Why the Auto Bailout Would Be a Big Mistake

Dec. 5, 2008— -- Detroit's Big Three automakers returned today to Capitol Hill to take another stab at getting $34 billion dollars of your money.

Now I happily pay taxes for a good cause. But bailing out the Big Three? Give me a break.

This week, when the CEOs descended on Washington to plead for money, they came by car.

"I'm proud to say that I drove a hybrid here from Detroit," Chrysler CEO Bob Nardelli told reporters.

I guess they didn't like the backlash they got last month when Brian Ross pointed out that they'd flown in on private jets.

Despite the criticism, the three CEOs left Washington as they had arrived -- on their luxurious corporate jets -- a fact not unnoticed by the committee.

Rep. Brad Sherman, D-Calif., said, "Raise your hand if you're planning to sell your jet in place now and fly back commercial. Let the record show no hands went up."

This week the Big Three said they'd get rid of their jets, and cut other costs, because they need our money.

Also present at this week's hearings: Ron Gettelfinger, head of the United Auto Workers union, who says employees are not to blame for Detroit's problems.

"It's not our fault that the economy is in the tank," he said.

But is it just the economy that threatens the Big Three?

The UAW's Role in Creating Inefficiency

Toyota isn't asking for a bailout. Neither are Honda or Nissan. Yet, they all sell and build cars in America. In fact, while the Big Three were begging for your money, workers at Honda celebrated the first cars coming off their new assembly line in Indiana.

Why can Honda do it, when the Big Three can't? Well, Gettelfinger's union is one reason. The Big Three have to deal with strikes.

The UAW even got the Big Three to create places where longtime workers who are not needed are still paid 95 percent of their wages to just sit. They wouldn't allow us to videotape these so-called jobs banks, but Linda Swan saw them when she worked for Ford.

"For the most part our people just sit inside and do nothing," she said.

Sen. Bob Corker. R-Tenn., was one in Congress who thought jobs banks were a good reason not to bail out carmakers.

"I understand the good job Mr. Gettelfinger is doing on behalf of the employees that are not working but still being paid," he said.

Corker told me that if they idle a plant, they have to pay these employees for four years after the fact.

"There's not an industry in America that is like this," he said.

Last month, Gettelfinger said the union would make no concessions, but this week he said they would suspend the jobs banks.

Economist Peter Morici of the University of Maryland says the automakers are only making cosmetic concessions.

The union would have to concede much more to make the Big Three's workers as efficient as say, Honda's. Honda just hired 900 Americans to work in Indiana.

"How can Detroit possibly compete against Honda paying $29 an hour plus benefits when Honda pays $18.41 an hour," Morici asked.

"The wage package is just too rich in Detroit, the benefits package is just too rich and the cars show it. The upholstery is not as nice. Why? Because they have to pay these high labor costs so they use cheaper materials," he said.

Protecting the "Crown Jewel"

Of course the Big Three's management have made mistakes too. They built cars that people didn't want. They were slow to innovate. Honda's advanced technology lets their plants nimbly switch from one product to another based on consumer demand. And Honda's never owned any private jets.

Detroit's CEO's wouldn't agree to an interview, but Michigan's Attorney General was eager to say that Detroit should get our money.

"It's the crown jewel that we need to protect," Mike Cox said during our interview.

But the UAW workers get paid above the American average, I countered. A bailout is Robin Hood in reverse. It's taking from everyone and giving money to people who earn above average.

"Unfortunately no one ever made that same argument when we gave $700 billion to Wall Street and people living in Manhattan," Cox replied. "We're talking about 2.4 million jobs lost over 27 different states."

The idea that jobs will be lost if automakers go bankrupt has been a popular refrain in Congress.

"Tens if not hundreds of thousands of jobs would be lost in the auto industry itself," said U.S. Sen. Christopher Dodd, D-Conn.

But wait a second, those jobs wouldn't necessarily be lost. Bankruptcy isn't death. Kmart didn't disappear when it went bankrupt. Neither did Fruit of the Loom, Texaco, Continental Airlines, Delta, or United.

They were reorganized into more efficient, sustainable businesses. Out of this creative destruction new jobs emerged.

Assets Flow Where They're Needed

If Congress bails out the Big Three now, they won't get any better, and they'll be back next year, and the year after, and forever after that.

Some in Congress worry about that.

"My fear is that you're gonna take this money and continue the same stupid decisions you've made for 25 years," Rep. Michael Capuano, D-Mass., said.

On Friday Congressional Democrats and the White House neared agreement on about $15 billion in bailout loans for the Big Three. The money would probably come from the $25 billion loan intended to develop high-tech fuel-efficient cars. Congress may vote on giving the Big Three the cash next week.

Give me a break.