October 16, 2005
Bailout for Auto Industry Not Likely This Time

By Thomas Bray

The industrial 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.

Much attention 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.

Referring 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 bailout.

Some might 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 society.”

It’s 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 care decisions.

The Chrysler 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.

Thomas Bray is a Detroit News columnist.

Thomas Bray

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