By Grover G. Norquist
President, Americans for Tax Reform
It’s clear that Democratic leaders in Congress and President-elect Obama have determined that the unionized “Big Three” auto companies are “too big to fail.” This is not surprising. The United Auto Workers (UAW) has spent decades planting ticking time bombs in every collective bargaining agreement with General Motors, Ford, and Chrysler. From legacy pension costs, to health care benefits pricier than the steel in the cars they manufacture, to a glorified welfare system for laid-off employees, this time of reckoning is long overdue.
Put simply, the UAW would like the federal government to fleece taxpayers in order to socialize the Big Three automakers and give the UAW effective control.
In a rational market, competitors and shareholders would punish the Big Three’s management for never biting the bullet and fixing these endemic problems. In negotiation after negotiation, the CEOs chose an early round of golf over a hard-nosed position in the best interests of the company.
This logical process of host-parasite-death presents a problem for the parasite—the UAW. At 465,000 members in their latest Labor Department disclosure report (and millions more family members and retirees), the UAW was in a position to contribute 99% of its $1.9 million in political giving to Democrats, according to OpenSecrets.org. Their top recipients included President-elect Barack Obama ($21,390) and House Education and Labor Committee Chairman George Miller ($11,000). And who knows how much they funneled through the AFL-CIO and various 527 groups like MoveOn.org.
Now, it’s payback time.
Put simply, the UAW would like the federal government to fleece taxpayers in order to socialize the Big Three automakers and give the UAW effective control.
For now, they’re willing to settle for a mere $14 billion (with the help of a now feckless and weak Bush White House). After Barack Obama has been sworn in as President, there will no doubt be a follow-up effort for billions more.
In exchange for loans and other guarantees, the federal government will demand “warrants” (a type of option) to purchase stock in these companies at a discount. How much of GM, Ford, and Chrysler will ultimately be owned by the government is not clear. What is perfectly clear is that rather than allowing companies who so richly deserve to fail, taxpayers are being dragged against their will into 1930s-era industrial planning at the behest of Big Labor.
The Detroit car companies will become a public utility—a utility which, moreover, is in direct competition with other, solvent, non-unionized companies.
How much can the government buy if they wanted to? According to Yahoo! Finance, Ford and GM are trading at a combined value of $10.5 billion (Chrysler is majority-owned by the private equity firm Cerebus, so it’s less clear what the market values it at). It would not be terribly-difficult for the federal government to purchase most or all of these companies. A complete federal takeover is not out of the question. Just ask AIG, which was taken over for $85 billion (significantly more than it would take to socialize the unionized car companies) earlier this fall.
Whether the companies are actually bought whole-hog by the federal government or simply leveraged by it, the level of bureaucratic control is certain to expand. In the Democrat draft of the bailout bill, there’s a section beefing up CAFÉ standards, which require cars to be more expensive by becoming more fuel-efficient. Self-styled reformers at President Obama’s EPA will surely push for more electric-fuel cars, hybrids, and whatever the latest green craze is. The Detroit car companies will become a public utility—a utility which, moreover, is in direct competition with other, solvent, non-unionized companies.
It’s often forgotten that the U.S. auto industry includes foreign subsidiaries such as Toyota (market cap of $93 billion) and Honda ($73 billion). Put together, these two companies are sixteen times as big as General Motors and Ford. Toyota and Honda tend to locate plants in right to work states (where workers don’t have to join a union as a condition of employment). They have successfully fought off unionization attempts by the UAW. As a result, they don’t have the crippling legacy pension costs and bizarre health care slush funds that the UAW has persuaded GM and Ford to adopt. And they’re eating the Big Three’s lunch. For the latest reporting period, Toyota and Honda had a combined net income of $18.5 billion. GM and Ford? They lost over $34 billion.
After the actual or de facto socialization of the Big Three Three, Toyota and Honda will still do their best to avoid the marauding horde that is the UAW. They will still dutifully pay their U.S. corporate income taxes (a country which has the second-highest rate in the world, incidentally, besides, of all places, Japan). They will also continue to dominate the auto industry—indeed, they will be the auto industry. GM-Ford will pretend to be car manufacturers, but it will be a sad farce. If not allowed to die, GM and Ford will simply be nationalized, and become zombies propped up by the unwilling grace of taxpayers.
