World Markets Plunge as Auto Bailout Collapses

The global reach of the current U.S. recession and its prospects for being longer and deeper than many anticipated were driven home once again as markets around the world reacted to the latest bad economic news. Republican leaders in the U.S. Senate have rejected the $14 Billion automotive bailout package that passed through the U.S. House of Representatives. GOP Senators defied the Bush administration in an attempt to infuse some shared responsibility into the automotive bailout plan. The senators were demanding wage concessions from the United Auto Workers union, which controls most of the labor for the U.S. automotive industry.

It should be noted that the request from the Senate was not going to push auto workers into a sub-living wage situation. Rather, the request was designed simply to bring UAW wages in line with U.S. workers working in Japanese automaker plants located in the U.S. The average hourly wage of non-UAW workers in Japanese plants in the U.S. is currently over $40 per hour, while UAW workers enjoy average wages over $50 per hour.

It's easy to see that there is some level of disconnect between the pay scale of auto workers and the ability of auto makers to pay them. In the current financial crisis and overall recession, people are not absorbing the debt necessary to purchase new vehicles. And even if they are willing to take on the new debt, banks are unwilling to extend credit to new car buyers. This circle of futility for automakers is now set to continue at least through the end of the year, unless President Bush steps in and allows the automakers access to some of the $700 Billion bailout already approved for the financial industry. Bush has already stated that he opposes this move, but the Senate and the UAW may be forcing his hand.