The Big Three bailout idea should be junked
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Dear Mr. Berko:
I think this $750 billion giveaway program is foolish. I find it hard to believe that the government is going to give the Big Three automakers $25 billion to pay assembly line workers $125,000 or more a year to make cars that get 13 miles per gallon. Have we lost our common sense? Are we living under a new socialist regime? I’m part of a group of small businessmen who meet once a month to exchange ideas. This was the topic of last night’s meeting, and everyone at the meeting thought that this giveaway program is nuts. I was elected to write and ask if you had any better solutions.
R.S., Oklahoma City
Dear R.S.:
I find it incredible that the government is going to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout package so they can continue paying workers an average of $81.16 an hour in wages and benefits to make vehicles that get 13 mpg. That’s $168,000 a year, according to a September 2006 article in The Wall Street Journal. This corporate welfare also pays $43,000 or so to laid-off union workers, who get 90 percent of their salaries for clocking in at United Auto Workers union assembly halls for eight hours a day to play gin rummy or pinochle.
Those enormous benefits are a result of union power gone wild and add about $1,750 to the cost of every car produced by the Big Three. Meanwhile, Toyota, with 13 non-union assembly plants in the United States, pays an average hourly labor cost, with benefits, of $46 per hour. This lower labor cost means that Toyota has an advantage of about $1,100 per car compared with GM, Ford and Chrysler.
The unions are just as greedy as the Wall Street brokerages that helped bring the economy to its knees. The executives at the Big Three are equally to blame because they just shrugged their shoulders, knowing they could pass on the increased costs to the consumer. The automobile consumer got inefficient engines, lousy service and cars that would fall apart in four years.
I believe GM and Ford will survive, and Chrysler should be absorbed into GM (resistance is futile). Those favoring the bailout believe government action will save about 100,000 jobs.
They also know that a government bailout would preserve $42 billion of debt owned by auto industry bondholders, of which $33 billion is due in five years. They also know it will preserve $8 billion of preferred stock owned by auto industry investors.
So when the Treasury Department dumps this $25 billion of largesse on the Big Three, it gives financial comfort to the holders of U.S. auto industry bonds and preferred stock.
Well, “hell’s bells and the deal smells,” I don’t give a fink or fudge about the Big Three’s debt holders, nor do most Americans. The stockholders are, for all intents and purposes, wiped out. So we’d all be better off if GM, Ford and Chrysler declared bankruptcy.
The Big Three would still make all kinds of cars. But they would be able to rid themselves of those myriad and costly union work rules, hire labor at half the cost and shutter unprofitable plants. They could retool to make efficient engines and easily become cost competitive with Toyota. Only redundant employees would lose their jobs.
Last but not least, the Treasury Department would save $25 billion in the process and would not have to add billions to our national debt, which just reached $10.5 trillion.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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