Just desserts

By Megan McArdle

I'm hearing the truly bizarre argument that the UAW didn't scuttle the negotiations; it was the Republicans unreasonable insistence that they cut their wages to levels comparable to that of their competition.  After all, the UAW was perfectly willing to negotiate their compensation package--in 2011, when their current contract expires.

And I think that's perfectly reasonable.  We'll just wait until 2011 to give them the money, then.

If you know why that's stupid, then you know why the other argument is stupid, too.  GM is losing money now.  It needs to cut its labor costs (and its other costs) now, not in 2011.

This seems so elementary to me that I cannot even believe we are arguing about it:  the reason Gettlefinger needs to take a haircut along with everyone else, is that if he doesn't take a haircut, GM will be back in 6 months asking for more money.  There is absolutely no way whatsoever that GM has any hope of profitably making a car with labor costs higher than their competitors.  Their labor costs should be lower than their competitors, because they have to sell their cars at a steep discount.  Even if we somehow magically revolutionize the management tomorrow and get them steep discounts on their debt, it is going to take them years to rebuild their brand to the point where they can charge comparable prices to Japanese cars.  GM cannot afford to pay its workers more than the competition in that situation.

This is not a question of what would be nice, or what would make the workers happy, or indeed what, in a platonically ideal universe the workers should be paid.  It is an empirical fact:  if GM does not get substantial labor concessions right now, then it will either come back for more money, or end up in bankruptcy anyway. 

In the second case, the $15 billion is a stupid temporary giveaway, substantially to his members, while producing cars less valuable than their component parts.  In the first case, the US is essentially offering an ongoing wage subsidy to the UAW, in which case, it's totally reasonable to cap that subsidy at a generous, but not lavish level.  I don't see why poorer workers, or for that matter even richer workers, should be taxed in order to ensure that Ron Gettlefinger's members get more than $40 an hour in total compensation.  That's a very solid living, particularly in the Rust Belt.

I don't think there's anything wrong with Ron Gettlefinger asking, but I'm pretty firmly opposed to acceding to this request.  And if Gettlefinger wants to hold out for more, I will feel little sympthy for him, or any members who supported him, when they face the bankruptcy judge and see what's left.

This article available online at:

http://www.theatlantic.com/business/archive/2008/12/just-desserts/4464/