When your company is on the brink of bankruptcy, do you give your workers a one-third wage increase over three years? You do if you're the Chrysler Corp. and your workers belong to the United Auto workers.
Scarcely before it has begun, Chrysler's quest for federal financial assistance has became theater of the absurd. What Congress is being asked to approve is a program that raises car prices, perpetuates inflation and makes it more expensive for American to buy fuel-efficient cars.
No one really disagrees that a Chrysler bankruptcy would be a social and economic calamity. Somewhere between 150,000 and 500,000 workers would probably lose their jobs immediately, and only the most reckless forecaster can say how easily they could be re-employed. Nor does anyone really disagree that a federal bailout of Chrysler would constitute a bad precedent, encouraging all sorts of other industries -- each in its own way -- to seek government relief.
But the Carter Administration, by evading the basic issues raised by Chrysler's request, has not forced the company and its union to do all in their power to minimize the need for federal assistance. At the same time, this ineptness or cowardice has made it more likely that any Chrysler package will be excessively costly and face uncertain prospects of success.
The basic issues are plain enough. To preserve mobility and limit our dependence on foreign oil, we clearly need to convert our 117-million-auto fleet to more-fuel-efficient vehicles. In the fall of 1980, Chrysler plans to introduce a new line of compact cars with significant mileage gains (seven miles per gallon) over current models. Chrysler could them produce about 800,000 cars annually with 4-cylinder engines. We need those cars; a bankruptcy would jeopardize their production.
A second basis issue involves the relationship among wages jobs and inflation. The reason why recessions no longer reduce inflation much is that they didn't reduce wage pressures much. People expect the slowdown to be short-lived. Even if the permanent level of unemployment rises slightly, most workers aren't affected. We need to re-establish the connection in people's minds between wages demands and jobs.
Chrysler joins the two issues. The severity of its cash squeeze partially reflects the slump in car sales, but if Chrysler needs to sell more cars. America needs to buy them. Even today's models almost invariably get significantly better fuel mileage than the vehicles they replace, and replacement represents two-thirds or more of car demand.
But you do not sell cars by raising their prices, which is precisely what Chrysler, Ford and General Motors are doing. Nor can you keep prices down by increasing labor costs 10 percent or more annually.
Chrysler is simple the prototype of a more general problem for the automobile industry. As the companies attempt to recoup massive retooling investments needed for fuel-efficient cars, their prices threaten to rise even further. At the same time, the conditions underlying the 1976-78 car-buying boom probably won't recur: easy credit (automakers liberalized their credit terms after the 1974-75 recession) and sharply rising "real" personal income.
Together, these factors impel people to hold on to their cars. Stagement sales then inhibit the companies from generating more investment funds for further retooling. Small wonder that General Motors Chairman Thomas A. Murphy or that Ford is making noises about quotas against Japanese imports. Both want more market share to neutralize these pressures.
Holding down labor expenses (about one-third of total production costs) is the only way to slow this vicious circle. In Chrysler's case, Someone -- either the president or the secretary of the Treasury, because we pay them to say the unplesant things that need to be said -- had to state: no wage restraint no federal help. In clear, loud language. They didn't. With President Carter desperate to keep union support, does anyone wonder why?
When Douglas A. Fraser, president of the UAW, tells congress that his union has made "significant concessions" to help Chrysler, he is talking in absurdities, GM Chairman Murphy utters similar absurdities when he insts -- as he recently did on "Meet the Press" -- that the recent labor settlement isn't inflationary.
At the end of the last contract, the average auto worker earned about $9 an hour, or about $18,700 annually for a 40-hour week (no overtime). Under the new contract -- assuming an average 8 percent inflation rate needed to calculate the cost-of-living adjustments -- the wage rate will climb to $11.81 in 1982, or $24,000 annually. Non-taxable fringe benefits will also rise by about one-third, and so total labor costs per worker could rise from about $30,000 to $40,000.
The UAW's "significant concessions" to Chrysler are mostly trivial. At the end of the third year, Chrysler's labor costs will not differ from those of Ford or General Motors. Cost-of-living adjustments will be paid right on schedule; the additional annual 3 percent wage increases will be paid somewhat later than at the other forms, but the lag is no more than a half year.
It is not clear that Chrysler needs federal help or, if so, how much. Even the UAW's slight concessions, according to the union and company, will save Chrysler about $200 million over three years. A contract, more befitting a firm teetering on bankruptcy -- say, a wage freeze -- probably would have saved $750 million to $1 billion. But the higher wage bill also means that Chrysler must borrow more (paying more interest) and charge higher prices (selling fewer cars), which further compound the cash squeeze.
None of this should be anyone's idea of an economically efficient or socially just policy. Even if Congress rescues Chrysler, it may do so under conditions that keep automobile sales listless, and that listlessness will spread to related industries, such as steel. The UAW may have bought some of its members wage increases, but it will have bought a lot of other workers unemployment.
Helping Chrysler and its union ought to be justified by broader public purposes than simply rescuing the big and powerful. And assistance ought to be extended on terms sufficiently harsh that others will not be tempted to seek similar relief. That does not seem to be in prospect. This is an episode of any small-minded men -- union officials, corporate executives, the president and his Treasury secretary -- each trying to protect himself. Who can cover himself with the most mediocrity? So far, it's a close race.