Cars and class warfare

There's been a lot of talk lately, both in Congress and in the media, about Chapter 11 bankruptcy reorganization as a strategy for General Motors. While this has worked well for airlines, I don't think it's an option for GM, for two reasons:

• Buying a car is a long-term relationship. When people buy an airline ticket, they only care if the airline is around long enough to make the trip. When they buy a car, though, they want some reassurance that the company will be around long enough to make good on the warranty. If people hear that GM has declared bankruptcy, they will flee dealerships in droves, robbing the company of the income it needs to rebuild itself.
• AIG issued credit default swaps on GM. A lot of credit default swaps, apparently; according to Forbes.com, estimates are that AIG's exposure is about 10 times the outstanding debt. If GM declares bankruptcy, AIG is on the hook for that money, and guess who currently owns AIG? That's right, the government. In a nutshell, if we let GM go bankrupt, we taxpayers are likely to end up paying out eight to ten times as much as if we bail them out.

While we're on the subject, I'm distressed at the level of classism that's hidden in this debate. One of the benefits being touted for bankruptcy is that it would allow GM to bust the United Auto Workers Union by eliminating its labor contracts. When insurer AIG was bailed out at a cost of more than twice what the auto industry is asking for, I don't recall anyone questioning what workers there earned; yet it's taken as given by everyone involved in this debate that auto factory workers are overpaid. We're apparently happy with white collar workers making whatever they can, but heaven forbid that a blue collar worker might make a middle class wage.

There's also a lot of deliberate misinformation going around about what auto industry workers are actually paid. For example, the $70/hour figure repeated by many conservative pundits is completely misleading. No factory worker makes that; in fact, UAW workers on average make about $28/hour, only slightly more than workers in Toyota plants, and wages and benefits for current workers are only 10% of GM's budget. The $70/hour figure includes money used to pay the pensions and health care benefits of retirees — effectively, deferred compensation for work done in the past, when GM had a much larger workforce. (This is a burden the UAW has agreed to take off GM's hands in 2010, in exchange for a lump-sum payment.) The much-maligned UAW "job banks" also make an easy target, but their cost to GM is minuscule — at present, only about 1,000 idle workers are drawing salaries this way, less than 0.3% of GM's total workforce. In any event, the job banks are likely to be one of the UAW's first concessions in any bailout plan.

The rhetoric we're seeing used against the middle and lower classes in this recession is really toxic. As Media Matters points out, the conservative media have blamed minorities and undocumented immigrants for the housing downturn, and union members for the auto industry's problems; groups that have little or no influence in the marketplace, and have benefited little and suffered greatly in the last eight years.