Obama's Union Bailout

We know that the big three auto makers are in line for a massive bailout. The problem is, that won't fix their root problem. They're not losing money because of risky mortgages, like most of the other companies being bailed out right now...they're losing money because of unions (among other things). From the Weekly Standard:

Professor Bainbridge makes the case that the best help one could give to GM is to allow it to file for bankruptcy:

Let’s focus on GM. GM’s problems are manifold, but at the top of the list are:

1. An incredibly inefficient bureaucracy...

2. An excessive number of brands, which results in substantial cost duplication...

3. Although GM didn’t bet as heavily on trucks and SUVs as did Ford, it still has almost no profitable small and medium-sized car models...

4. An antiquated distribution system cemented into place by state franchise laws that insulate dealers from any real changes...

5. Union contracts that impose astronomical health and pension costs, make innovation harder, reduce production flexibility, and fail to ensure quality...

6. Massive pension and health costs for retired workers.

Here’s what has to happen. Cerebus needs to sell Chrysler to somebody with cash and a need for access to the US market. India’s Tata comes to mind.

GM and Ford should be allowed to go through bankrupt reorganizations. Yes, there will be huge transaction costs. Yes, some of those costs will be borne by the taxpayers. The bankruptcy court’s ability to remake contracts, however, will be critical. GM and Ford need to tear up their contracts with the unions, its retirees, and its dealers. Bankruptcy is the easiest way of doing so...

Many analysts argue that GM's structural problems won't be solved by throwing money at the company. That move will only delay the necessary reckoning. In this view, it doesn't matter whether the Big 3 are 'an essential part of our industrial base,' as Rahm Emanuel asserts. Throwing taxpayer money at the problem only delays the day when America's car manufacturers can be competitive again -- when the automakers can truly serve as the backbone of America's manufacturing base. Until that shakeout comes, GM seems likely to do no better than ward of the state. So why do it?

Perhaps Barack Obama's early priorities should give us a clue. While Rahm Emanuel has spoken of children's health and stem cell research as the first initiatives out of the box, it's clear that card check and the auto bailout are also on the fast track. Those are the top priorities of Big Labor -- which spent $450 million to put Barack Obama in the White House, and desperately needs government help to remain viable.

As argued above, throwing money at the big three auto makers won't help anything because it won't fix the underlying problems with their business model. The best thing that can happen is for those companies to go through bankruptcy, shed their highly-paid and non-productive (i.e. useless) union workers, then go back to square one and start over. How many times have we heard a story about someone being fired from a job they didn't really like, only to find one that was even better? Same thing here. This happens a lot in business, and it's part of the growth process; unfortunately, the longer it takes for a company to acknowledge its underlying problems, the more painful it is to correct those problems. The big three are going to get hammered sometime, it's just a question of when, and at whose expense. Hopefully it won't be ours, but if Congress has anything to say about it, it most certainly will be.

Foreign car companies don't really make a better product, but they do make a far cheaper product because they don't have to pay for unions. That's the key difference, and that's why they're struggling.

There's my two cents.