Bailing Out the Auto Industry or its Unions?

Why is everybody so scared that the “Big 3” automakers will file Chapter 11 bankruptcy? The Democrats would like you to believe it is because allowing one of these companies to go down would create massive unemployment and economic catastrophe. Is that what happened to the airline industry after 9/11? Major carriers such as United, US Air, Delta and Northwest all filed for protection under Chapter 11 of the United States Bankruptcy Code. In fact, even American Airlines teetered on the brink. However, none of them went out of business or liquidated. They all emerged from it smaller, slimmer and profitable.

What happened then as a result of these bankruptcies and threats thereof? Simply put, the airlines were able to use the bankruptcy laws to force their unions to capitulate to substantial wage and benefit rollbacks. In fact, just the threat of a Chapter 11 filing allowed American Airlines to achieve rollbacks with the unions that many thought were impossible.

This is what is driving the proposed bailout today. The unions lose in bankruptcy court almost every time. And, they lose big. Do you think the newly elected Democratic Congress can permit their strongest allies to go down? No way! If the UAW and affiliated unions get beat down as a result of these proposed bankruptcies, the Democratic Congress will have failed their strongest power brokers. How could they ever get elected to anything if it is not for the unions? Obama, himself, would not have been elected if it were not for the UAW.

Under United States bankruptcy law, a judge in bankruptcy court has the power to void contracts, including union collective bargaining agreements. This leverage is very strong and forces the applicable union to back down in order to just maintain its representation of the employees. The theory behind this law is very simple, it gives management the power to bring the company back into profitability by whatever means necessary. It is not to destroy the unions, but to protect the company and its employees by allowing the company to become viable.

The Democratic Congress cannot allow the bankruptcy court to get control of this situation. They must do whatever is necessary to keep labor unions strong and supportive. The unions control them and most importantly, finance them. Evidence of this is very strong. All you have to do is look at the latest union generated campaign promise of the Democratic Party; that it support legislation to take away secret balloting for union membership. This simple fact will give the unions more power than they have ever had in America. How many Joe Plumbers that you know would have the guts not to sign a union card when a big bully is standing over him with pen in hand? Not many. Getting the 50% requirement for union organization would become a breeze and many free Americans will no longer be free. They will be under the control of their labor union which would therefore, control the Democratic Party even more.

So, what should the Congress do here? Do we bailout the Auto Industry. or do we let it go down. I say we do nothing. Let the free market control. If these companies cannot return to profitability on their own, then let them collapse. The only thing that will happen is they will be forced into Chapter 11. They may not emerge as big and as bloated as they are now, but they will emerge. None of them will be liquidated. What may happen is that their CEO’s will have to fly commercial when they beg other people for money unlike when they went to Congress this week in their private jets.

The auto industry must pay for its inability to make a vehicle that the American consumer wants to purchase. They must pay for their inability to make a gas efficient vehicle as good as the Toyota Prius. They must pay for their incompetent management. They must pay and if the unions must suffer so be it.

In the end Americans will continue to make vehicles and GM, Ford and Chrysler will exist, just maybe without their bloated union agreements and overhead. And, maybe there will be some mergers involved, but they will continue. Catastrophe will not ensue.

© 2008 Frank T. DeMartini – All rights reserved. Permission to be copied will be granted freely upon request