Grab a Bucket for Detroit – Part II

Bailout Reason One. Companies Should Not Be Discriminated Against On The Basis Of Age.
Our domestic airline industry provides a great example of the dynamic at work here.  The large, established carriers find themselves very limited in their ability to compete on price because they have been in business a long time, many people have retired from these companies, and the cost of the commitments made to these retirees are enormous.  Southwest has been managed brilliantly, to be sure.  But in their pocket all these years, along with a stellar leadership team, has been the youth of the company.  It is not old enough to have many retirees.  Even though its labor contracts are not so different from the older airlines, it’s cost structure is wildly different because it just hasn’t grown into these costs yet.

We have to come to some kind of decision about how we want to deal with this going forward.  What has been happening so far is that upstart companies without legacy costs compete against established companies with legacy costs, force them into bankruptcy which as often as not allows the companies to renig on the commitments they made to honest people who worked honestly for them for decades and puts astounding costs of partially re-capitalizing plundered pension plans onto taxpayers.

In the case of foreign competition, there is an element of this too.  Toyota, Honda, and many of the European automakers that have set up shop in the US, like SouthWest, even if they have the same exact labor agreements as Detroit has, simply doesn’t have the same level of retirement costs because they don’t have the same number of retirees… yet.

If we want to look at this as a legitimate competitive advantage, and we fully expect that by the time Toyota and Honda have significant retirement costs we’ll just switch to new companies run out of Brazil, South Africa, or Iran and have the Japanese auto makers screw their retirees and our taxpayers the way we’re forcing Detroit to do… then we need to make retirement benefits such as pensions, 401K matching, retiree health benefits, etc. illegal.  If the goal is kill off any company that tries to stand behind them, we at least need to allow people to plan accordingly.

If we don’t want to outlaw retirement benefits, then we need to find a way of leveling the playing field.  One step in this direction would be to force all companies to fully fund their retirement programs instead of assuming that funds will magically appear one day.  But that probably isn’t enough.  We probably need to do more, or stop the practice altogether and put the money that would otherwise go into future retirement benefits into current paychecks so that people can make their own savings decisions.

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