MattMaroon.com

A lot of the big buzz in the news lately has been about the political divide over bailing out the American car companies. I have to admit, I can’t see the benefit of this in any way. I can’t discern one good thing, in the long run, that will come of dropping more money down this abyss.

For one, it’s not as if these companies are going to just vanish and take all of those jobs with them if the government doesn’t help out. They’ll go into Chapter 11 and continue operations much as they did before, at least in the short term, while their ownership is restructured. But even if they did just disappear overnight, which they won’t, long-term demand for cars won’t drop anymore than it otherwise would. Competitors will just step up and make the amount of cars they were selling, and they will largely employ Americans to do it.

This fascinating (though a little dated) NPR article clearly shows why GM in particular can’t compete with the Japanese manufacturers. It’s 100% the fault of the unions. Unions have blocked them from automating much of the process, so GM spends 34.3 man hours to create a car, whereas Toyota spends only 27.9. Thanks to unions, every GM car produced costs $1,525 in health care, while Toyota pays $201. Average GM salary for (all unionized) assembly-line workers is $31.35/hr, while Toyota (mostly non-union) is at $27. GM loses $2,331 per vehicle while Toyota makes $1,488.

That last one fascinates me the most. Why doesn’t GM just make fewer vehicles and sell them for more? “Sure we lose money with every sale, but we make it up in volume” is supposed to be a joke, not the business model of a multi-billion dollar industry.

This company and the union lobbying dollars that have it on life support are not worth saving. It’s time to pull the plug. We can give them all of the government money in the world, but unless we do something about the core problem they’ll never be able to compete. It would be cheaper and better to just let the companies go out of business and have the government pay those workers $60k a year. I’m certainly not advocating that either, I’m just pointing out that any proposed bailout that’s significantly more expensive than just paying the salaries you’re trying to save in the first place is, without a doubt, a bad idea.

The core problem is, of course, that unions are a form of price fixing and as such they prevent market efficiency. GMs is forced to sell cars at a loss to compete on price, because the unions ensure they have to pay more to ship one. The workers themselves benefit from the short term gain of higher salaries than the open market, which doesn’t value people who have no skill beyond the ability to pull a lever very highly, would otherwise pay but in the long run they find themselves out of a job and with their pensions evaporating.

One of the biggest promises of the Obama campaign was the ability to change the way politics work. Of all of the Presidential campaigns in the modern era, his was the only one that largely raised money in a grass-roots, from-the-people fashion. And though I’m sure he got his share of lobbyist bucks too, he’s the first that competed largely on the basis of individual donations.

So it will be interesting to see which way he goes with this. He’s talked about fast-tracking the loan money that Congress has already approved, which I’m fine with since it’s a sunk cost at this point anyway. But beyond that, what will he do?

My hope is that if he does help them out he will, as Henry Paulson has called for, do so only with assurances of their long-term viability. Without sweeping changes, including undoing much of the damage unions have done, we can’t stop GM from failing, we can only delay it. The path to solvency for our auto industry won’t be popular with the unions, but anything less is just throwing money down the drain in the midst of the second greatest financial crisis in our nation’s history.