Out with the thirty years and out

Last week's WSJ story by Paul Ingrassia about cushy retirement options available to workers at U.S. automakers showed up at MSN Money this morning. That's a good thing, because otherwise it would have been missed.

GM's Plan: Subsidize Our 48-Year-Old Retirees
Lots of taxpayers would like to get the deal UAW workers still get

GM's new restructuring plan seeks another $16.6 billion in government aid -- for now. Chrysler wants an additional $5 billion. The $30 billion that GM has either received or requested since December doesn't count the $8 billion it wants to develop fuel-efficient cars, and another $6 billion it's soliciting from foreign governments.

For these taxpayer subsidies, the government could buy hundreds of thousands of GM cars a month and give them to deserving citizens. Make mine a Corvette, please.

In a brief digression from the point of this story, why is it that these zany proposals are sounding better and better these days?

Buy up millions of cars and give them away to people who could probably use a new set of wheels or pay off millions of mortgages to make the financial industry solvent?

These ideas increasingly appear to be a better alternative than pushing more and more government bailout/stimulus money toward what appears to be a black hole.

Back to the story...

Before deciding what to do with Detroit's demands, uh, requests, government officials first need to confront a fundamental question: How could so many smart people produce such a disastrous result? Make no mistake, there have been many bright minds in the American auto industry over the years -- at the auto makers, the United Auto Workers union, and the components companies. Most of them saw today's troubles coming for years, even decades.

"I frankly don't see how we're going to meet the foreign competition," said Henry Ford II, then chairman and CEO of Ford Motor Co., on May 13, 1971, right after the annual shareholders' meeting. "We've only seen the beginning," he predicted. Regarding American's increasing preference for small cars, Henry II declared: "Mini car, mini profits."

That was a couple years before Detroit agreed to let auto workers retire with full pension and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working. It wasn't long before even union officials realized they had created a monster.

In 1977, UAW Vice President Irving Bluestone said he was "flabbergasted" that so many workers were retiring at age 55 or younger. "We were aware that the trend to early retirement was escalating . . . but we were surprised at the escalation in 1976," Mr. Bluestone declared. "It is astounding."

None of this is ancient history. The 30-and-out retirement program persists -- a sacred part of the inflated cost structure that makes it unprofitable for Detroit to make small cars in America.

While there are no easy solutions, particularly for those who were made promises that should be kept, generous pensions are a growing "wedge" issue between workers in the public sector and workers in the large non-unionized portion of the private sector.

After hearing so many stories about public employees in California making huge salaries and then "double-dipping" in one way or another in their later years, this growing disparity in retirement benefits is likely to come to a head now that unemployment in the private sector is racing toward levels not seen in decades.

Back when private sector wages were soaring and stocks held in 401k plans were making big advances, income for public employees lagged and "traditional" pensions looked dated.

Then, you could make a case for a more generous retirement system for public workers which, truth be told, is still probably a better way to go through life for most people - get used to a more modest income while you work, then get a stress-free retirement income that was just a little below your last salary.

But now, after public sector incomes played catch-up for years with no big drop-off in retirement benefits, the gap between public and private workers is tilted decidedly toward the former, a development that more people in the private sector will surely protest given the abundance of free time that many of them now have.

This may not end well.