Chrysler: Who's Going to Own It?

Obama, akin to typical liberal positions, blamed speculators for the failure of the auto maker giant, Chrysler; not the unappealing passenger cars, dismal quality, little technology, minimal international operations. The Financial Times this morning said that "Obama laid blame for the bankruptcy filing at 'a small group of speculators.'" This small group of speculators, hedge fund managers, blocked an out of court negotiation to trade almost 7 billion of debt for 2 billion in cash. That sounds like a no-brainer to me. It's like saying "oh, you got a check from your parents for a thousand dollars, great, I'll give you $286 in cash for it." I think the problem with situations like this is the numbers are so inconceivable to the average person, we lose the reality of the numbers' significance.

So what is the significance of these bad speculators who refused to accept a third of their due money? Chrysler files for chapter 11. Now this does not equate a "Going out of Business Sale" or a "We're Closing for Good; Up to 90% Off." What it actually means is that Chrysler will have to restructure and make some changes. (see specifics here.) One of the significances however of this chapter 11 filing, is that finally the Unions will have to understand the economics of their organizations.

Unions were established with a worthy mission: to protect workers from harsh and unfair practices of employers. In the beginning of industrialization these institutions were needed. Employers followed horrible ethical standards, thereby necessitating worker organization for individual rights and freedoms. Now, however, lawmakers have passed enough legislation protecting individuals for abusive treatment, the only function Unions serve is contract negotiation. And given the basics, such as leave, breaks, maximum number of hours etc., is negotiated in Congress, really all these Unions negotiate is the pay scale and frequency at which increases are given.

It behooves the Union representatives to negotiate the best wages for their constituents, given they are paid via a percentage of the employees wage. For example, let's say I am a Union representative and I am responsible for negotiating my local chapters' upcoming contract renewal. Let's assume the average employee is making $30.00/hour and I'm making 4% of that through dues and fees, if I negotiate a 7% increase, by threatening strikes or performance slowdowns if I don't receive it, by default my earnings rise 7%. This leaves the Union contract negotiators subject to similar ethics standards once abused by employers. If, still being that union contract negotiator, I need to put an addition onto my house to accommodate my needed bar, I fight to the death for that 7%. Maybe I get 7, maybe I get 5, but if they refuse all of it, my greed puts the company at a halt until, "We, the disenchanted employees, receive our fair share from the Big Bad Employer/Corporation."

Aside from the potential greed and ethics violations by the Unions they also boast their ability to command a significantly greater wage for their "protected" workers. The graph to the right illustrates the Unions boasting and the UAW's website proclaims the ability to command, on average, $11.03 per hour more that can the non unionized auto worker companies. According to the UAW website: "Union workers earn more. Wages and benefits for the average union worker in the private sector totaled $36.65 per hour in September 2008, compared to $25.92 an hour for the typical non-union worker." This may all seem pretty good; but really, is it?

Again according to the UAW website, I found that they have "approximately 710,000 active members and over 500,000 retired members in the United States, Canada and Puerto Rico." These million plus employees from UAW "represent skilled trades and production workers at General Motors, Ford and DaimlerChrysler. In addition, the UAW represents several thousand salaried employees — including engineers, designers and draftsmen — at DaimlerChrysler, Ford and General Motors." That said, we have to wonder what is really going on. The UAW has some of the highest paid employees in the industry; they have more than a million people represented; and they have contract negotiators upping the price of wages, what does this all equate, artificially inflated wages and drainage on corporate P&E.

The London School of Economics, one of the leading institutions for producing economists, reports that labour unions: "raise wages; reduce employment; reduce profits; and where capital they would also reduce investment." What this is essentially saying, if you believe the economists at the 66th highest ranked school of economics in the world, is that Unions are a cause of great disaster in businesses and the workforce. One of the greatest thinkers of economics came from this school, Friedrich Hayek, nobel prize winner and inspiration to Reagan and Thatcher; there is little proof that Lady Thatcher's union busting days and Reagan's economic plans didn't provide great prosperity. So if great schools are producing information like this against unions, how does that relate to what Obama said regarding Chrysler?

I'm arguing that it isn't "a small group of speculators" that caused their bankruptcy, it was Union greed and less than desirable products that have brought this 84-year-old company to its knees. The irony that some may fail to see; I did, my coworker pointed it out, is now the UAW, those promoters of institution crippling policies, by artificially increasing wages, own 55% of the company.

I feel for all the workers who suffer at the expense of this once useful, now failed institution we call labor unions. I can't help but chuckle, however, at the paradox. UAW will have to figure out how to earn a profit by cutting costs, and simultaneously maintaining their proud, puffed chest and saying that they employ roughly a million people who make more than market priced earnings.

Wages are paid by the consumer. That's what Ludwig von Mises, an Austrian School economist argued in his book, Planning for Freedom. (You can read the excerpt here.) Doesn't it then sound redundant for UAW teamsters to negotiate wage increases when the organizations are going to turn the cost back to the consumer?