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On October 30, 2009, TheStreet.com published a story about how the UAW membership appeared to be voting against contract modifications with Ford Motor Company (NYSE:F) despite the recommendation of the UAW leadership. The contract modifications only sought to conform Ford's contract with the revised contract between the UAW and General Motors and Chrysler. At first blush, this seemed curious to me, as UAW workers at GM and Chrysler had already agreed to the same changes negotiated by UAW leadership earlier this year.

As I concluded the article, a "Eureka" moment occurred to me. The UAW workers were acting perfectly rationally in light of the bailout nation mentality that now inflicts us due to massive government intervention in the economy. Let's break it down.

Ford Motor avoiding TARP money and bankruptcy by astute management decisions. As a result, they were able to honor their continuing obligations to the UAW workers. So, when Ford came-a-calling requesting similar treatment to the other U.S. automakers, to remain competitive, no one should have been surprised. But the very fact that Ford successfully avoided the minefields plaguing GM and Chrysler is now the exact reason that the UAW workforce has become emboldened.

Because of government intervention in the automotive industry, not only the financial support directly given to GM and Chrysler but also "Cash for Clunkers", it is almost without question that the U.S. government is not going to allow Ford to fail. Or if it has to file bankruptcy in the future because of a higher, non-competitive cost structure in comparison to its competitors, the U.S. will be there to fund a Ford bankruptcy proceeding as it has done with the other automakers. As a result, it is perfectly rational that the UAW workers would not voluntarily agree to further contract concessions if (i) Ford can afford to pay the union obligations, albeit at a smaller profit to the company, and (ii) Ford is "too big to fail" as GM and Chrysler were deemed to be.

If GM or Chrysler had been allowed to fail or to fend for themselves in Chapter 11, is it highly doubtful that Ford workers would reject cost concessions if their livelihoods were truly at stake? But, they needn't worry about that now. Bailout Nation mentality has now permeated large segments of our economy. And one bailout begets another bailout of the perception of a further bailout if necessary.

Massive government intervention of the type we have witnessed (not including health care) does nothing to restore the discipline of the free market system where failure is a distinct possibility if undue risks are undertaken. Instead, intentionally or not, the government has turned the financial and automotive industries into welfare recipients who will not be held accountable for their bad decisions and outcomes.

Back to the case of Ford, the UAW workers have not figured out how to game Bailout Nation to their advantage. Squeeze Ford as hard as it can, regardless of the differential treatment among the automakers. Ford will either be able to pay the union costs or not. If it can, then the UAW workers will benefit at the expense of bondholders and shareholders since market forces will no longer have much to do with their actions.

On the other hand, if Ford begins to suffer competitive disadvantages and suffer losses because the UAW has decided not to yield ground, the worst that will happen is that the U.S. taxpayer will recapitalize Ford at the expense of the American taxpayers. And if the recent history with GM and Chrysler is a guide, the UAW will probably be the biggest beneficiary of a bankruptcy plan of reorganization. It will undoubtedly receive a disproportionate share of any newly issued stock in relation to the debts owed to it and it will receive a higher priority treatment than those creditors who negotiated higher priorities as a condition to extending credit to Ford.

Bailout Nation mentality has also leeched over to the American consumer via "Cash for Clunkers" and first-time homebuyer tax credits. But that is a topic I will address in a future article.

Disclosures: No position in GM (MTLQQ.PK) or F

Source: Bailout Nation Mentality: Ford Workers Reject Further Concessions