Why The Big Three Need A Bailout

Why The Big Three Need A Bailout

It isn't just labor costs that are sinking the Big Three. But this report from the Heritage Foundation points out that according to the Big Three's own financial reports, they are paying about $70 per hour for workers, including retirement and health insurance:

The United Auto Workers (UAW) wants Congress to bail out General Motors, Ford, and Chrysler to prevent their undergoing restructuring in bankruptcy proceedings. In bankruptcy, a judge could order union contracts to be renegotiated to reflect competitive realities. Many analysts have objected that hourly autoworkers at the Big Three are some of the most highly paid workers in America, costing the Big Three over $70 an hour in wages and current and future benefits. All taxpayers should not be taxed to preserve the affluence of a few.

Some observers argue that UAW members do not actually earn this much.[1] They argue this figure includes the cost of benefits paid to current retirees as well as wages and benefits paid to current workers and that the actual hourly earnings of current UAW members are much lower. This is a mistaken interpretation of the financial data released by the Detroit automakers.

Cash Compensation

Chart 1 shows the average hourly compensation for UAW workers and the average compensation for all private sector workers. These figures are based upon calculations by the Detroit automakers themselves as published in SEC filings, their annual reports, and other materials. According to briefing materials prepared by General Motors, "The total of both cash compensation and benefits provided to GM hourly workers in 2006 amounted to approximately $73.26 per active hour worked."

I like GM cars. I was favorably impressed with the Ford Escape that I rented recently. But the harsh reality is that the Big Three claim that they need a bailout--while other companies that make cars in America do not. Assembly line work isn't pleasant. But at the same time, it isn't difficult to find people capable of doing it, as BMW, Mercedes, Subaru, Honda, and a number of other foreign companies building cars in America have demonstrated.

At an average of $70 per hour, a government bailout to save the Big Three and the UAW's lucrative contracts would be a redistribution of wealth upward. If the Republican Party had a lick of sense, they would be emphasizing this loudly--that a bailout is taking money from people whose employers are spending $30/hour (including benefits) so that people making $70/hour don't have to cut back their lifestyle.