When the CEOs of the Big Three automakers arrived at Congress last month to beg for $25 billion of spare change, they were excoriated for traveling to the capital on their private jets.
“Couldn’t you all have downgraded to first class or jet-pooled or something to get here?”, Rep. Gary L. Ackerman asked.
Recommended Stories
Fine—sell the $36 million jet. Then pillage UAW’s $34 million Black Lake golf resort and put it on E-Bay. Contribute all proceeds—throw in the CEO’s salary as a goodwill gesture—to General Motors’ debt.
True, the company would no longer need $66 billion. But they would need $65.9 billion. The righteous indignation of these politicians might then be allayed, but does anyone really believe GM’s financial difficulties would improve, let alone disappear?
The political theater during the Big Three hearings illuminates a trendy tendency to prod at superficialities instead of addressing serious underlying financial problems. In GM’s case, insolvency is not the product of Gulfstream Jets, but the logical consequence of unsustainable labor contracts.
GM has three ways to balance its liabilities and assets (currently over 50 percent in the negative). It can sell more cars—a variable ultimately controlled only by consumers. Alternatively, it can cut cost of materials—also unlikely, as the material cost of automobiles aren’t controllable beyond suppliers who’ve already been squeezed.
GM has only one serious controllable expenditure: Labor costs. The automaker is currently operating under disastrous wage and benefits contracts miles away from reasonable.
GM provides health benefits to over a million people today. Only a fraction (150,000) of them are current workers. The company’s healthcare benefits add $1,500 to the price of every vehicle. (Giving meaning to the joke that GM is a health insurance provider that happens to make cars.)
Pension deals the UAW has been forcing on GM since the 1950s have debilitated the company’s flexibility. For every UAW worker at GM, there are 4.6 retirees collecting benefits. The union retiree healthcare fund is suffering through a $30 billion shortfall. Pension costs add about $700 per GM car.
There are currently 3,600 non-working UAW members enrolled in the infamous “job banks” program, in which laid-off workers continue collecting most of their paycheck as they wait for a new job.
When including all labor costs, the average UAW member working for the company costs about $73 an hour, compared to GM’s main competitor, Toyota, which pays $44 an hour to American employees.
As the UAW sees it, someone has to fund these excessive benefits they promised their members. But as University of Maryland professor Peter Morici put it, “why should a waitress in Indiana have her tax money sent to Detroit to subsidize that?”
GM and UAW are essentially asking taxpayers to help postpone the company’s collapse at the expense of people who have never seen comparable wages and benefits.
The proposal of pumping money into GM assumes that the automaker has a short-term liquidity problem. In fact, GM’s downfall did not originate with the current economic downturn. It merely expedited it.
Those who find substance in distractions like CEO salaries and private jets are duck-hunting in the desert. GM’s cost savers lie in its unsustainable labor costs. Chapter 11 bankruptcy is the only method by which the company can shed debilitating inefficiencies. Indeed, a complete severance of labor contracts is the only way, however painful, GM can survive in the long term.
Richard Berman is executive director of the Center for Union Facts, a non-profit 501(c3) union watchdog organization. Learn more at www.unionfacts.com.
