Out of Control Policy Blog

Let the Big 3 go Chapter 11

Investor's Business Daily has an excellent editorial making the case for letting the Big 3 US automakers go into Chap 11 (reorganization) bankruptcy rather than bail them out. Their point? The problem with the Big 3, at root, is unrealistic and uncompetitive labor agreements that make it nearly impossible for them to be profitable in the US market. Foriegn automakers pay their workers, on average, $44 per hour compared to $73 per hour for the Big 3. Notes IBD:

A chart making the rounds on the Internet tells it all: Last year, Toyota made 9.37 million vehicles. GM, virtually the same number. Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the U.S.

GM, Ford, and Chrysler have profitable foreign operations. It's their domestic divisions that are the money losers. Their future will depend on renegotiating their current wage structure, pension obligations, and other legacy retirement benefits in a way that makes them viable in the future. That's something Chapter 11 bankrupcty can do, and a federal bail out can't (and won't).

Samuel Staley is Research Fellow

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