Princeton University economist Uwe Reinhardt once quipped that GM had become a giant social-insurance program that just happened to sell a few cars on the side.
That’s because GM has 96,000 active workers and 1,000,000 retirees and widows all receiving lifetime incomes and health care benefits. Recently, GM announced it would idle some assembly lines. You may have missed the news that idled GM workers will continue to receive 95% of their wages during this shut down. If permanently laid off, UAW workers enter the “job bank” where they will continue to be paid full wages, without working, for four years.
Until recently, Americans had little reason to care about GM’s labor agreement with the UAW. That, of course, was before the Federal Government decided to give GM $17.4 billion, for starters, under the threat that if GM lost this money it would have to pay it back. It’s not clear how this math works but that’s the deal. So, now auto workers in Alabama making $45 an hour in wages and benefits are supporting auto workers in Michigan who make $75 an hour in wages and benefits. For that matter, cashiers at Wal-Mart who earn $7.50 an hour and every other taxpayer in the country regardless of how much or how little they earn is supporting UAW workers, retirees and the widows of UAW retirees. Most Americans have to settle for Social Security retirement benefits and Medicare, yet they are supporting generous pensions and health care benefits for UAW members. Americans used to work the first five months of the year for the government. That’s how long it used to take just to pay the annual tax bill. Now, after working for the government for five months, Americans will have to work for the UAW for a while before they begin to work for themselves and their families.
GM has been roundly criticized for “mismanagement”. Curiously, the same mismanagement produces profits for GM’s overseas operations.
Maybe GM shouldn’t have agreed to unsustainable union contracts. But, in 1935 FDR signed the Wagner Act which forced employers to recognize unions as the sole bargaining agent for workers. Since the government assured that there was no other source of labor, GM could either come to agreement with the UAW or stop building cars.
Then there is the charge that GM failed to move quickly enough to build fuel efficient cars that the American public wants to buy. But, there is no evidence for this assertion. The fact is that in the present economic environment Americans aren’t buying any cars, fuel efficient or not. Toyota is forecasting its first operating loss in 70 years. Any casual observer can see that the highways are filled with GM pickup trucks, SUVs and full sized cars. It would seem that Americans aren’t interested in buying tiny fuel efficient cars. Yet, that is exactly the kind of car that the Federal Government demands that GM spend billions to engineer, develop and build. GM makes a profit of between $500 and $1,500 on their full sized cars, pickups and SUVs and loses between $500 and $1,500 for every car they are forced to build to satisfy CAFÉ standards imposed by the government.
CAFÉ standards are, in part, the government’s response to previously high oil imports. A situation caused by the government’s 30 year ban on offshore and domestic oil drilling, obstruction of development of shale oil deposits and obstruction of nuclear and coal fired power plants. This energy policy is governed by environmental groups who, in spite of ten years of cooling temperatures, promote the notion that man-made global warming through CO2 emissions will destroy the planet. Newsflash: Global Warming is what happens between ice ages. CO2 is plant food, not a pollutant and it is the Sun that warms the Earth.
Now, whose mismanagement should we be concerned about?