Thursday, November 20, 2008

Bankrupt GM... Poor Management and Unions Cannot Be Fixed

Any policy decision is complicated. You have to gather as much relevant information as possible within a limited time frame, analyze, number crunch, discuss and then execute on a decision. There are economic, financial, political and other factors driving these decisions, but you hope that there is a balance to this process and one factor isn't dominant over another.

Unfortunately, for the Democrats, they have a huge political burden. Their long standing relationship with "Big Labor." Are they going to bailout GM or generously bankrupt them since they owe political favors that go back decades? Will Obama truly be a change agent in D.C. and within his own party? Or will "Big Labor" rule the day?

In The Wall Street Journal, Michael Levine laid out excellent reasoning to bankrupt GM, "Why Bankruptcy Is the Best Option for GM"

GM's CEO, Rick Wagoner, provides his case, "Why GM Deserves Support"

Their PR piece is also here:

TIME's coverage is, "Is General Motors Worth Saving?"

Whether it's $50 billion or $100 billion, GM is a money pit. Any amount approved will be burned away and is only delaying the inevitable. Let GM go bankrupt, cover the unemployment insurance, and make the necessary financial guarantees to contain the collateral damage. The restructuring process with a new management team and new labor contracts can possibly make GM a competitive company to last beyond a few years.

GM's management is responsibility for their lack of competitiveness and mess they are in. The United Auto Workers (UAW) are just as responsible too. Some data from Thomas J. Lucente Jr.'s article:

The average compensation for a laborer for one of the Big Three automakers is $73.20 per hour. At Toyota, that average is $48. America's automakers are the most overpaid workers in the world. If you don't believe me, consider this. The average hourly compensation for professional workers is $47.57. The average for all workers is $28.48.

Additionally, my close friend looked into GM as an investment opportunity and found that their average salary for a laborer was $80 per hour. Honestly, how ridiculous is that? Labor unions have become fat cats and obsolete in today's modern economy, and their desire for power and a primary purpose to increase the benefits their members have been short-sighted.

I remember observing contract negotiations for weeks between the City of St. Louis and a labor union while doing my Coro Fellowship. There was no real financial basis for their decisions on how much to ask for in their salary increase.

"Let's seek a dollar increase this year... no, maybe 75 cents..."

They saw a big pie in the city's budget and didn't think about their long-term economic impact on the city's financial health.

I assume UAW's negotiations were more professional but similar in their lack of long-term thinking. UAW's leadership saw GM as an institution that would last forever and that they would always get theirs. Increasing their stake in the pie without thinking of the effect it will have on the nimbleness and financial health of GM.

Labor unions need to change or be written off as obsolete institutions. Being a check on corporate management is good, but not when you cripple growth and create long-term damage within industries. There are other avenues to be a counter-balance to corporate greed. If big labor's primary purpose is to simply get more of the pie, they should just go away. There is a reason why the most unionized state, Massachusetts, was the last to get out of the prior recession our nation went through.

Don't reward GM's management and UAW for their short-sightedness and lack of competitiveness. Even $200 billion will not help change what is needed. Money is not the solution and the answer doesn't rest in the grave that they dug for themselves.

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