Let's not allow Congress and members of the bailout parade panic us
into allowing them to do things, as was done in the 1930s, that would
convert a mild economic downturn into a true calamity. Right now the
Big Three auto companies, and their unions, are asking Congress for a
$25 billion bailout to avoid bankruptcy. Let's think about that a bit.
What happens when a company goes bankrupt? One thing that does not
happen is their productive assets go poof and disappear into thin air.
In other words, if GM goes bankrupt, the assembly lines, robots,
buildings and other tools don't evaporate. What bankruptcy means is the
title to those assets change. People who think they can manage those
assets better purchase them.
Chapter 11 of the U.S. Bankruptcy Code, where the control of its
business operations are subject to the oversight and jurisdiction of
the court, gives companies a chance to reorganize. The court can permit
complete or partial relief from the company's debts and its labor union
contracts.
A large part of the problem is the Big Three's cozy relationship with
the United Auto Workers union (UAW). GM has a $73 hourly wage cost
including benefits and overtime. Toyota has five major assembly plants
in the U.S. Its hourly wage cost plus benefits is $48. It doesn't take
rocket science to figure out which company will be at a competitive
disadvantage. Then there's the "jobs bank" feature of the UAW contract
where workers who are laid off workers get 95 percent of their base pay
and all their benefits. Right now there's a two-year limit but in the
past workers could stay in the "jobs bank" forever unless they turned
down two job offers within 50 miles of their factory. At one time job
bank membership exceeded 7,000 "workers." GM, Ford and Chrysler face
other problems that range from poor corporate management and marketing,
not to mention costly government regulations.
Two vital marketplace signals are the profits that come with success
and the losses that come with failure. When these two signals are not
allowed to freely function, markets operate less efficiently. To be
successful a business must take in enough revenue not only to cover
wages, rents and interest but profits as well. In order to accomplish
that feat executives must not only satisfy customers but they must do
it in a manner that efficiently utilizes all of their resources. If
they fail to cover costs, it means that resources are not being used
efficiently and/or consumers don't value the good being produced
relative to some other alternative. When a firm routinely fails to turn
a profit, there are bankruptcy pressures. The firm's resources,
workers, building and capital become available to someone else who
might put them to better use. When government steps in with a bailout,
it enables executives to continue mismanaging resources.
How much congressional involvement do we want with the Big Three auto
companies? I'd say none. Congressmen and federal bureaucrats, including
those at the Federal Reserve Board, don't know anymore about the
automobile business than they know about the banking and financial
businesses that they've turned into a mess. Just look at the idiotic
focus of congressmen when the three auto company chief executives
appeared before them. They questioned whether the executives should
have driven to Congress rather than flown in on corporate jets. They
focused on executive pay, which is a tiny fraction of costs compared to
$73 hourly compensation to 250,000 autoworkers. The belief that
Congress poses the major threat to our liberty and well-being is why
the founders gave them limited enumerated powers. To our detriment,
today's Americans have given them unlimited powers.
