Bankruptcy—a new beginning

As politicians on both sides of the border struggle with the issues of bailing out the Big Three automakers, it might be worth their while to look at the worst-case scenario. No, it’s not the imminent bankruptcies of these companies if government funding doesn’t come through right now; it’s the imminent bankruptcies that will ensue a year or two down the line as no amount of corporate bailouts and reshuffling of debt will fix the problems that are at the root of US automakers woes.

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Detroit, on the whole, builds some very fine vehicles. In recent times American automakers have gone toe-to-toe against Asian and European automakers and have acquitted themselves admirably with products that outperform their rivals both in performance and safety, as well as economy of operation. But no matter how well American cars perform against their foreign counterparts, there is the matter cost. On average American automakers pay their US-based workers $72.31 per hour, while Toyota, Nissan and Honda pay their American based workers an average of $44.20 per hour. So at the very outset the American automakers are at a gross disadvantage because of their labor costs. It’s interesting to note that given the current problems threatening the jobs of UAW members, UAW President Ron Gettelfinger is adamant that the union is not prepared to make any sacrifices either in terms of wages or benefits. Gettelfinger’s position is that current union contracts are good through 2011 and as such they should remain in force. This isn’t just about high wages, but it also entails an almost unimaginable array of benefits for the union membership that include pensions, comprehensive health care and a bizarre scheme that pays laid-off workers 90% of their salaries in perpetuity if acceptable alternative work is unavailable. In point of fact 60% of salaries paid out by American automakers go the retirees instead of active workers. With that kind of millstone around its neck, the American auto industry cannot survive; no matter how much money the government throws at it. Filing for bankruptcy protection under Chapter 11 would be a quick and legal remedy for leveling the playing field and giving American automakers a fighting chance at survival. It would put the onus of paying the pensions of retired workers on the government, which is something that governments on both sides of the border have pretty well agreed to do anyway, although the pay would be somewhat less generous. It would negate current contracts with the UAW and basically place US automakers at square one, free to enter into contractual negotiations with whomever they wish. A bankruptcy would negatively impact the economy, but it would not be the economic Armageddon that scaremongers who want the government to bail out the automakers claim. The Chapter 11 bankruptcy laws were created to give corporations in trouble on opportunity to restructure their debt while devising a plan that ensured survival. This should not be mistaken as a screed against unions. The UAW attained its generous contracts through tough negotiations and at least half the blame for these problems should be laid at the feet of management who failed to ensure the corporations’ health by giving in to demands that could not be sustained. Certainly there should be a shake-up in the upper chambers of the auto industry with those who are responsible for the companies’ current woes being turned out to pasture. Gettelfinger and his Canadian counterpart, CAW President Ken Lewenza, also need to decide what’s best for their memberships, a year or two of continuing to ride the gravy train, followed by a very messy crash, or a willingness to see things rationally and working for the common good. As long as the automakers’ unions are intransigent in their demands to keep the benefits they have attained regardless of the companies’ health, then any amount of money kicked in by the government is an abject waste. In that light bankruptcy could be a new beginning.