Chrysler, Ford to Idle Car Plants, Get Loans

Today is the last day of work for Chrysler's assembly line workers for the next month. Normally, the plants are only closed from December 24 to January 5. Ford has also announced that 10 of its plants will shut down for an extra week for the holidays, closing for 3 weeks rather than 2. Chrysler says the move is necessary to conserve cash because of the “continued lack of consumer credit for the American car buyer.” The lame duck Congress is giving Nero a run for his denarii, fiddling while Detroit sinks. Mr. Bush, on the other hand, has just announced sufficient loans to kick the can down the road until March 31.

The Democrats and the White House are in agreement that the Big 3 need help. The Democrats control the House, which has already passed a rescue package. This morning, Mr. Bush told the press, “Government has a responsibility to safeguard the broader health and stability of our economy. If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers. In the midst of a financial crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action.” The $13.4 billion he is making available will come from the $700 billion bank bailout fund.

The Senate Republicans, though, have been the obstacle to getting the whole job done. Some for ideological reasons believe that the Big 3 should be allowed to file Chapter 11 bankruptcy, restructure and then, they will emerge leaner, meaner and better able to compete. This view, however, ignores the collateral damage that bankruptcy entails. All of the suppliers and others to whom the bankrupts owe money would have to settle for less than 100% payment. That means that they will have to cut back on jobs, wages, production and more. This ripple effect can be avoided with a rescue package that doesn't entail Chapter 11.

Others in the Senate GOP caucus have a more pragmatic reason for their obstructionism – namely, they want to bust the United Auto Workers union. The UAW has already agreed to wage and benefit cuts to the level of non-union auto plants outside Detroit (mostly in the former traitor states of the Confederacy) by 2011. That wasn't good enough for these senators. They wanted a date certain in 2009. The president's loan offer gives them until the end of 2009. While it is true that UAW wages and benefits do represent a market disadvantage for the Big 3, why must harmonization demand a loss to UAW member rather than a gain to the others? Why can't a bailout package include legislation that would require all auto workers to be paid the same as UAW workers? Why can't America level the playing field by moving people up the pay ladder rather than down?

The good news for the UAW members is their unemployment insurance is supplemented by additional unemployment pay from the companies. In effect, they won't lose much if any pay. However, some of their earnings will come from state coffers rather than the companies for which they work. Many of these states, for example Michigan, can ill afford further demands on their purses. Congress can put down its fiddle any time now.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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