Detroit Big Three and UAW come together!

Karl Marx will be turning in his grave if he were witnessing the drama surrounding the crisis that has engulfed the Big Three Detroit automaker - GM, Ford, and Chrysler. The exploiters and exploited, owners of capital and the labor have joined hands in an effort to save themselves. Faced with a battle for their very survival, United Auto Workers (UAW), the premier automobile workers union in the US, and the managements of the three firms are unitedly lobbying the Federal Government against any Chapter 11 bankruptcy and in favor of an additional $25 bn federal loan bailout of the auto industry.

A Chapter 11 bankruptcy will lead to removal of the existing management, cut executive payouts and dividends, abrogate workers’ contracts, and probably lead to sharply reduced wages and benefits for any jobs that remain. Saddled with high wage costs ($27 per hour) and burdensome health care benefits and pension liabilities, the Detroit automakers have been ceding ground to the Japanese automakers in recent years. If they obtained bankruptcy financing, the companies could then continue operating and slim down to a more manageable size, with cuts occurring over a period of months or years. But some of their operations could be taken over by other automakers or they could even be forced to liquidate.

The big Three companies employ about 240,000 workers, and their suppliers an additional 2.3 million, amounting to nearly 2% of the nation’s work force. Even in this year of plunging car sales (it fell 14.6% from 2007), the three automakers and their vast supplier network still accounted for 2.3% of the nation’s economic output, down from 3.1% in 2006 and as much as 5% in the 1990s.

The final decision on the fate of the automakers will be a test case of the American government's resolve to play by the game of free trade it regularly preaches to others. This assumes importance since many industry experts say the big foreign auto makers are established enough to take control of the industry and its vast supplier network more quickly than is widely understood, thereby minimizing the disruptions that are likely to be created if the Detroit Three go under. Like the Big Three, these foreign firms would together dominate manufacturing in the United States, becoming big customers for steel, aluminum, plastics, glass, machine tools, computer chips and rubber.

Update 1
David Leonhardt examines the wage costs of the Big Three.