The plight of General Motors

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Here's an opinion article from the Los Angeles Times lamenting the decline of the Big Three automakers. The author calls for national health insurance to relieve the Big Three of the huge healthcare costs imposed by their contracts with the United Auto Workers. It's not an original idea. The Clinton healthcare plan in 1993-94 and the healthcare plan of John Kerry in the 2003-04 campaign both tried to relieve the Big Three of healthcare costs. Both were obviously responding to a major Democratic constituency, the UAW.

General Motors' layoffs of 30,000 workers and the bankruptcy last month of the GM spinoff Delphi are widely taken as proof that the days of high-wage, high-benefit manufacturing jobs in the United States are over. But that's not quite the case. An editorial in yesterday's Wall Street Journal (available to subscribers only) pointed out that Japanese and German auto companies employ 60,000 workers in American plants with payroll costs per employee only 8 percent lower than those of the Big Three. But there is one big difference: Few of these 60,000 workers are represented by unions. An appointee in the Clinton White House once remarked to me that no rational person would choose civil service as the way to manage a large organization. I suspect that no rational person would choose a collective bargaining contract as a way to manage a large manufacturing company. Mickey Kaus has thoughts along the same line in www.kausfiles.com:

"I tend to blame Wagner Act unionism–especially productivity-sapping work rules–for GM's decline. It's hard to blame globalization–the usual suspect–since Honda, Toyota, and Nissan all assemble cars in North America with (non-union) North American labor and they're all still beating GM. High materials costs? The Japanese transplants face those too. The health care explanation also seems bogus. GM has to pay for the healthcare of its employees whether they work or not, right? If the company could build a car and make a profit, which would help defray those costs, it would do it–whether those costs were $4 million or $4 billion. The problem is the company can't build a car and make a profit. Or enough of a profit.... The only good argument I can see for pinning most of the blame on pure inept management is the Buick LaCrosse. According to the most recent Consumer Reports, the LaCrosse is an excellent car, achieving a level of reliability that approaches Acuras and Toyotas. But it's so dumpy-looking television ads dare show it only in shadow. Blame bad styling decisions, not Buick workers. (Except that, at $30,000, it's overpriced by $5,000, and the UAW has something to do with that.) ... P.S.: The UAW's peculiar problem is too much decentralization–even when its national leadership senses the need for concessions, its locals often have the power to resist.... P.P.S.: Another blow to Detroit–next generation Toyota Camry is handsome."

The Wall Street Journal's bottom line is similar:

"There is no force of nature sending American industry or the middle class once employed by it into decline. Uncompetitive wage and benefit agreements, overly optimistic management assumptions about production and sales, and product-development missteps are the all too human culprits."

Throughout much of the 20th century liberals created adversarial institutions to rein in the power of large corporations: government regulation, labor unions, trial lawyers. All these impose costs on consumers and, it is now clear, ultimately on employees.

A side note. When Delphi was headed toward bankruptcy, Govs. George Pataki of New York and Mitch Daniels of Indiana urged the company to keep open plants in Lockport, N.Y., and Kokomo, Ind. But, according to this article in the Detroit News, Gov. Jennifer Granholm of Michigan did not make similar efforts, though Delphi has several plants in her state.

I'll have more to say about General Motors and Delphi in Friday's Wall Street Journal (unless the editors change their mind and don't run my piece).