5 Reasons to Save the Big Three

During the past week, the media has railed about the performance by the CEOs from Chrysler, General Motors and Ford. Like beggars in mink coats, Mssrs. Wagoner, Nardelli and Mulally marched to Washington DC last week to plead for $25 billion in financial aid from the government to an incredulous audience. Ill prepared for the onslaught by Congressional inquisitors, the Big Three CEOs looked like angry zebras ready to face down a brood of lions. What was obvious to everybody but the “zebras” was the fact that that the even angrier public and Congress have lost patience for these business leaders who expect financial aid, no questions asked. Lions 1, Zebras 0.

Citing the personal excesses of the three executives in question, commentators have made the leap into a more general attack on autoworkers as justification for rejecting any sort of bailout. Like with so many lynch mobs, innocent people get killed.

More thoughtful commentators have parsed this problem and have identified root causes with the Detroit auto makers, citing comparatively high labor costs ($70 per hour for workers employed by Ford, Chrysler and GM versus $40 per hour for employees at the other auto makers located largely in the southern U.S.) and long-running, failed business strategy implemented by management of these companies. This line of reasoning has its advocates calling for Congress to feed them to the lions. Less subtle pundits have used this crisis as a rallying cry against the workers in the auto industry as justification for burying the industry alive. Offing the industry seems to be the prevailing theme.

So why should Congress spend taxpayer money to rescue the fetid corpse of a dead industry?

1. Save American Jobs

A lot of working Americans and their families will be hurt by the collapse of the auto industry. We can send thousands of Americans to their deaths in Iraq and bail out the titans of Wall Street on the fallacious premise that it’s good for America. I think we must stand up and do the right thing for the right reason for once and protect ordinary working Americans.

Within the industry, there are potentially 240,000 blue and white collar jobs at risk should the three major automakers fail. Jobs associated with suppliers, auto dealers, and financial services companies serving the auto industry and the like represent an additional 1.2 million at risk American jobs.

If that isn’t enough, there are estimates that the economies supporting the auto industry – the states of Michigan, Illinois, Indiana and other states employing tens of thousands of auto industry workers – could see further dire contractions that would result in an additional 1.8 million lost jobs. Essential services provided by governments at all levels are at risk.

A collapse of the auto industry would increase current unemployment levels by more than 30% to about 8.02%, a number that most of us have not seen in our working lifetimes.

2. Preserve a Foundation of American Pluralism

Though union bashing has become as American as apple pie, we cannot forget that union contracts have functioned as a floor on wage levels in those industries in which they operate, making it challenging but not impossible to drive down American workers wages as a means of becoming more competitive. For many people, the concept of a Union brings up many negative connotations. Setting aside for the moment the visceral impressions that many readers have about unions and what they represent, the basic notion that organized labor is an impediment to competitiveness needs to be rejected. In the abstract, “competitiveness” is a good thing. In reality, reducing a massive number of good paying American jobs will have a devastating effect on the U.S. economy and redefines the term as an obscenity. While labor economists point to the narrowing differences in the productivity between union and non-union workers, the fact remains that union workers remain the most productive in the workforce.

In addition, eliminating a massive number of union jobs in America will have a ripple effect on the levels of jobs across the country that may help business but will have deleterious effects on most wage earning Americans for years to come.

3. Mitigate the Looming Economic Collapse

I have talked about this problem with acquaintances in recent weeks. Some of my Investor-Warrior friends suggest that the auto industry should collapse. “It’s survival of the fittest” seems to be the mantra here. Unionization, high pension liabilities, lousy products, too many gas-guzzling trucks and SUVs and not enough hybrids are all cited as examples of an industry deserving a proper burial.

However popular and easy it is to trash the automakers, the business of cars remains a very important part of our national economy and one that we must tend to in a nuanced manner.

4. Respect the Rule of Law When Workers are Threatened

We have grown so accustomed to ignoring the rule of law when it comes to working people. When executives at Enron, Worldcom and other failed companies were brought to justice, we cheered that justice was done. However, since the Reagan era, we have seen that working people in the U.S. don’t even get a chance at a “trial” so to speak. Ronald Reagan’s summary execution of the air traffic controllers was the seminal event in a string of contract abrogations, pension fund terminations and waves of layoffs in the name of mergers and acquisitions that plundered the American workforce.

5. Force a Fundamental Reorganizing of the U.S. Auto Industry

Providing financial assistance to the auto industry creates a unique opportunity to inject some measure of sanity to the industry. Forcing a retooling of the industry toward the development of more environmentally responsible and economical vehicles is an absolute necessity. Rick Wagoner, the likely poster boy of management incompetence in the industry, symbolizes the need for reform. His bosses, the GM board, is incapable of and incompetent at managing the task of redirecting Mr. Wagoner and other managers high and low to need to fundamentally rethink their business strategy.

Only a few short weeks ago, the call went out to save AIG. The insurer was so important to the global economy that we could not afford to let it collapse. Did it deserve to collapse? I think so. More precisely, the people making the key decisions at AIG that allowed the company to teeter on the edge deserve an unseemly fate. I suppose that the same rationale could be applied to the Big Three automakers. However, in the rush to judgment, I think that all of us most distinguish between our loathing for corporate executives, the businesses they represent and understand what the consequences are from any of the courses of action that we as a country take with regard to this current mess. At the end of the day, it will be Congress’ call on what to do here. My bet is that the industry will receive a helping hand. My hope is that real change is made to the way the industry does business.

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