The Big Three: Bankruptcy or a Bailout?

In the early days of the 1950s, when the economies of Japan and Germany were in shambles following World War II, Detroit’s automakers had a 95 percent share of the domestic market.

Today, six decades later, what’s left of the Big Three are near bankruptcy and roaming the halls of the U.S. Capitol in search of a federal bailout. Walking hand in hand, as they beat the bushes for taxpayer dollars to keep them out of bankruptcy court, are the very people at whose feet Detroit’s problems lie: industry executives and United Automobile Workers union officials.

And they just don’t seem to get the fact that they are the very cause of their industry’s woes. Or if they do, they’re certainly not admitting it publicly.

Just consider these remarks that perfectly illustrate how oblivious management and union leaders are to the problems facing the industry:

* “Nothing has changed relative to the (General Motors) board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry,” said a GM spokesman just last week.

* “We’re here not because of what the auto industry has done. We’re here because of what happened in the economy,” said UAW president Ron Gettelfinger on Monday.

Well, begging the pardon of both the GM mouthpiece and the UAW president, they’re both flat wrong.

For decades, GM, Ford and Chrysler operated on an outmoded business model, believing they were in the marketplace of the 1950s when they were the only game in town. It’s a well-known fact that the Big Three ignored the threat foreign competitors posed to their share of the U.S. market.

For their part, the Big Three failed to produce the cars Americans wanted to buy; instead they produced the cars they thought Americans should buy. “Fuel efficient,” “high quality” and “well designed” were not in the vocabularies of most Detroit executives.

The UAW, however, wasn’t blameless. They simply were interested in squeezing the automakers for as many dollars and benefits as they could, regardless of the effect on the companies’ long-term health. One contract after another turned UAW members into some of the most well-compensated, well-cared-for workers in the world. And it didn’t matter if the economics just weren’t there to support such packages.

Over the years, those so-called legacy costs have piled up, to the point they’re now crippling the domestic industry. According to Center for Automotive Research (CAR), GM, for example, spends more than $1,500 per vehicle on health care; Toyota spends just over $300. The story’s much the same for Rolls Royce-quality pension plans the Big Three provide their workers … thanks to UAW contracts.

Think the disparity is due to domestic, union shops vs. foreign, nonunion shops? Think again. That same CAR report found there was little difference in pay and benefits between the two.

In some ways, the voluntary entry of the Big Three into bankruptcy reorganization might be a good thing, were it not for the psychological blow it would deal to the larger economy. In reorganization, the companies would be able to void the outrageous union contracts and escape out from under worker obligations entered into decades ago, emerging as smaller, tighter-run and more nimble companies. But getting to that point would be painful, with possibly tens of thousands of jobs lost and dealing another major blow to the national psyche.

If Congress does come to a consensus on a bailout for Detroit, it should insist on a total overhaul of management, the renegotiation of all labor contracts and the scrapping of unrealistic and outmoded benefit plans. That would be just the starting point.

Would Congress be so bold? Don’t hold your breath.