It’s the unions, stupid
News is rippling through economic circles today that General Motors lost $15.5 billion in 2nd Qtr 2008. While losses were expected, perhaps no one expected such heavy losses.
GM said that $9.1 billion of the losses were from one-time charges and writedowns . . . still leaving them more than $6 billion in the red.
To put GM’s losses in perspective, ExxonMobile announced yesterday that its 2nd Qtr profit earnings were $11.68 billion.
Newsweek said, “The end of America’s love affair with SUVs hit General Motors hard,” and that’s undoubtedly true. But at what point do we start pointing the finger at the obvious that the mainstream news report are slower to mention: Unions. The problem with the U.S. auto industry in general is too many years of overpaid workers leading to vehicles that were too overpriced. Or, as someone put it a little more bluntly earlier today, “U.S. auto has become a middle-class welfare system.” Sometimes the truth hurts.
The significant overhead, much of it related to salaries, has tanked the auto industry. As Stephen Frank points out: Unions killed the steel industry. They’re on the verge of killing the auto industry. And Hollywood is staggering under the blow brought on by unions. When will we learn our lesson?
To that end, the pending collapse of GM may be a good thing for America. Undoubtedly, it will significantly compound our already ailing economy, but in the long run, we may learn our lesson this time around. Lessons hard learned tend to stick with us the best, and this lesson will hurt as bad as the doses of hickory tea ol’ Dad used to hand out by the time all is said and done.
Union supporters will argue that at the same time GM closed plants producing 150,000 trucks per year, Volkswagen opened a plant producing 150,000 cars per year. So in theory, GM wouldn’t be in financial distress if it’s focus was more on compact and midsize cars and less on gas-guzzling SUVs and pickup trucks. But within that argument is the key to what makes it void. VW bypassed Michigan and chose a site near Chattanooga, Tennessee, for its new plant. Why? the Detroit Free Press has its thumb on the pulse of the matter:
A clear driver of the southern strategy by foreign automakers has been to avoid union workforces, which could raise costs by forcing higher wages or hiring more workers. The UAW has only once successfully organized a foreign auto plant that it had not been invited into — VW’s first U.S. manufacturing plant in Pennsylvania, which closed in 1988.