Will Obama's Response to
the Auto Industry Crisis Be Hamstrung by His Party's Ideology?
Philadelphia Inquirer, November 16,
2008
Last Tuesday's election results represent an exercise
in poetic justice in that Barack Obama is inheriting a set of problems
largely of his own ideology's making. The kicker is that it's precisely
the solutions likely to emerge based on that ideology which make it all
too likely that the problems will remain intractable.
The current auto industry panic is instructive of Obama's
dilemma. The crisis facing America's big three auto manufacturers has,
arguably, a single source: legacy costs resulting from union contracts
that were negotiated half a century ago. The financial burden thus incurred
weighs down their balance sheets to such a degree that, even if the industry
in which they compete were thriving, it would be extremely difficult to
maintain long-term profitability.
As automobile manufacturing became a global industry,
the foreign manufacturers which expanded their operations into the United
States flourished. But while Toyota and Honda, along with relative latecomers
Hyundai and Kia, have a significant manufacturing and sales presence in
the United States, they don't have the staggering labor-related financial
obligations under which GM, Chrysler, and Ford are struggling.
GM, for instance, has some 450,000 retirees - more than
three times the number of its current full-time employees - to whom it
pays pensions and for whom it provides medical care. By some estimates,
medical costs alone add $1,500.00 to the average cost of each GM automobile.
And the company is facing an unfunded liability of more than $80 billion,
about half its annual pre-downturn gross sales, for future health care
costs for employees and retirees and their dependents.
Toyota, on the other hand, having gone to school on the problems looming
for American auto companies as it set up U.S. operations, currently has
fewer than a thousand retirees. Even when that number balloons into the
thousands over the next decade, the company's liabilities for its retirees
will remain right where they are today: at $0.00. That's because Toyota
has put the responsibility for funding their retirements on the shoulders
of the employees themselves, through individual investment accounts to
which the company contributes.
Even American automotive technology has suffered because
of union labor agreements. As foreign manufacturers entered the U.S. market
aggressively in the 1970s and '80s, American car companies, faced with
growing labor-related expenses that made drastic cost-cutting necessary,
found it necesary to save money by skimping on retooling their manufacturing
operations. As a result, their products suffered against the competition
in both technological innovation and quality.
Without the balance-sheet-killing albatross resulting
from union contracts, foreign manufacturers are doing very well in the
United States. And therein lies the rub for the President-elect. If Obama
does what might please his ideological supporters and bails out the auto
industry by essentially nationalizing GM, Ford, and Chrysler, he'll be
putting the burden of saving the industry from the consequences of union
contracts negotiated by his leftist political forbears squarely on the
shoulders of American taxpayers. In doing so, he'll please the Left while
at the same time almost assuring that these companies will either sink
into oblivion or become the corporate equivalent of permanent wards of
the state.
On the other hand, if he allows them to enter into bankruptcy,
the companies might have a fighting chance to reorganize, possibly jettisoning
some of the financial baggage resulting from back-end-heavy labor agreements.
They might conceivably emerge even stronger as a result. The thought of
the howls of protest that would be raised by Obama's leftist base in that
event, however, are very likely to prevent the President-elect from pursuing
that course of action.
The bottom line is that if Obama ends up bailing out the
auto industry, then the American taxpayer ends up underwriting the leftist
agenda of the past half century, as manifested in labor agreements antithetical
to capitalism. That it's taken so long for this leftist tactic, in tandem
with the current exacerbating financial crisis, to finally bring the auto
industry to its knees is a testament to the resilience of capitalism.
That Obama's "solution" to this crisis might spell the end of
American automobile manufacturing should not be lost on those of us who
will have to bear the financial burden of "rescuing" it.
|