News reports characterize the President’s decision late last week as a rescue plan, a “lifeline” to the auto industry, but it’s actually a bailout for the United Autoworkers union. The $17 billion is meant to keep GM and Chrysler viable until the incoming Administration takes charge, but it charges them to wring financial concessions from the union, suppliers, and dealers in order to gain further government support.
Don’t worry. GM and Chrysler will get whatever they need, or rather, whatever the next Administration and Congress tells them they need. Democrats' predilection with “green” vehicles suggests a lot of government money will be delivered for designing and building electric-power vehicles and similar projects, but they will be in business, for a while.
Suppliers are likely to get shafted and the dealers will be made to take whatever settlement they can get.
The union, however, has been spared, and left to deal with the new President, to whom they contributed a reported $400 million. Because the Bush Administration decided not to oblige the UAW in any way for this lifeline, everyone else (including taxpayers) will pay the price.
That’s politics, and we had an election that made this dynamic pretty obvious, so there’s no reason to cry foul. Besides, President Bush is playing politics, too. Allegedly, he wants to avoid being held responsible for the collapse of the domestic auto industry.
He ought to have learned that this sort of politics only works if you hold the last card. In 2002 the domestic steel industry had collapsed, essentially, with several of the leading producers in bankruptcy or liquidation. The President instituted a series of restrictions on steel imports, to stabilize the domestic industry. He was scolded and mocked by consumers and free-trade devotees, but his calculation at the time was that the move would recruit to his side voters in states that depend on steelmaking.
Not a chance. Even though the U.S. steel industry survived the catastrophe, and thrived, labor voters blamed the President because they had to give up some of their advantages. In the 2004 election, the President lost in Pennsylvania and barely won in Ohio.
The steel industry thrived not because of the import restrictions, but because that created the conditions that allowed them to reorganize and consolidate. They were able to break free from their impossible obligations to thousands of workers, retirees, and dependents — obligations in some cases to seven times as many former workers as to current employees. Just as important, the steel companies rewrote the work rules for their continuing operations.
In 2002, Bush held onto a card: he could remove the steel-import restrictions, and as a result the union negotiated. Now, he's passed the negotiating advantage to the next President. The automakers will make every concession, because they must do so in order to survive. The UAW has already been spared.
However, labor might finally consider sparing some gratitude to the current President: he isn’t requiring them to do anything, and as a result neither will anyone else.