Business on a level playing field

Several years ago my wife worked for a telecom company, a big-name one here in the US. Later in that career she moved to a company spun off from the main one that dealt mostly in Europe. It was during this time frame that WorldCom was going through its financial woes. WorldCom, as you likely know, went through a bankruptcy proceeding, to say nothing of the accounting scandals that put their CEO behind bars. Along with Enron, it was a poster-child for corporate malfeasance and the huge losses it inflicted on retirees and investors. My wife’s company never got on the news radar because 1) they never declared bankruptcy and 2) their corporate practices were entirely legal and ethical.

Which is what caused her to remark to me the one day that WorldCom, in spite of the beating they took, was going to come out of bankruptcy having shed most of their debts by simply walking away from them. Her company, in contrast, was still going to be carrying the debt load they incurred. How, she asked, was that fair business practice? WorldCom was free to compete with them without the crushing debt their business model had saddled them with. Her company was going to be at a financial disadvantage for having done nothing wrong and having not welched on a single debt. Why should WorldCom get to compete in the business with such an advantage when it was their practices that got them into the mess to begin with?

It was good point, and one I didn’t have an answer for. I still don’t, these years later, as I look at Detroit’s Big 3 getting handed tons of taxpayer cash on a White House platter. Unlike the financial industry situation, no one passed a law in Congress directing the car makers in Michigan to make this or that kind of vehicle. No one forced them to design particular cars and trucks. And no one forced the Unions who have made it their business to get companies to cough up unending payroll to people who aren’t working to put that set of shackles on those car companies, either. Everything that’s wrong with the Big 3 has been a combination of poor management by the companies and an attitude of entitlement by the employees and Unions.

How, exactly, does handing over billions of tax dollars fix any of that?

More to the point of my post, however, is why should Toyota, Mercedes, and Honda be required to accept the competition from companies now backed by the US Treasury? Those companies paid the money for the designers who made cars they knew Americans wanted to buy. They put together a workplace where employees feel perfectly empowered and valued without having to pay Union dues or produce 5000-page work rule documents. They formed a partnership with their employee base, not a battlefield mindset where both sides think the other is just doing whatever they can to screw them out of something. And the success of their model versus the model followed by Detroit is staggeringly obvious. Toyota turned a profit this past year. When’s the last time you heard GM, Ford, or Chrysler doing that? If Detroit and the Unions made decisions that have put them in a position where they are unable to compete, either in terms of design or in terms of production efficiency, why should the companies who made the right calls on those topics now be required to basically cede their advantages? As noted on Instapundit this week there’s a chance that Toyota might actually sue over this. Personally, I think they have a just cause.

The story talks about how there are conditions with the money. According to the story, however, the conditions amount to caps on executive pay, warrants for non-voting stock (to whom is left to your imagination) and elimination of private jet perks. These things weren’t the problems that got these car companies into the holes they’ve dug for themselves. “Fixing” them won’t get them out of those holes. Until I see some acknowledgment from both the companies and the Unions that their overall operating mode has to change – that they need to be not only designing better but producing competitively – then I think any bailout is a bad idea. We have bankruptcy procedures in place for situations where companies fail. That’s where these Big 3 should go.