Definition of Insanity – Repeating the same behavior and expecting different results.
That is now the definition of the American auto makers.
Having faced (and received) government bailouts in the 1970’s, one would think that they would have taken all steps necessary to prevent that catastrophe from occurring again.
But complacency, arrogance and greed are deadly sins that corporations cannot afford.
Management refused to plow back profits into the company to make their products more efficient and cost effective, and their plants more flexible to react to change. Labor maintained a high level of pay which then required that Chrysler products must be sold at minimum prices. After building vehicles that were not what people wanted, that evidenced lower quality then competitors in an effort to boost profits, and refusing to make affordable vehicles, companies like Chrysler found themselves staring at bankruptcy, shutting down plants and laying off workers. Hat in hand, they went to the Federal Government and the state of Michigan.
After weeks of rising pressure for a federal fix for the multiplying problems of Chrysler Corp., Treasury Secretary G. William Miller produced—and Jimmy Carter approved —a Government bailout. It was designed to prevent the nation’s No. 3 automaker (1978 sales: $13.6 billion) from sliding into a bankruptcy that could have put many thousands out of work and sent a shudder through U.S.
Under Jimmy Carter, the federal government and Michigan approved the bailout, in the form of loan guarantees. However, the loans required concessions from the Chrysler workforce, in the amount of more than $400 million. Under the slogans, “We are all in this together to save our country,” and “Buy American,” the UAW leadership approved the concessions.
Days later, the state of Michigan cut welfare grants, insisting that the state budget was hit by the Chrysler bailout. The following year, Chrysler closed more than 30 plants in the US, laid off about 45% of both its blue collar and white collar workforce, or about 65,000 people. What happened to the brilliant plan to bail out Chrysler? It cost those same workers their jobs anyway, lined the pockets of top management and top union officials with large profits, and actually cost low-income persons not involved in the automotive industry their welfare subsidies.
The Chrysler subsidy violates two political principles that have been highly important in this country: the principle that individuals are responsible for themselves and the principle that the government should treat people equally. It violates individual responsibility by making Chrysler stockholders and employees into wards of the state and taxpayers into servants of the state. It violates equal treatment by bailing out a particular firm.
Here’s a thought: Repeal the laws that force employees to join unions. Individual employees might be willing to work for less than they are now being paid in order to keep their jobs, but they are not allowed to make that kind of bargain because the United Auto Workers (UAW) union has a monopoly on bargaining for most Chrysler employees. It is illegal for any worker to work for less than the wage the UAW has bargained for. If compulsory unionism were repealed, Chrysler would not be in as serious shape as it is in once again.
Should the government force taxpayers to subsidize a company whose products do not meet the market test? The answer becomes clear: No. Why should taxpayers have to pay to keep a firm in business? As consumers and producers, they have shown that they do not want to keep it going. Consumers are not willing to pay enough for Chrysler’s products to cover the company’s costs; producers–including suppliers to Chrysler and Chrysler employees–are not willing to sell their goods and services at a cost below Chrysler’s projected revenues. Consumers and producers have spoken, and that should be the end of it.
Tell your government representative that those who do not learn from history are destined to repeat it. And we cannot afford to do so this time around.
Much of the history of the original bailout can be found at the Cato Institute.
