Mike Payne

August 23, 2009

Just when you thought you couldn?t think less of Detroit and the UAW, think again. Roger Lowenstein?s excellent book While America Aged chronicles, among other things, Detroit?s repeated acts of hara-kiri in the face of pressure from the unions.

In the late ‘80s, then Fiat Chairman Gianni Agnelli abandoned a potential merger with Chrysler, noting his concern with the ?social liability? posed by the company?s UAW obligations. It is noteworthy that the head of an Italian company was spooked by the creaking socialist structure of what had previously been one of America?s premier corporations. 

By the time the ?decade of greed? arrived, American car companies were already sagging from years of unsustainable labor deals. How did this happen? Here are some snapshots from the book?s account of how this industry sank like a rock:

In 1955, GM took an ominous step down the plank with their arrangement for furloughed workers. Lowenstein writes: ?After three subsequent contract rounds, laid-off workers would be guaranteed an astonishing 95 percent of regular pay for at least six months while they were on furlough.? 

In 1961, GM pensions rose by a dicey 12% (they had soared 50% in ?55). Simultaneously, retirees secured 50% coverage of their health care costs. They probably felt slighted; current workers were granted full health insurance coverage. But all?s well that ends well; 3 years later retirees joined the 100% club.

In ?66, with profits on the wane, GM felt compelled to chop its dividend. No matter. That was for those pesky shareholders to fret about. The very next year, the autoworker pension climbed some 24%. Hopefully, the health plan for GM executives covered Battered Negotiator?s Syndrome.

1973 brought full pension for early retirees. For those with thirty years on the job, this meant they could retire long before they were old enough for Social Security. In a perfect world, Social Security payments would have coincided with retirement regardless of age, but hey, at least these folks were retiring early, right? Well apparently GM did favor a perfect world, since they inexplicably agreed to pay early retirees an additional pension supplement, one to compensate retirees as if Social Security had already kicked in while they waited for actual Social Security to kick in. I?m shocked the UAW didn?t demand a life insurance policy that paid off 40 years before a worker?s death.

Would you be surprised if Lowenstein reported that by 1990, GM?s pension had increased 15 times since 1950, while the price of a new Chevy had steepened merely 8 times?  Or that from 1991-2006, GM only found 13 billion for dividends while shoveling some 55 billion into its pension morass?

So while it may feel good to finger gas guzzlers as the cause of Detroit?s downfall?gas guzzler being a gateway term for other empty phrases like ?energy independence??the big lesson is that for far too long, GM was run more like a socialist government than a private, shareholder focused company. This doomed them to failure and precipitated the government?s recent takeover. So how does becoming a literal government enterprise save a company that failed by behaving like a pseudo-government enterprise? You got me.

Related proposals to alter America?s means of travel, like public high speed rail, in addition to being horribly run will of course operate with a similarly burdensome (public) pension overhang. So for those eager to see the U.S. become a more walkable nation, don?t worry?you?ll soon have your chance.