Majority Leader Harry Reid, D-Nev., called the bill’s collapse “a loss for the country,” adding: “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

(“Auto industry bailout plan dies in the Senate,” MSNBC, http://www.msnbc.msn.com/id/28166218, December 12, 2008 )

Am I wrong to wonder why Harry Reid — a Democrat and one of the more liberal ones at that — is dreading having to look at Wall Street today? Ok…I understand what he really means — he knows that Wall Street will take a dive today (500, 600, 700 points?) because of the failure of the Senate to pass the Auto Industry bailout bill. But what about the people on Main Street? I would think that as a Senator (well, as a legislator in general) he should be more concerned about having to look people out on Main Street in the eye rather than worry about how far Wall Street is going to plunge.

I for one am not particularly in favor of the auto bailout — the “Big 3” got themselves into this mess and now they want a handout to get out. I understand that if GM and Chrysler collapse (or, more likely, go into Chapter 11 bankruptcy) then the impact on the economy will be severe and, who knows, may well set us up for another Depression similar to the one of the 1930s. But I also realize we cannot continue to prop up these companies if they won’t make drastic reforms to become more competitive in the global marketplace.

I see the role of the government in this situation as providing a “soft cushion” to an otherwise hard landing. The government should help facilitate either the merger GM and Chrysler with another company or they should provide some assistance in an effort that will result in these two automakers (and possibly Ford as well) becoming smaller, more agile and producing higher quality vehicles at lower cost. This assistance should be done with the idea that, in the long run, this will help Main Street America and that is good for Wall Street.

If the Big 3 want to survive this mess they’re going to have to do some major restructuring internally. We’re not talking about a surgical cut here or there but rather some amputations and they will need to start with executive management and go all the way down. On the flip side, the UAW needs to also make concessions. Their choice is simple — stick to the negotiated contract terms and not yield at all or make concessions that will help the companies weather this storm. I realize that Republicans tend to claim that UAW members make $73 per hour but there’s more to this story than just a number. Well, yes that is the bottom number, however, a good breakdown of that number shows that there’s more to it than that:

  • $40 per hour is cash (wages/overtime/vacation pay)
  • $15 per hour is health insurance/pension related
  • $15 per hour is retiree benefits and represents fixed costs

So in reality the UAW workers are making $55 per hour (compared to the average $45 per hour of the non-unionized workers at the Japanese auto plants) (Leonhardt, David, “$73 an hour: adding it up“, The New York Times, December 9, 2008 ). The UAW fought hard to get the wages and benefits that it has in this current contract. What the UAW now needs to realize is that they must make concessions soon if they want to see Ford, GM, and Chrysler survive this economic crisis (in one form or another) — otherwise they might all be left holding the paper of their contract while standing outside of the shuttered plants.

Both sides must come to an agreement on deep, long-lasting and substantive changes if they are to survive. But Harry Reid should be more concerned about seeing the impact on Main Street rather than on Wall Street by the failure of the Senate to help provide soft landing to these companies.

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