions in losses over the last couple of years.
Nor can the UAW be blamed for Saturn and Saab, two brands that never made money, as GM executives have recently acknowledged. What they haven't explained is why their company would keep these money-losers around for nearly 20 years.
So why were these problems allowed to fester, when smart people recognized them all along?
The answer is that the solutions were painful, requiring not just brains but considerable amounts of courage.
UAW officials weren't brave enough to risk re-election defeat by agreeing to curtail the 30-and-out plan. Detroit executives weren't about to take on the union and risk a strike that could cost them billions. GM likewise felt hamstrung on Saturn and Saab by state dealer-franchise laws, especially after they spent $1.3 billion to shut down Oldsmobile a few years ago.
Perhaps the best analogy, and one that Washington will understand, is Social Security. Everybody in Congress and the White House has known for years that it's a ticking time bomb, thanks to actuarial trends and inadequate funding. But when President George W. Bush tried to reform the system early in his second term, he was handed a crippling defeat.
Which brings us back to the restructuring plans proposed by GM and Chrysler, the two companies currently getting government welfare.
Missing from both are concessions from the UAW to reduce the cost of health care for retirees. Ironically, union retirees over age 65 continue to receive generous, company-paid benefits, while their former bosses in management have to rely on Medicare. The companies could -- and did -- unilaterally change the health care plans for management, but they have to negotiate changes for union workers and retirees.
Other missing links include any agreement with bondholders to substantially reduce the amount of outstanding debt, which is an especially acute issue for GM. And the cost of compensating dealers for killing brands -- Hummer and Pontiac, as well as Saturn and Saab -- is likely to be substantial.
GM justifies its bailout request by contending that a bankruptcy filing will cost the government $100 billion to guarantee pension payments and other obligations.
But here's the thing: The total of nearly $45 billion requested so far from the Treasury Department, the Energy Department and friendly foreigners gets us almost halfway to $100 billion, even if the company doesn't request more money down the road -- which one suspects it will.
Without a bankruptcy filing, the issues with the UAW, dealers and bondholders are likely to remain unresolved. The same pain-avoidance motive that has kept these issues festering for years will continue.
Chrysler's plan, meanwhile, basically requires constant government subsidies until the benefits of its proposed alliance with Fiat (FIATY, news, msgs) begin to flow, at best a couple of years from now. So the taxpayers are being asked to provide funds that neither Chrysler's private-equity owners nor Fiat, which would get 35% of Chrysler's stock, are willing to provide.
As for the automakers' fear that Americans won't buy cars from a company in bankruptcy, that damage has been done. In fact, bankruptcy will improve their chances of survival by relieving them of financial obligations that they can't afford.
And that's just the conclusion that President Barack Obama's new automotive task force should reach. The purpose of bankruptcy -- either a plain-vanilla Chapter 11 or a special-flavor version that would require a new federal law -- wouldn't be to punish Detroit's car companies. It would be to give them a chance to survive, just as radical surgery, however painful, often saves the lives of sick patients.
And as their latest restructuring plans make clear, General Motors and Chrysler are very sick indeed.
So really, why should we as taxpayers support benefits like this when most of us don't get the same luxury??
They should let these companies fail, heck I own a Saab and wouldn't mind a CTX caddie, but c'mon....too much money flushed down the tubes here.
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