The US auto industry bailout, part 2

I posted previously about why I thought that the US big 3 bail out was a bad idea and I stand by that post.  I recently ran across another blog post that showed a compelling example of why the current US automakers have a flawed business model that needs radical fixing.  Note: the data in the blog post is a bit old and so the current numbers are likely different; however, I think that it is still fair to say that there still is a major difference between the cost structures of US and foreign automakers.  Just giving the big 3 billions of tax payer dollars is not going to solve the fundamental problem.  Their costs are simply too high.

The US auto manufacturing is living in the past.  They have bloated cost structures, too many factories, too many dealers and unrealistic union contracts.  Looking at the post, you see that US automakers pay their employees about 50% more then their foreign counterparts.  In my opinion, part of the problem is the strong union presence.

A union represent the workers and its goals is to get the most possible pay for their members.  This is a noble cause; however, it must go both ways.  That is, when times are good, the workers deserve more and when times are bad, the workers must expect cutbacks.  The problem is that the union will drive up wages when times are good and will not be nearly as cooperative with cutbacks in difficult times.  The end result is that wages will go up over time and rarely go down.  It is the inflexibility of wages that I think a bankruptcy filing would help address.

The US automakers are tied with these excessve wage burdens of which there appears to be almost no way out.  Just giving them more money is not going to help matters and more radical steps are required.  As mentioned previously, bankruptcy would be painful in the near term, but I believe that it would allow the companies to emerge stronger and leaner and more effectively positioned to battle the lower cost foreigners.

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