October 16, 2005
Bailout for Auto Industry Not Likely This Time
welfare state may be coming to an end, as witness the collapse
of the “legacy” airlines and the bankruptcy of the
auto industry’s second largest supplier, Delphi Corp. But
not before a desperate effort is launched to shift its liabilities
onto the backs of the American taxpayer.
has been focused on Delphi chief executive Steve Miller’s
brave talk of draconian reductions in the pay and fringe benefits
of his company’s unionized work force. Miller is suggesting
wages of $10-12 an hour, down radically from $25 an hour or more.
And he points out that health care, pensions and other fringe
benefits add up to an amazing $40 an hour or so – underlining
the degree to which fringe benefits are hardly fringe any more.
to the large number of idled workers who receive full pay under
previous union contracts, Miller said Delphi can’t afford
to pay such rates to people “for mowing the lawn.”
But if Delphi,
or a federal bankruptcy court, tries to impose Miller’s
suggested cuts, the United Auto Workers union might strike, bringing
General Motors and a fair chunk of the American economy to the
brink of crisis. Thus one scenario is that Miller’s tough
talk is actually part of a delicate negotiating strategy –
a strategy that would importantly include some sort of government
think Miller is just the man to bring it off. In an earlier incarnation,
he was a key figure in brokering Washington’s emergency
loan to Chrysler Corp. in the early 1980s. And Congress already
is well along on a bill that would allow the legacy airlines to
stretch out their not-so-fringe pension payments. Indeed, according
to Pension Benefit Guaranty Corp. spokesman Randy Clerihue, a
Senate bill up for a vote next week might allow other companies,
including the auto industry, to do the same thing.
But if the
airlines and auto industry are allowed to stretch out pension
payments, why not every other company that has an old-fashioned
defined-benefit plan? Congress may be creating a huge “moral
hazard,” which is why the administration opposes the bill
as currently written. Anybody remember the savings and loan crisis
of the 1980s?
At a minimum
any such relief should be accompanied by an ironclad requirement
that companies shift to a defined contribution pension system,
in essence reforming the entire private pension system in a manner
consistent with President Bush’s vision of an “ownership
the same with health care. It’s conventional wisdom around
Detroit that American corporations are fighting foreign competition
with one hand tied behind their backs. Miller was in Washington
last week to discuss – with Sen. Hillary Rodham Clinton,
among others – “something in between” the American
system of tax-subsidized health care and Canada’s national
health system, according to the Wall Street Journal.
But in case
you hadn’t noticed, government already pays about half the
American health care bill -- and the overall cost of health care
is going up, not down. (As it is in Canada, by the way.) It’s
not likely that Delphi would get a bailout for its own health
care plan, but Delphi is so closely tied to General Motors that
it could become the catalyst for another look at the overall system.
If so, it provides a great opportunity for getting away from the
old tax-subsidized, third-party health system – much less
a Canadian-style national health system -- in favor of personal
savings accounts that would bring more accountability to health
bailout worked in the short term, but only at the cost of perpetuating
worldwide overcapacity that is now threatening to bring down General
Motors and Ford as well. Miller should understand that better
than anybody. So should the unions, who would be smart to take
Miller’s blunt talk about the need to get costs in line
with the global marketplace seriously. Chatter about a bailout
is only likely to defer the day when the unions and management
– and Washington itself -- are forced to confront the need
for fundamental reform.
Bray is a Detroit News columnist.