As GM goes, so goes the nation
Posted on April 24, 2006 at 3:25 pm by Chuck Muth
by Doug French
Liberty Watch Magazine
“As GM goes, so goes the nation” was the old saw when General Motors was a corporate powerhouse. But now the car making behemoth is spilling red ink profusely and armies of bankruptcy attorneys are standing by.
Sean J. Egan recently told a Grant’s spring conference crowd that GM “is going bankrupt within the next 12 to 24 months.” Egan’s company, Egan-Jones Ratings Co. is in the business of rating bonds. So he’s a guy who knows the difference between cash flow and the lack of it. Egan believes that the company’s losses will be huge this year if for no other reason than “they only took a $3.6 billion reserve for Delphi; they should have taken $12 billion.” Egan says CEO Rick Wagoner will be replaced and whoever the new guy is will put the company in BK, pronto.
Some people think GM has a revenue problem and that the company, which has been around since 1908, is out-of-touch with what modern car buyers want. But, the company remains the world’s largest carmaker and sold over nine million vehicles world wide last year. So, how on earth could the company be on the verge of bankruptcy? The UAW, that’s how.
General Motors has a ball and chain around its ankle called the United Autoworkers Union. Of course the mainstream media doesn’t point the finger at the UAW for GM’s troubles. Last year, when layoffs were announced around the Thanksgiving holiday, NBC’s Katie Couric said on the “Today” program that GM employees “might not have a whole lot to be thankful for this Thanksgiving.” And the day before on the “Evening News,” CBS’s Jim Acosta said, “GM is carving up its workforce like a Butterball turkey.”
But CBS’s Anthony Mason was closer to the truth on the November 21 “CBS Evening News,” citing GM’s legacy costs. “They have two and a half retirees for every worker they’re supporting. That’s a cost that’s not going to go away.” What Mason didn’t tell his viewers is where those obligations came from: Union contracts.
So what if GM didn’t have the UAW to contend with? Economist George Reisman answered that question with an article posted on Mises.org last week. If the carmaker could fire workers for poor performance or for excessive absences, so-called Monday Morning Cars would not happen. These are lemons made on days when absences are high and too few workers show up sober.
Next, GM would have become more efficient and lowered its costs, if the union didn’t stand in the way with its work rules prohibiting workers from doing multiple tasks and contract provisions that prohibit cost saving measures being implemented without negotiations with the union. As Reisman relates; “Unbelievably, at its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothing. As The New York Times describes it, ‘Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry’s best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.’”
Reisman points out that while Toyota makes $2,000 per car, GM loses $1,200 per car. The majority of the $3,200 difference is the $2,500 in each car that the UAW contract costs the company.
GM lost in excess of $10 billion last year and the company’s bonds are now rated as “junk.” “Without the UAW,” writes Reisman, “GM would not have lost these billions.” And, the company is now be in process of trying to pay a ransom to its union workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets.
Professor Reisman points out that GM has healthcare obligations that account for more than $1,600 of the cost of every vehicle it produces and has pension obligations “which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion.”
Including benefits, GM workers rake in over $73 per hour. It is that high wage and benefits package that is a big reason for GM’s troubles. The workers may be comfortable for now, but it bleeds the company dry. Ryan Ellis, executive director of the Alliance for Worker Freedom, says unions are “like locusts.” “They go from one crop to another,” Ellis said. “They latch onto an industry, suck out as many benefits as possible,” and move on.
Which brings us to why all of this is relevant here in Nevada. The Big Six gaming companies reported record quarterly earnings and profits the other day. With the exception of Las Vegas Sands and Stations Casinos, the Big Six are union companies.
With huge profits and soaring stock prices, these big gaming companies seem impregnable today. But, it wasn’t that long ago that there was no greater symbol of corporate power than General Motors. “What the UAW has done,” writes Reisman “on the foundation of coercive, interventionist labor legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labor-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations.”
The culinary union will not destroy Nevada’s primary industry overnight. But, rest assured; what’s happened to Detroit will happen to Vegas if the gaming companies don’t kick the culinary out now.
