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Killing The Golden Goose

All the economic turmoil has brought to a head many business problems that have been simmering for a long time… some for years.  In our free enterprise system, perhaps this is a good thing… IF some of these businesses are allowed to fail.  The temptation for government to bail out businesses is very strong, however.  I hope legislators resist.  You cannot have a sound nor free economic system if there is a chance to succeed but no chance to fail:  that is an unrealistic model and will collapse.

One of the largest cases in the public eye right now is the U.S. auto industry.  For years… decades! … it has been operating in a way that almost guarantees eventual failure.   The blame can be squarely placed in the hands of management… for they agreed to UNION demands for wages and benefits that were both unrealistic and unsustainable.  By not being flexible enough to allow companies to adapt to a modern (and global) approach to producing automobile, unions have killed the golden goose.  Unionized production plants in the U.S. are saddled with “old school” rules that pay wages and benefits to workers that are far too high… and are responsible for the companies not being competitive in selling their products. The negotiated contracts also restrict companies from utilizing newer methods and technologies that would also enable them to lower costs.

For example, Ford has built one of the most modern facilities in the world… but it is located in Brazil.  It pays fair wages, has a happy and cooperative work force, and uses techniques that increase quality and reduce costs.  Take a look at this three minute video tour of that plant:

Ford Brazil Plant

Ford could not do the same thing in the U.S. due to their agreements with the unions.  What’s wrong with that picture?

While unions might have served a good purpose at one point in our history, they have come to represent the death of some VERY LARGE companies due to their inflexible and short-sighted perspective.  Union demands that constrain change… that eliminate viable options… that are rooted in the past and do not look to the future… are totally unrealistic.  Demanding wages beyond those the free labor market would supply simply set in place a house of cards guaranteed to eventually collapse.

And we are seeing this scenario play out right now.

Shame on the unions for being an adversary and not a partner… but most of the shame belongs to corporate management that went along with those demands.  I am certain they saw the inevitability but chose the easy way out.  By acquiescing, they allowed a cancer to creep into their business model and it is consuming those companies.  These companies can operate profitably in foreign production plants but they have an albatross around their necks in our own country… and it is difficult to survive with such a burden.  While they were able to pass along their higher costs to the consumer for some period of time, buyers eventually figured out… as they always will… that a better value could be found in other products.

Other businesses and industries should pay heed.  You can only make fundamental mistakes for a certain period of time before a price must be paid.

The auto companies have struggled for decades.  A government bailout would just postpone the only possible result… UNLESS a radical change is made to the relationship between those companies and the unions… but that seems doubtful.   It seems unions are willing to go down with the ship rather than pitch in and bail water to keep it afloat.

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