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As both Mark Perry and the Wall Street Journal recently have noted, the problem with the Detroit auto industry is not going to be solved by lending them more money. GM's labor costs are so far above those of any foreign competitor (or any industry for that matter) that there is only one solution: bankruptcy.GM could declare bankruptcy today, Toyota could buy its assets, and plants could reopen on Monday, offering jobs to those laid off that would pay wages competitive with those paid by other auto companies. The reorganized assets of GM would become instantly competitive. The auto unions are like a parasite that is killing its host, and it looks like they will succeed. But that doesn't mean the end of the Detroit auto industry, it simply means that eventually Detroit autoworkers are going to have to accept lower wages if they want to keep their jobs.
The $25 billion bailout being discussed in Congress today won't do anything but postpone that day of reckoning. It does nothing to fix the fundamental problem, which is excessively high labor costs.
2 comments:
BAILOUTS ARE COMPLEX BEASTS
Here is a workable plan with common sense for the U.S. Auto Industry -
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
There is much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW.
Do not leave it to Paulson or Congress to come up with a creative plan or consider taxpayers' interests.
Bankruptcy is easier, simpler, and faster than this plan. Both attempt to achieve the same ends, which is to get rid of the unions.
If ever there were a textbook case about why unions are a bad thing, this is it.
Why is this so hard for the guys in Washington to see?
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