Friday, November 21, 2008

The Automotive Bailouts

The "Big Three" of the automobile industry are lining up to be next at the trough of government funds. For a pleasant change, Congress is insisting on knowing what the money will be spent on before wasting it on yet another bailout that will do more harm than good.

If they do not get a bailout, they will probably have to go into Chapter 11 bankruptcy, which will cause a restructuring of the companies and a renegotiation of the contracts. The companies will not actually disappear.

While it was the executives that went to Washington to ask for the bailout, the major supporter of the bailout is the unions.

The United Auto Workers is a very large an important union. If the "big three" go into bankruptcy, it will cause a renegotiation of the contracts they have with the unions. That will severely weaken the UAW, and through them, the unions as a whole. This comes just when the unions were eagerly anticipating the Orwellian "Employee Free Choice Act" which will greatly strengthen the unions. Just as they were expecting to increase their power is when their power was suddenly threatened.

This bailout may look like a bailout to big business, but it is more a bailout to big labor. The ability to drain the wealth of those who purchase their goods through restraint of trade being threatened, the unions are instead attempting to drain the wealth of everyone without regards towards purchases by having the government do it through taxation.

Given that the government is bankrupt and that the country is in a recession that is turning into a depression, the UAW might try to set more realistic goals regarding their ability to squeeze more money out of the consumer through anti-competitive practices. Once there are no longer any jobs, it doesn’t matter how much those jobs pay

1 comment:

Paolo said...

Very much true. The big unions and big management have been very much in control of Detroit for a long time. Their gig is to overpay their executives, overpay the union bosses, overpay the workers, and then find some way to get political favors so they can prevent the mess from collapsing.

Until recently, protectionism sufficed. But then those treacherous Korean and Japanese auto companies started building factories in America, hiring American workers at lower wages, and selling more better cars at lower prices.

So now we're in the end-game. The execs and the unions are asking Washington for direct cash, just because they want it. Through the Fed, the government can just have the money created by fiat, passing the costs on indirectly to everyone who uses the dollar.

It can't go on forever. Eventually, the dollar will be abandoned.