Monopoly unions destroyed automakers

Holman Jenkins:

Call it a bailout or restructuring. What you're seeing is not a new beginning for the homegrown auto sector. It's the culmination of a decades-old, dishonestly peddled auto policy.

The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)

The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.

Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."

The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.

When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.

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For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.

Doesn't sound much like what you hear incessantly from your Congressman, about how Detroit's problems are all due to management "incompetence" in deciding to build "gas guzzling" SUVs, does it?

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In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives). As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever.

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It is not clear to me why the creditors of GM don't force the company into bankruptcy. They have the power to do so and they way they are getting screwed in this deal it is surprising they have not at least threatened it.

What should be clear is that the UAW will have a blatant conflict of interest in its future bargaining with Ford. Since it has an ownership stake in the two other companies its interests will be in conflict with allowing ford to be profitable. This conflict of interests should be a bigger problem than its monopoly.