Confused about exactly what went on with the Big Three automakers and the U.S. government earlier this week? So was I. The Obama administration's ouster of General Motors (NYSE:GM) CEO Rick Wagoner accompanied supposedly tough talk about the possibility that the administration might still let GM go bankrupt -- a bit incongruous, no? I suspect it might be a major bluff.

President Obama and the Democratic Party seem awfully beholden to the UAW, after all. Will our new administration be able to play fair with taxpayer money when its relationship with this valued voting bloc is at stake? If the president can't navigate this tricky situation with steadiness and justice, more taxpayer dollars will keep disappearing down a black hole, without any benefit to the U.S. auto industry's ability to compete.

I thought we hated monopolistic tendencies
In a recent thought-provoking Wall Street Journal piece, Holman Jenkins suggested that Obama's supposedly tough words were just a bluff. The UAW has often managed to get government on its side, and alienating the union might hurt Obama's eventual chances of reelection.

Jenkins noted that the UAW has kept GM, Ford (NYSE:F), and Chrysler "captive" through the 1935 Wagner Act, constraining them to operate in a far less "free-market" way than foreign automakers do in this country. A component of a 1975 fuel economy law imposed by Congress, the "two fleets" rule, forces the Detroit automakers to manufacture their small cars in UAW-run factories, which means the companies often lose money on each car they make, because of UAW's high wages. Jenkins dubbed this a "UAW monopoly," since UAW employees are effectively insulated from global competition.

This type of misguided mind-set led me to write "The Fall of the House of UAW" last month. Unions seek to protect American jobs and push for uniformly and artificially high salaries, which certainly sounds nice on the surface. But in the real world, businesses simply can't function that unprofitably or anti-competitively.

 Check out this 2003 article from the Foolish archives, "GM's Pension Perils," which may help shed additional light on why the company is in trouble now. Back then, GM took on a boatload of debt just to fund its pension obligations. (Even worse, that debt didn't show up on the balance sheet.) That's not the action of a healthy long-term company, and GM was driven to such desperate lengths by the UAW's demands.

Buy American? Not so cut-and-dried
The UAW has failed to accept that the big picture for an organization's health doesn't simply involve workers, but also shareholders, customers, and the long-term health of the business itself. When the business deteriorates, customers will flee, shareholders will bail, and jobs won't survive. By insisting on high wages at the detriment of all else, the UAW is effectively killing the goose that laid the golden egg.

The market test in America has clearly shown that consumers often prefer cars from Toyota (NYSE:TM), Honda, Nissan (NASDAQ:NSANY), Volkswagen, BMW, and many other foreign automakers, for varying reasons such as price and quality. We can't afford to shrug off that competitive reality.

Meanwhile, in their loyalty to the notion of "American" cars, many customers often overlook that many U.S. automakers import foreign parts. On the flipside, the Association of International Automobile Manufacturers says that more than half of the "foreign" cars sold in the U.S. are actually made right here. Those companies provide jobs to 92,700 American workers, paying out about $6.3 billion a year. The "buy American" theme that swirls around Detroit isn't as cut-and-dried as it may sound, despite what the UAW may assert.

Can Obama stay impartial?
Let's hope President Obama isn't bluffing, and that he can resist the urge to keep pouring taxpayer money into the Big Three. As Motley Fool co-founder Tom Gardner pointed out recently on a guest appearance on CNBC's Fast Money, an organized bankruptcy, which would purge the UAW's stranglehold on the automakers) paradoxically seems like the best way to help the U.S. auto industry survive -- for a given and undeniably painful value of "survive" -- while protecting American taxpayers.

Those taxpayers already owe far more than their fair share for government bailouts of companies like AIG (NYSE:AIG), Bank of America (NYSE:BAC), and Citigroup (NYSE:C). GM and Chrysler have partaken of government largesse, too. It's simply not fair for taxpayers to foot the bill for ever-increasing expenses, all to prop up businesses that have failed the market test.

Still, it may be hard for the current administration to resist the Big Three and their ties with the UAW. Over the last 10 years, the UAW has paid out more than $10 million in efforts to elect Democratic candidates. The union was highly influential in getting President Obama elected, including helping him carry five states in the Midwest and score important victories in Michigan and Ohio. Furthermore, President Obama reportedly has two individuals described as union loyalists on his economic team.

As investors hoping for a healthy marketplace without massive distortions added by government, as Americans who would like to see the U.S. auto industry survive in a more viable form, and most importantly, as taxpayers concerned about our nation's fiscal situation, the question of Obama's priorities when it comes to the UAW seems only fair.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.