Lincoln * Institute

Ralph R. Reiland

Ralph R. Reiland

The B. Kenneth Simon Professor of Free Enterprise at Robert Morris University

Donate

Please click to donate to the Lincoln Institute.

Lincoln Institute
of Public Opinion Research, Inc.

5405 Jonestown Road, Suite #110
Harrisburg, PA 17112

Phone: (717) 671-0776
Fax: (717) 671-1176

Reflections

Big Three Out of Gas

by Ralph R. Reiland
 

Things didn't go so well on November 20 when the CEOs of the Big Three automakers came to Congress, tin cups in hand, to make a pitch for another $25 billion.

The first $25 billion loan for the cash-strapped automakers was signed into law last year, for retooling. This time around, the top execs wanted no strings attached, just the money.

On top of offering no plan to the lawmakers for fixing their industry, the CEOs had the distinct disadvantage of asking for money at a time when the public is becoming increasingly skeptical about the government's escalating multi-trillion dollar handouts.

The total national debt, the accumulation of all the annual federal deficits over the nation's entire history, stood at $5.7 trillion on the day that George W. Bush took office. We're almost double that now, adding nearly as much red ink in eight years as the nation accumulated in the previous two centuries.

And that's not counting the currently snowballing trillions in corporate bailouts, already at over $7 trillion. Just this new $7 trillion in loans and guarantees comes to $23,000 for every man, woman and child in America.

Also uncounted in the aforementioned debt numbers are the trillions the federal government has collected and owes in the Social Security and Medicare "trust funds." The government doesn't have a dime of that money. It's all been spent for things like our new $500 million 1-mile tunnel under the Allegheny River here in Pittsburgh that will connect downtown to the city's two new ballparks and duplicate the various bridges in town that already do exactly the same job.

Unfortunately, the whole thing collapses if China doesn't keep lending us the money, so our job this Christmas, more than ever, is to load up our carts at Wal-Mart with those Chinese blinking reindeer.

Offered a second chance at the new $25 billion, the U.S. automakers, going downhill for decades without a strategy for beating Toyota, were given two weeks by Nancy Pelosi and her colleagues to submit their ideas to the business geniuses in Congress on how they'll use — and pay back — the new handout.

Then the politicians in Congress who've been so brilliant at planning and budgeting over the years have allocated a week to themselves to fully evaluate the turnaround plan and render their official judgment.

No matter how good the testimony and color charts presented in Congress tomorrow, the CEOs can't change the fact that U.S. automakers, in order to buy labor peace over the years, have dug themselves into a hole where it's nearly impossible for them to compete with their better-managed foreign rivals, even when those foreign firms are producing their BMWs and Hondas in U.S. plants with highly-paid American workers.

A recent study by Mark J. Perry, professor of economics and finance at the University of Michigan, shows that the hourly compensation cost, including benefits, for the Big Three automakers in Detroit for 2007-2008 is $73.20 per hour, compared to $48.00 at Toyota.

New two-tier labor agreements between the UAW and Detroit's car companies have dropped the starting wage for new workers to $14 an hour. Unfortunately, there aren't enough new hires to fix the companies' non-competitive wage structures.

In goods producing industries overall in the United States, reports Perry, the average hourly compensation cost, including benefits, is $31.59. For management and professional employees in the U.S., the average hourly cost, with benefits, is $47.57. For all workers, the average hourly wage/benefit cost is $28.48 per hour.

Asks Perry: "Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM, Ford and Chrysler) that compensate their workers 52.5 percent more than the market (Toyota wages and benefits), 54 percent more than management and professional workers, 132 percent more than the average manufacturing wage, and 157 percent more than the average compensation of all American workers?"

Perry's solution: "Maybe the country would be better off in the long run if we let the Big Three fail, and in the process break the UAW labor monopoly, and then let Toyota, Honda and Volkswagen take over the U.S. auto industry and restore realistic, competitive, market wages to the industry."

Separate from the current economic downturn, the American automobile companies have been destroying themselves from within for decades. General Motors currently employs half as many salaried and hourly workers as in 2002. The UAW has lost over 200,000 members since 2001, with its total membership now at its lowest level since 1941.

The Big Three's solution to downsizing and its never-ending job losses? For the past 24 years, all three U.S. automakers had tens of thousands of "workers" sitting in job banks, watching TV, playing cards and collecting 90 percent of their pay. Asks University of Maryland business professor Peter Morici, "Why should a waitress in Indiana have her tax money sent to Detroit to subsidize that?"


Share   Share