Preserving dinosaurs

Greg Lewis contrasts the labor path that the Big Three automakers have followed with how foreign car companies have maneuvered in the United States to avoid the mistakes that the American carmakers made. The Democrats are faced with the dilemma - should they save the dinosaur car companies in order to cater to their labor supporters or should they allow them to go into bankruptcy when there is a hope that they could reconfigure their tremendous labor liabilities in order to be able to compete more successfully.

GM, for instance, has some 450,000 retirees - more than threefold the number of its current full-time employees - to whom it pays pensions and for whom it provides medical care. By some estimates, medical costs alone add $1,500 to the average cost of each GM automobile. And the company faces an unfunded liability of more than $80 billion, about half its annual pre-downturn gross sales, for future health-care costs for employees and retirees and their dependents.

Toyota, on the other hand, having gone to school on the problems looming for American auto companies as it set up U.S. operations, currently has fewer than 1,000 retirees. Even when that number balloons into the thousands over the next decade, the company's liabilities for its retirees will remain right where they are today: at $0.00. Toyota has put the responsibility for funding their retirements on the shoulders of the employees themselves, through individual investment accounts to which the company contributes.

Even American automotive technology has suffered because of union labor agreements. As foreign manufacturers entered the U.S. market aggressively in the 1970s and '80s, American car companies, faced with growing labor-related expenses that made drastic cost-cutting necessary, found it necessary to save money by skimping on retooling their manufacturing operations. As a result, their products suffered against the competition in both technological innovation and quality.

Without the balance-sheet-killing albatross resulting from union contracts, foreign manufacturers are doing very well in the United States. And therein lies the rub for the president-elect. If Mr. Obama does what might please his ideological supporters and bails out the auto industry by essentially nationalizing GM, Ford and Chrysler, he'll put the burden of saving the industry from the consequences of union contracts negotiated by his leftist political forebears squarely on the shoulders of American taxpayers. In doing so, he'll please the left while at the same time almost assuring that these companies will either sink into oblivion or become the corporate equivalent of permanent wards of the state.

On the other hand, if he allows them to enter into bankruptcy, the companies might have a fighting chance to reorganize, possibly jettisoning some of the financial baggage resulting from back-end-heavy labor agreements. They might conceivably emerge even stronger. The thought of the howls of protest that would be raised by Mr. Obama's leftist base in that event, however, are very likely to prevent the president-elect from pursuing that course of action.

I wonder how popular overall a bailout of the auto companies would be among the public at large. We know that the UAW and Michigan residents will favor the bailout. But will most people across the country, who are already fed up about the billions being spent to rescue the credit industry support spending billions more to rescue auto companies that clearly have mismanaged their business for years? Will consumers who got irritated with their old American cars and switched to buying a Japanese-made cars and now are watching the value of their 401(k)s plummet start wondering why they need to pay taxes to support the pension plans of UAW workers? Will this become the bailout that breaks the camel's back? I suspect so.