Why an auto bailout won’t work

The title is mine, not Dave Leonhardt’s, but this passage is his:

[H]ere’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits… the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour – the same as at Honda and Toyota. Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800…. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies….

Leonhardt points out that labor costs account for ten percent of the cost of producing an American car.  Felix Salmon, in a very good post, has a separate point:

Just for starters, think for a minute about the car czar’s responsibility for Opel, and the negotiations which are going to start up between the US and German governments over the European marque’s fate. On the one hand, Opels are clearly the kind of thing which Congress wants GM to make more of. But they want GM to make those cars in America, not in Europe. And GM has already asked the German government for money to keep Opel going.


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