Talk talk

Just when I seem close to feeling some degree of sympathy toward American automobile manufacturers and their workers, something happens in the industry that leaves me shaking my head and remembering why Detroit is moribund in the first place.

The United Auto Workers instituted a strike against General Motors yesterday, the first against GM since 1998 and the first over a national contract since 1970.

The bone of contention seems to be the union’s insistence that GM invest more money—in the form of guaranteed jobs and factories—here in the United States. The union, which made a key concession in earlier talks when it agreed to shift the health-care burden from GM to the union itself, feels that their one major concession should be met half-way by the company.

For GM, the whole point of gaining the health-care concession was to close the average hourly wage gap between American and Asian workers. Along with Ford and Chrysler, GM is getting killed to the tune of $30 per hour by foreign workers. Simply put, American workers are not competitive in the automobile industry (for myriad reasons, not all of them wage-related), and GM’s desire to shift the health-care burden would help close the gap. But it makes no sense for GM, or any American business, to gain some flexibility in health-care only to give it away in the form of future business strategy. The union’s demand would hamstring future GM executives, forcing them to invest in the most cost-intensive part of the business at a time when, by all sensible accounts, they should be reducing factory capacity. During the 1980s and 1990s, it would have been merely unwise for GM to agree to the union’s demands; at present, it is downright suicidal. The company’s debt is junk, and according to many consumers, so are the cars. GM is too sickly to make the concession the union seeks.

Why, then, would the union press this demand when, surely, it knows the financial distress this would create down the road? As much as GM is fighting for its life, so is the UAW. Membership rolls have declined at GM steadily over the past 20 years, from over 450,000 to less than 100,000. For both the union and the company, this strike is about survival. By forcing GM to invest in American manufacturing capacity, UAW is hoping to reinvigorate itself in the process, adding members and clout. It’s either this, or a steady, inexorable decline into irrelevance.

On a related note, it is interesting to see the allies of labor moving this week to introduce new legislation that would radically overhaul and enhance the positions of workers in corporate restructurings. According to the Wall Street Journal,

The legislation, called the Protecting Employees and Retirees in Business Bankruptcies Act of 2007, includes provisions to make it tougher to dissolve collective-bargaining agreements and to increase payouts to workers when companies declare bankruptcy. It also provides ways to reduce executive compensation in line with cuts imposed on workers, and would reimburse retirees who have lost health benefits using proceeds from asset sales.

The Journal concedes that such legislation is doomed to failure, lacking the support needed to pass, but rather is designed to pressure a few Congressmen standing for re-election next September. The prevailing attitude on the Left is summed up by Rich Trumka, secretary-treasurer of the AFL-CIO, who was quoted in the Journal as saying, “Today the bankruptcy system has become effectively a device for the wholesale transfer of wealth from workers to other creditors.” Of course, workers are not “creditors” at all—they’re workers, and in any prospective battle between workers and creditors, creditors can and should get the upper hand. After all, it is they who have real skin in the game. When workers get laid off, they can always pursue a new job; when creditors or equity investors lose their money, there is nothing but the cold comfort of a tax write-off.

My populist streak wants to sympathize with workers when they caught up in corporate restructurings, but in reality, there is very little that can be done. Pensions should always be sacrosanct, and in too many cases, pensioners have to fight tooth and nail with creditors to save their nest eggs, but outside of that, everything else is fair game in a restructuring; indeed, that’s the point of a restructuring.

If there is any political cycle where unions should make a last stand, the upcoming cycle is it, as I expect a drastic uptick in the number of companies going under over the next 2 to 4 years (not to mention likely Democratic control of both houses of Congress and the White House), but as they have for decades now, I suspect unions overestimate their clout with the electorate, and this late flurry of activity will do little to turn the tide in their favor. I would expect GM, as a case example, to stick to their guns straight into bankruptcy, if necessary.