Dan

Calabrese

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November 19, 2008

While the Big Three Beg, Michigan’s Power Structure Wallows in Denial

Conservative hero Congressman Thaddeus McCotter won raves on right-wing blogs and forums for his invocation of free-market principles in opposing the financial-sector bailout. The Detroit News editorial page has historically been such a bastion of limited government, it makes its counterparts at the Wall Street Journal appear almost left-wing by comparison.

So surely these two flag-bearers for the free market don’t support the government bailout of relic automotive manufacturers – not after said automakers let their operating costs get out of control by giving in for years to the demands of labor unions.

Ha. Joke’s on you. They’re from Michigan. Here, you come to grips with reality at your own peril. McCotter has signed a letter urging the bailout to proceed. The News editorialized on Nov. 18 that the Big Three’s critics just don’t have their facts right about how the companies operate.

The Michigan congressional delegation, business community and media have unanimously signed on to a strategy that blames the near-fatal problems of General Motors, Ford and Chrysler on the economy and the credit crunch.

The companies are making all the right moves, they insist. The United Auto Workers just gives and gives and gives. The cars are really good. The productivity is excellent. All that’s needed, so goes the argument, is a “bridge loan” to get the industry through until . . . well, until . . .

Until, presumably, all these alleged improvements finally allow them to start turning a profit. And when will that be? Uh, well, that’s not part of the argument. That’s probably because we’ve heard all this before. National Review’s Jim Manzi did an exceptional job yesterday of chronicling the many times over the past generation we have been assured the Big Three had changed. The News trotted out these arguments again yesterday: The industry has changed management teams, it tells us, produced more fuel-efficient cars, negotiated a new labor contract that will offload health care burdens to the UAW and reduce the pay of starting workers (but not until 2010), so all it needs is a “bridge loan” to get it through until these moves start to make things better.

The News editorial board, of all people, should know better than to put forward the argument it’s making. But they’re from Michigan too. They can’t acknowledge reality when it comes to the Big Three.

Let’s assume for the sake of discussion that all these improvements are for real, and they will result in long-term profitability. If that were the case, investors would be coming forward with cash, and banks would be glad to loan the Big Three money. Both would be confident of a healthy return.

But neither is happening. GM’s stock is worth less than in the 1940s. One investment house has it rated as completely worthless. Its credit rating is junk. The private financial sector will not lend it money. It has no expectation that such loans would ever be repaid.

This is why the CEOs of the Big Three, along with UAW president Ron Gettelfinger, have gone before Congress begging for this “bridge loan.” The private financial sector is not buying the Big Three’s story. They’ve heard it all before, and they recognize the Big Three for what they are – a relic of a bygone era that refuses to acknowledge reality.

Gettelfinger declared this past weekend that the UAW will make no further concessions on labor contracts. So wage/benefit costs in excess of $80 an hour (compared to Toyota’s $35) will not be significantly reduced any time soon. Sen. Carl Levin (D-UAW) likewise joined the chorus insisting that neither the automakers nor the UAW are at fault here. It’s all the economy. Never mind that in 2007, when the economy grew steadily throughout the year, GM lost $38.7 billion.

The state’s entire power structure is in denial because it is scared out of its wits. It has never known anything other than life with the Big Three as benevolent sugar daddy. The prospect that some or all of these companies might fail is akin to a five-year-old suddenly losing both parents and all four grandparents. It doesn’t matter who you are or what your political philosophy is. In Michigan, you cling like grim death to the Big Three. It’s just what we do here, which is why supposed free-market denizens like McCotter and the News are on board with the Begging Brigade.

As Michael Levine persuasively argued in Monday’s Wall Street Journal (where free-market thinking operates without corruption from Michigan/Big Three blinders), bankruptcy is a far better option for the Big Three because it would force a real restructuring. Truth be told, that’s what Michigan fears the most. The golden calf simply can’t keep giving as it has for generations, and whether Michigan wants to face it or not, it will have to come up with a new plan for how to realize its economic well-being.

No one in Michigan’s leadership structure is ready to face this. The question is whether the rest of the country is prepared to stage the harsh intervention that might finally pull us out of our self-destructive haze of denial.

© 2008 North Star Writers Group. May not be republished without permission.

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