There is a lot of talk on the right in opposition to a bailout of the American auto companies. Jim Manzi shows just how dire their straits are, noting that each of the three major American auto firms are losing money on each car sold. Mitt Romney, in a New York Times op-ed, points out that Ford has a $2000 disadvantage coming in against Toyota, due to increased labor costs and unsustainable practices.
Business Week has an article about this as well, and notes that Democrats are trying to sweeten the pot by having the government buy shares in these companies rather than simply giving them the cash (or “loans,” which, given their present circumstances, they would be rather unlikely to pay off). But the problem is systemic, and stems from the inherent legal disadvantages that these firms have. Building cars in the US isn’t a money-loser—Toyota has a plant in Marysville which is doing rather well, and there are a good number of plants in the south. Rather, the problem is that, during the boom years of the American auto industry, labor unions were able to push their demands ever further, so now we’re at the point where the average union worker gets $30 an hour more than the average worker at a non-UAW plant (though these folks still average $40 an hour, so we aren’t talking about incipient poverty), as well as an absurdly beneficial retirement package. The only way for Ford, GM, and Chrysler to become competitive again is to re-negotiate those deals, and it would appear that the only way that this could occur would be for those companies to declare bankruptcy. Handing over taxpayer money stalls the inevitable. In bankruptcy, bad management can be tossed out, new agreements written, and these companies have the ability to become competitive once more.
Mark Steyn, meanwhile, notes the parallels between the auto industry and another bailout-prone industry: airlines. Once you remove market relationships from markets, there is no longer a reason to be efficient and consumer-friendly. Instead, you get a bureaucratic mess.
As a political point, this is a good place for a first step to getting out of the political wilderness. It’s a relatively easy issue for Republicans to unite on and it lets them criticize the left for corporate welfare. I’d personally much rather that the left own that issue and the right disengage from such things (which include tax loopholes, ethanol subsidies, bailouts in general, and federal spending on organizations) to a much greater extent. Becoming serious about ending bailouts—even though Republicans started that whole mess—will be the first in many steps to regain credibility on fiscal issues.
There is an article today on cnn.com/US entitled, “No need for bailout, say diners near thriving car plant.” It cites comments from people living and working near the Honda plant in Ohio. One says union workers are as much to blame for the US auto industry’s woes, and I agree. I served on a jury with several assembly line workers who told us on a break that drug use in the factories is rampant, largely due to repetition and boredom, and it causes mistakes that lead to recalls, and to consumers not having as much faith in the cars, while the workers make huge hourly wages. If someone wants to report drug abuse, they are threatened with harm to their property, themselves or their families. Is this patriotism and doing what’s right for each other and for our country? I believe unions are needed to protect workers from management abuse, but as long as the unions protect abuses on the part of its members, they, along with the private jet-setting CEOs will ensure that buyers will keep going to the foreign carmakers for superior products.
Comment by AmandaB — November 20, 2008 @ 7:00 pm
There is an article today on cnn.com/US entitled, “No need for bailout, say diners near thriving car plant.” It cites comments from people living and working near the Honda plant in Ohio. One says union workers are as much to blame for the US auto industry’s woes, and I agree. I served on a jury with several assembly line workers who told us on a break that drug use in the factories is rampant, largely due to repetition and boredom, and it causes mistakes that lead to recalls, and to consumers not having as much faith in the cars, while the workers make huge hourly wages. If someone wants to report drug abuse, they are threatened with harm to their property, themselves or their families. Is this patriotism and doing what’s right for each other and for our country? I believe unions are needed to protect workers from management abuse, but as long as the unions protect abuses on the part of its members, they, along with the private jet-setting CEOs will ensure that buyers will keep going to the foreign carmakers for superior products.
Comment by AmandaB — November 20, 2008 @ 7:02 pm
According to the taxfoundation.org Richard (Dick) Shelby’s home state of Alabama ranks 7th in states that receive money from the federal government. Simply put Alabama (like most red states except TX, Nebraska & NDakota) get more money from the federal government than they send.
What name do you prefer, Red State Socialism or Red State Welfare or Republican Welfare? In fact Alabama gets $1.66 for every $1.00 they send. Mississippi gets $2.02. Not bad huh auto-working folks? It must feel good to subsidize “poor red states” with booming auto industries and then have their hypocrite congressman tell Detroit to jump off a cliff? Hypocrisy the one constant you can expect from the Fringe Right.
Oh and what do we in the Midwest get in return for our federal dollars? Well let’s see: Michigan .81¢, Ohio .86¢, Ind .81¢, Illinois .71¢, Minn .86¢.
What happens if there’s a conflict like WWII? Are you going to trust tanks and vehicles built in companies that are foreign owned? The Chinese are making cars now too. Maybe they can make our tanks huh geniuses?
Comment by Mike — November 20, 2008 @ 7:30 pm
The preponderance of Americans who express their views on such things are idiots. They do not realize the earthquake effect the downfall of any one of these companies might have. They won’t realize until one of the 3 million Americans who lose their jobs because the bailout is disapproved is in their living room with their wife and kids hog-tied, robbing them for everything they have, because they have just lost their job. The preponderance of ignorant people with views on this subject fail to realize that 25 billion dollars, is about $100 of each tax payers already payed taxes. They are too mean-spirited and greedy to understand what it means to do something for the good of the people.
One more thing. These CEO’s didn’t start these companies. They are just paid to run them. So why would they pay out of their pockets to fix them? Another thing. These companies have plants all over the GLOBE. They don’t have time to wait in line in an airport when they are running companies with hundreds and thousands of business locations.
Get it together America.
Comment by Don't be stupid — November 20, 2008 @ 9:11 pm
Mike: your point regarding transfer payments is a bit of a non sequitor, as it does not relate to the idea of an industry bailout. But I would not be surprised that most deep south states receive more in federal dollars than individuals pay in federal taxes, for one simple reason: poverty levels are higher there and many federal transfer payments (Medicaid and block grants as two examples) are geared toward high-poverty areas. If you asked me, though, I would say that the important figure is not the distribution, but rather the amount available for allocation. I would have no problem seeing the 86 cents drop to 75 cents if my total tax amount dropped to a relatively small fraction of what it is now. And even if I lived in a state with a positive net transfer, I still want the federal budget to be significantly smaller.
Your final point, regarding mass production in a time of “modern” (1861-1945) war falls short on one major point: the capital equipment which Ford, GM, and Chrysler own _is_ valuable equipment. The knowledge that engineers there have _is_ valuable knowledge. Even the brand logos, designs, employee skills, and whatnot are valuable. The problem is that under the current management and the current labor contracts which these firms must honor, that combination of capital, knowledge, and labor is not sufficient to cover the costs of production. If the firms were to go bankrupt, they would not disappear into a cloud. Instead, new management would buy them and re-negotiate things to the point where the combination of capital, knowledge, and labor _is_ sufficient to draw a profit. And the capital, knowledge, and labor which is not necessary for the profitability of these new firms would be auctioned off (in the case of the first two) or released into the market, where they would find superior uses than at present. In free markets, people find new jobs. Sometimes these jobs are better and sometimes they’re worse, but when you do not have significant government regulations hindering the operation of market processes, Say’s Law will hold.
This touches at a response to DBS’s point, but I should wish to focus more on it. $25 billion is a start. Given that the three companies, as currently exist, are (and have been and will continue to be) sliding into extended unprofitability, $25 billion tide them over for a few months at most. Then what? Another bailout? Another $25 billion, or maybe $50 billion this time? Why should we subsidize the poor decisions of others? I would much rather let the organizations fail and have superior combinations be created from the wreckage, exactly as occurs in a market economy.
Thank you all for your comments, by the way.
Comment by Kevin Feasel — November 21, 2008 @ 3:11 pm