THUMBING through my dog-eared copy of "My Years at General Motors" by long-time president Alfred P. Sloan prompted me to remember his phrase "What's good for General Motors is good for America." What would he be thinking today?
On the one hand, there's Pat Buchanan, columnist and former right-wing presidential candidate, weighing in on why the auto industry deserves a bailout. On the other side, we have Andrew Ross Sorkin, writing for the liberal-media-elite New York Times, who advocates Chapter 11 for the auto companies, a form of bankruptcy that allows them to restructure and walk away from some of the commitments that will otherwise drive them out of business.
I'm always prompted to look at these issues from the retirement plan perspective. Letting companies go down the tubes saddles us taxpayers with the prospect of guaranteeing any under-funded defined benefit pension plans. The Pension Benefit Guarantee Corporation (PBGC) has effectively run out of the money that retirement plans pay in insurance premiums to guarantee benefits for beneficiaries of insolvent plans. That means that we taxpayers would be expected to step up to the plate to make up any losses. We just haven't read about that bailout yet.
The retirement plan at General Motors is reputed to be "fully funded" which means that it has enough in assets to meet the future retirement expectations of its workers, but I don't believe that for a moment. Plans that guarantee an income to employees for life upon retirement are like loose cannons on the deck. Reports of their funding status can be highly subjective and can be impacted by, guess what, a major downturn in plan assets caused by a stock market crash.
The joke in the pension industry years ago was the fuss made about the government's bailout of Chrysler in the early '80's. The $1.2 billion (that number seems so quaint today) that Lee Iacocca negotiated was chump change compared to the cost of Chrysler's under-funded pension plan at the time. By granting the automaker some time and money, the government had at least a chance of avoiding what, at the time, was a sure $6 billion under-funded pension cost. We all lucked out. Chrysler even repaid the loan a few years early, and has lasted long enough to create yet another unfunded liability.
Today, Pat Buchanan points out that the auto industry, directly or indirectly, employs over three million people. If we let it go down the drain, we lose a strategic asset that would be impossible to recover. He suggests we make the loan and then establish the same import quotas that we used to save Harley Davidson.
Andrew Ross Sorkin points out that the industry has been hoisted on its own petard. Its problems start with a calcified culture that resists change. Its factory workers make an average of $70 per hour including benefits, or about $140,000 per year. Similar workers at U.S.-located foreign car factories make $20 less per hour. Bankruptcy, Sorkin argues, would clear the decks and allow the industry to rid itself of gold-plated obligations at every level that have now made it impossible to compete.
My only question would be those pesky retirement plan obligations. We the taxpayers would be stuck at the time of bankruptcy with obligations that would dwarf the mere $25 billion to $50 billion the industry is pleading for. Bankruptcy doesn't make pension obligations go away. It does allow a dramatic reduction in the benefit amount, as any United Airlines pilot can tell us, but the bulk of the obligation will wind up in our laps. It may be the right business decision in any case.
Years ago, my neighbor worked on an assembly line in Fremont. I know the work is extremely difficult. I'm sympathetic, but at this point the auto industry is asking taxpayers to pay for salaries and health insurance benefits, taxpayers who make far less, on average, and who in many cases don't have health insurance themselves. Meanwhile, if you own a General Motors vehicle, you'll be receiving a letter soon asking you to write your congressman in support of the bailout. This is an industry that has been trying unsuccessfully to go bankrupt for twenty years. They may succeed this time around in spite of anything we do. But it will cost us, no matter what.