Stocks rallied today, partly on news that the UAW is willing to negotiate its 2007 contract with the major car companies to help them reduce costs. This made many believe that the auto companies now have a greater chance of getting the bailout from Congress since a renegotiated deal means the auto companies may be able to reduce costs to the point of being able to turn a profit eventually (which means the government may actually get paid back on the loan).

Whether or not the auto makers get bailed out in time, I believe this crisis highlights the beginning of the end of the UAW and Big Labor in general. Anyone with half a brain who looks at the situation knows the major reason the auto makers are on the brink of failure are high labor costs, largely the legacy costs associated with past contracts with the UAW. It is estimated that for every car GM makes, consumers pay an extra $2,000 because of retiree health care costs that GM pays for its former employees, a sort of benefit unheard of for employees of foreign carmakers and manufacturing companies in general.

The UAW negotiated sweet deals for themselves in the past. To quell potential strikers, management of the auto companies gave into union demands, especially ones that would push costs off into the future (such as guaranteeing health care for retirees or making it expensive to fire workers). The Big Three didn’t eat these costs at the time; it took awhile for these added costs to kick in. As the Big Three have more retirees now and since they need to fire workers to slim down, they are now realizing these costs. The chickens have come home to roost, and they are about to bankrupt the auto makers.

While the UAW and the auto makers prefer to blame the credit crisis, an intangible third party that’s easy to vilify, one cannot help but ignore that the foreign automakers are struggling but doing ok. Like all companies, the Japanese automakers are making less money and their stocks are down, but their businesses as a whole are fine. Furthermore, even the US auto makers are doing just fine overseas. GM’s overseas operations are profitable, and they are even beating the Japanese automakers in countries like China and Russia.

The reason GM has done well in these foreign countries is because they don’t have to deal with the UAW and those contracts. They are competing with Toyota and Honda on equal terms; they are not handicapped by $2000 per car due to legacy health care costs.

The central thesis of Big Labor is that management is out to screw you, so you need to organize to retain your benefits. While employees certainly need to look out for themselves, ultimately, they need the company to thrive to stay employed. Taco Bell can’t pay its workers $50 an hour and remain in business, and car makers can’t be expected to pay for everyone in Michigan’s health care.

In today’s society, it is more important than ever to have a fluid labor force. While this is hard on workers, since they cannot necessarily to have lifetime careers at a company, it also makes it easier to find new jobs. Whether it is Monster.com, Craigslist, or an old-fashioned recruiter, it is not too terribly difficult to get a new job. Trying to negotiate a permanent job with insanely good benefits ultimately leads to no job at all.

If any of the Big Three go belly up, it’s the end of the UAW and Big Labor. When the car maker goes bankrupt, it can start from scratch, and it sure won’t make the mistake of hiring union labor next time. Even if the car companies get the bailout, I see a glim future for unions. Everyone will remember how the unions ultimately brought their employers to the brink of failure, which means everyone, including union members, would be out of a job.