The Terms If We Must Save the Big Three
Dear President Bush,
It looks like the future of Michigan is entirely in your hands, and I don’t mean that in a please-save-us sense.
Look, I don’t think you should give the Big Three any Troubled Asset Relief Program money at all. You yourself said that’s not what it was intended for, and you warned against throwing good money after bad. You won’t go wrong by following your own advice.
But since you seem determined not to let General Motors (and maybe Chrysler) collapse on your watch, let’s talk terms.
GM and Chrysler – and more importantly, the United Auto Workers – think they dodged a bullet last week by refusing to give in to the demands of Tennessee Sen. Bob Corker that they bring wage and benefit costs in line with those of the Japanese transplants by a date certain, and soon. They were confident they could let the Senate bill collapse because you would save them without insisting on the same conditions Corker wanted.
Insist. Please. If you do, you give Michigan a shot at an economic future brimming with possibilities. If, by contrast, you save them now without forcing them to change dramatically – even if only to keep them alive until this becomes the Obama Administration’s problem – you will miss an historic opportunity.
This is consistent with your decision-making style, don’t you think? You’re the president who sent the troops into Iraq because you had no confidence in the feckless platitudes of the UN and the International Atomic Energy Agency. You had the courage to fix the problem once and for all. Fixing Michigan requires nothing less.
Since you have GM, Chrysler and the UAW over a barrel, here’s what you need to demand from them:
1. Labor cost parity with the transplants by no later than the end of 2009. UAW president Ron Gettelfinger is trying to insist that they’re already competitive, but in making this argument he conveniently leaves out the cost of retiree health benefits. Most likely, the retirees are going to have to accept major concessions on their health packages. There’s no avoiding this. Labor-cost parity is a must.
2. Work-rule reform. This is a huge hidden cost. Everyone in Michigan has heard the stories of the assembly line that was clacking away until the union steward came running up, complaining that the line was “too productive,” and ordered the whole thing slowed down. Everyone has heard the stories of workers who are under orders to spend every 18 minutes sitting for 17 and working for one. These are not urban legends, as implausible as they sound. Get to the bottom of it, and put a stop to it.
3. Concessions from debt-holders and suppliers are surely necessary, but recognize this: Many of the suppliers have worked for little or no profit for years because the Big Three, unable to control their labor costs, try to compensate by squeezing suppliers on price. That has denied the suppliers capital they could have used to diversify and become less dependent on the Big Three. Reforms in procurement, which would allow suppliers to operate their own business models more rationally, would prevent the kind of crisis in which one company’s potential collapse can bring down so many more.
4. Don’t let Michigan’s state government off the hook. Michigan’s high-tax, high-cost-of-business policies are designed to prop up the Big Three, which gets the exemptions and abatements it needs, at the expense of entrepreneurial ventures. Meanwhile, labor laws here continue to empower unions at the expense of workers who care about productivity. Michigan policymakers are among the beggars. Make them clean up their act as well.
By no means should you stop with these four items, but you should start with them. Michigan will remain a mess unless it is forced to change, and you’re in a uniquely powerful position to wield force. If they protest that a short-term $14 billion lifeline isn’t worth completely reforming our way of life here, say fine. Let your state die, then.
If you play this right, the last act of your presidency could be to bring a state out of its economic dream world and into a position from which it can become competitive in the future.
If you’ve made up your mind that you’re going to do this – and we all know how you get when you’ve got your mind made up – at least impose the kinds of reforms that just might make this $14 billion a decent investment after all.