Government, Unions, and Car Companies

Much has been said and written about the US Auto Industry crisis, and whether or not the US Government should intervene to keep them afloat. Why these companies are in trouble has been extensively documented and been the subject of endless arguments. Here, in two words, is our opinion on how they got into this mess:

Government Intervention!

Of course this requires some explanation. Everything else you've read and heard about the auto industry's troubles blames corrupt and inept management, corrupt and greedy unions, the economy, or all three. And on the face of it, these arguments are mostly true; management has made some colossal blunders, the UAW has overreached and taken advantage of its ability to bring the companies to their knees, and the economic crisis has made people think twice about spending for a new vehicle when the old one will do.

But (and there's always a but), there are some facts that aren't widely reported because they don't support the socialist agenda.

1. After World War I, and again after World War II, the United States was the only country in the world with significant manufacturing capability.

2. After both wars the US Government spent huge sums of money for reconstruction, mostly to expand markets for American manufactured goods, including cars and trucks.

3. Government action in the Great Depression (the National Industrial Recovery Act) allowed the manufacturers, including the car companies, to fix prices and manipulate the market.

4. The National Labor Relations Act guaranteed the unions' rights to organize, strike, and negotiate, prohibited employer's actions to impede union activity, and forced employers to negotiate with the unions

Taken together these actions gave the auto manufacturers near-monopolistic power to set prices, and gave the unions the power to hold the companies hostage by shutting down production. The results were predictable: unrealistically high prices for cars, guaranteed jobs and unrealistically high wages for union workers, and an industry that saw no reason to be innovative and competitive. Union wages and benefits became the standard for all employees. Inflated costs were simply passed on to the customer in the knowledge that there was no competition. And Detroit made money like it owned the printing presses.

But a funny thing happened. Other countries figured out how to build cars that were better and cheaper than Detroit's products. And in a newly competitive world, Detroit didn't know what to do. Since the invasion of the imports began in earnest in the 1970's we have seen the US car companies' share of the market shrink from nearly 100 percent to just 44.3 percent today according to the Wall Street Journal.

As sales have fallen Detroit has cut production and laid off workers, but hasn't been able to do anything about the union contracts. The unions are still protected by US labor law.

And now we have the biggest recession we've seen in years. People simply aren't buying cars. But the manufacturers can't significantly cut their costs. They can shut down manufacturing plants, but because of the union contracts they still have to pay the workers.

This is taken form the UAW's web site:

What protections do UAW members have against being laid off?

...the UAW negotiated voluntary attrition programs for workers... UAW members could choose to retire with their health care and pensions intact, accept a voluntary buyout with a substantial severance package, or remain on the job.

Those members who remain on the job are also protected... no worker can be laid off for more than 48 weeks for volume-related reasons...

In addition, the Supplemental Unemployment Benefits program provides income maintenance to laid-off workers, as well as employer-paid health insurance for up to 24 months for workers on layoff status.

And here's the real kicker (known as the Job Bank program):

Protected status workers not assigned to a plant job have the option of receiving 85 percent of straight-time hourly rate and not report to a designated location... or report to a designated location and receive 100 percent of their straight-time hourly rate.

So there you have it. Government-created monopolies signed contracts with government-protected unions that prevent them from reacting to market forces. This is the kind of madness that results from governmental market intervention and social engineering.

Ken Foreman is a Cape Girardeau area resident and the creator and principal writer for A New Contract With America (www.anewcontractwithamerica.org), a website dedicated to restoring responsible government by establishing a NEW CONTRACT with our elected representatives.