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Paul Hayden

Michigan Blues

December 15, 2008

The auto industry "bailout" is not a black or white issue, and it gets even grayer when you live in the center of the storm. It would be easy to say that we, the residents of the great state of Michigan, including the auto executives, should have seen this coming years ago and started tightening our belts then. But it's simply not human nature to tighten up when you're riding a wave of prosperity, no matter where you reside.

Living only 75 miles from Detroit, I'm hearing the arguments on a daily basis, and they can't help but be taken seriously. First and foremost, why are the auto companies being held to such a demanding standard when the banks who were bailed out were handed billions more with barely any protest in Congress? On this question rests most of the pro and con arguments for a "bridge loan."

It's true that the United Auto Workers union negotiated some sweet deals for its rank and file over the years. My dad's frequent golfing partner in the '70s and '80s was a GM employee who played golf at the crack of dawn with us on Saturday and Sunday mornings so that he could then go to "work" the rest of the day. As he related, his "work" consisted of sitting at his tools issue bins and issuing maybe one or two items over his eight-hour shift-if that. For that minimal effort, he was paid time-and-a-half on Saturday and double time on Sunday. It was no wonder that auto workers enjoyed living standards that allowed them to have fancy motorboats and cottages "up north" to enjoy Michigan's summer splendor and hunt for deer in the fall.

And this golfing friend was not the exception. Family members related similar stories about the generous overtime that was often of their choosing, not the employer's. This liberal practice could raise the worker's base wages by 50 to even 100 percent. No wonder that the cost of autos built by GM, Ford and Chrysler skyrocketed during the last 30 years of the twentieth century.

Of course, competition from Japanese and German automakers forced the American companies to address quality and, as it became increasingly expensive to build quality and new technology into their vehicles, to finally start addressing costs. But the auto lease-or "fleece" as noted financial advisor Dave Ramsey derisively names them-proved to be a temporary band-aid on the cost problem. That is, consumers who couldn't afford the monthly payments that buying a vehicle costing $20,000 or more entailed, had the option of leasing for much less per month as long as they had some cash to put down initially. Leasing is largely what kept the American companies going here in the U.S. over the last 20 years or so-that and their profitable international operations with much lower, non-UAW wages and benefits.

Unfortunately for the auto firms, consumers have become savvier over the years and the companies have not moved quickly enough with them. Quality and the cost of purchase tell the wise consumer that it's simply not economical to change vehicles every three years as our parents and grandparents did. However, the companies still seem to have that mindset in their production plans. But even with leasing operations, their expectation to sell as many units per year as in the "old days" when people are simply not turning them over as quickly, is hard to comprehend.

Now as the arguments for and against the loan are heard, Republican senators are being excoriated by the media but also by locals here who see their opposition as "payback" for the many years of UAW support for Democrat candidates. When the Republicans argue that GM, Ford and Chrysler need to sit on the UAW until it cries "uncle" and agrees to live with the same levels of wages and benefits as foreign automakers in the non-unionized South provide their employees, it falls on deaf ears here. And that to a degree is understandable, since not only are the employees at risk of a much lower standard of living along with their families, but so are thousands of retirees and surviving spouses who, right or wrong, were promised those nice pensions and health care benefits as part of the package. Going back on a promise made years ago is always painful and no union leader wants to have this happen on his watch.

Then there are the Democrats who favor the loan but want many environmental strings attached. The pompous Chris Dodd and Henry Waxman are self-appointed experts who are only too willing to tell the auto executives how badly they have mismanaged things by, for example, building way too many gas-guzzling SUVs at the expense of smaller, more economical and environmentally-friendly cars. Yet as gas prices plummet well below $2.00 per gallon, owning an SUV is suddenly not so bad again, especially here in Michigan. With harsh winters, less snow removal and salting of roads built into strained budgets and the resulting slick conditions, drivers of smaller cars are sitting ducks for serious accidents and fatalities. To bend to the whim of Congressional "managers" and build a fleet of battery-powered vehicles would be the height of folly. Unlike in Europe where such vehicles might be practical (and even there are not selling well) ours is a country of wide-open spaces and great driving distances.

If the standoff on the bridge loan continues, the companies, GM and Chrysler in particular, may be facing bankruptcy. Some would say that's a good thing; that reorganization and a fresh start might result in a much leaner and competitive operation, possibly even sans the UAW. Such thinking is probably not realistic with a pro-union administration about to take control. And life without the union would not be a good thing financially for us white-collar employees and managers either. If we are honest about it, we have to acknowledge that our salaries and benefits would not be where they are without the union's influence. But that may be a part of the problem that caused the one-state recession we already were in before the latest crisis hit. That is, have Michigan workers priced themselves out of the national market? And, if so, who will be the first one to raise their hand when asked if they are willing to take cuts in salaries and benefits?

We're about to learn some lessons in Michigan about shared pain and sacrifice, regardless of how the bridge loan controversy turns out. The rest of the country should take heed.

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Copyright ©2008 Phil Perkins