Big Three Bailout? Not So Fast

CBSNews.com ^ | Declan McCullagh

[Delacon]

One of the best reasons why Detroit automakers should not receive a bailout can be found in a General Motors "Jobs Bank" program that, bizarrely, pays employees not to work.

A beneficiary of that program was someone named Jerry Mellon, who worked for GM until his division merged with another in 2000 and he was no longer needed. Except for a brief period in 2001, Mellon received his full salary for not working, which reached $64,500 a year by 2006. Include benefits, and the annual cost to GM exceeds $100,000.

To earn his pay, Mellon was given the formidable task of showing up in a windowless shed, sitting at a table, and doing nothing for eight hours a day for six years, according to a profile in the Wall Street Journal. Jobs Bank employees have the option of attending classes teaching such important manufacturing skills as dealing blackjack and poker. Mellon spent part of his time reading Reader's Digest, learning how to play Trivial Pursuit, napping on a makeshift bed of chairs pushed together, or simply staring at the wall for hours at a time.

During those six years, Toyota surpassed GM as the world's largest car manufacturer, thanks to innovations like the fuel-sipping Prius. Nissan developed the GT-R, a technological marvel with a 0 to 60 time of 3.2 seconds and a lower sticker price than the Corvette ZR1. Honda kept its focus on smaller cars such as the Civic and Accord, and saw its sales continue to increase this summer while GM, Ford, and Chrysler have slid.

The United Auto Workers union and Detroit executives concocted the Jobs Bank idea in the early 1980s. Now these same economic whizzes are lobbying for handouts in the form of your tax dollars. UAW President Ron Gettelfinger said in a statement last week that the Feds must "provide liquidity to auto manufacturers so they can get through the difficulties caused by an across-the-board decline in auto sales."

Not quite. Detroit's problems aren't caused by a one-time slump. They can't be fixed by another infusion of cash. One cause is that union labor and legacy costs are too high and make the so-called Big Three companies uncompetitive. Another is that their profitability is tied to large, heavy trucks and SUVs that Americans no longer want to buy, at least in such large numbers.

That's just common sense. Unfortunately, such a virtue is in short supply in Washington, D.C., where politicians are scurrying to find excuses for a handout.

President Bush has made plenty of missteps, as I wrote about last week, but at least seems somewhat skeptical this time. Democrats, on the other hand, are eager to loot taxpayers -- and reward unions and domestic automakers which made choices that benefited them handsomely in the short term, at the expense of long term competitiveness.

President-elect Barack Obama apparently agrees, saying at his first news conference that he supports "additional policy options to help the auto industry adjust" and "weather the financial crisis."

Meanwhile, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are drafting legislation that would direct a $25 billion torrent of cash from the U.S. Treasury to bank accounts in Detroit; Pelosi said on Tuesday that a vote could happen in a lame-duck session next week. (See a related video from CBS News.)

The better solution is a simple one: Allow automakers to declare bankruptcy.

Contrary to popular belief, that will not mean the end of a company such as GM, which has indicated it may run out of cash by the end of this year. Under Chapter 11, a bankruptcy judge will weigh the different interests of GM's creditors, labor unions, shareholders, and so on, and the resulting company will emerge leaner and stronger. Many current customers of United Airlines, Texaco, Global Crossing, and Pacific Gas and Electric probably don't even know that those companies once filed for Chapter 11.

Chapter 11 also would let a judge alter gold-plated union contracts and benefits that have hamstrung the Big Three and crippled their ability to compete against Japanese and European car makers. Toyota, Honda, and other non-Big Three manufacturers that employ over 100,000 Americans, mostly in right-to-work states, have shown that they can make money building cars in the United States. The best way to keep U.S. auto workers employed in the future -- tens of thousands already have lost their jobs -- is to make it profitable to keep them on the payroll.

One explanation for Washington's haste is that while bankruptcy would alter union contracts, a bailout probably won't. The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it's payback time.

It's true, as bailout proponents argue, that GM employs about 263,000 people. But corporations including AT&T and IBM employ more, and by that line of argument, WalMart (2.1 million full-time employees) would always be far too big to fail. The Feds have already been profligate in doling out cash; a GM bailout would invite a long line of supplicants, with the most politically-connected companies muscling their way to the front of the queue.

If you don't like this use of your tax dollars, now's the time to phone your elected representatives. You can find contact information for your House of Representatives member on their Web site, and the Senate has a similar list. My e-mail address is below -- please let me know what you hear.

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Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com

[Delacon]

One explanation for Washington's haste is that while bankruptcy would alter union contracts, a bailout probably won't. The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it's payback time.

[FlingWingFlyer]

Except for a brief period in 2001, Mellon received his full salary for not working, which reached $64,500 a year by 2006.

Nice gig if you can get it!

[mewzilla]

You might find this of interest.

[CharlesWayneCT]

I bet most of us would turn down that kind of deal. We’d go crazy NOT DOING ANYTHING PRODUCTIVE.

It takes a “special” kind of person to be able to get paid for 6 years without doing anything. Most of us know that’s wrong, and it would go against our very nature.

But one thing is certain — people who CAN go for years being paid for doing nothing overwhelmingly vote Democrat.

[ScreamingFist]

Word is getting out......pay these UAW people exactly what the are worth....$7.50 an hour, and I’ll have pickles with that....

[FlingWingFlyer]

Yup!

[Delacon]

“people who CAN go for years being paid for doing nothing”

are called politicians

[Redbob]

"One explanation for Washington's haste is that while bankruptcy would alter union contracts, a bailout probably won't. The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it's payback time."

Not just "one explanation," but the only one that makes sense.

Or, to paraphrase my mentor, "follow the money."

[trumandogz]

With the Bush Bailout we became a full fledged Socialist State.

That being the case, we may as well bail out the Big 3 and all the other Corporate Welfare Queens with their hands out.

[joejm65]

This ‘getting paid to not work’ sounds eerily similar to how plants in East Germany operated. God help us if this is allowed to continue.

[DugwayDuke]

Now the reason the unions want ‘Card Check’ should be clear. If they can get rid of the secret ballot on whether to join a union, then all those car makers in the ‘Right to Work’ states will be unionized in a few years. That’s the only way the Big Three will survive.

[mrsmel]

We can all "get it" before long, when there aren't enough people producing enough to support all the parasites, and the standard of living has been "equalised" across the board (except for our ruling elites and favored victim groups) down to just above poverty level, if we're lucky. Then it won't be worthwhile for the few remaining producers to bother, and the state can find a way for everyone to equally share in the lowered standard of living. Welcome to The USSA and 5 Year Plans!

[mrsmel]

Will it be worth it when everything you produce beyond that which allows you to live at subsistence level, is confiscated and “redistributed” to the parasites?

[Focault's Pendulum]

I bet most of us would turn down that kind of deal. We’d go crazy NOT DOING ANYTHING PRODUCTIVE.

I retired three and a half years ago at the tender age of 50. I was a sales manager/professional sales trainer/company manager (without title). It wasn't unusual for me to put in a 70-80 hour work week.

Within six months I was bored out of my skull.

I took some of my money and opened up a part time retail business (3 days a week).

So now I'm putting in six days a week and working about 55-60 hours part time.

It's who I am, not what I am, that defines me.

I would venture to say that you are correct in reference to being productive.

There are many of us who shape this country by shaping their own destinies.

[madison10]

Word is getting out......pay these UAW people exactly what the are worth....$7.50 an hour, and I’ll have pickles with that....

How do you know that's what they're worth? Sure hope that's all you're getting paid.

[nufsed]

I was retaliated against by having my job duties slowly diminished until I had about 1 hour a day worth of work.

The people that did it knew it would get to me. Two months later, my blood pressure constantly read 110. When the nurses threatened to tell my boss, I went to the doctor and never returned to work.

[Fred]

UAW chief urges $25 bln in U.S. auto health care support (Union bailout-payback for $400,000,000) - http://www.freerepublic.com/focus/f-news/2127523/posts

Who's your DADDY Obama?? - - Youtube The One on Card Check

Why Doesn't Toyota USA Need A Bailout? - - http://www.freerepublic.com/focus/bloggers/2130909/posts

[KittenClaws]

With the Bush Bailout we became a full fledged Socialist State.

I loved the way our reps voted for the bailout, explaining later.."There are things we knew that you didn't" Really? What were those things?

The thing about elected officials is, they have forgotten that they SPEAK for us, they do not THINK for us.

[Normal4me]

Sell the big three to Toyota, Honda and Hundai for 50 Billion and get rid of the slackers. Better vehicles for a better price and less money going to politicians.

Obama has the healthcare covered now.....

[Tempest]

That’s why any bailout needs to require moving manufactuering jobs back to America. So our citizens can work again.