The prospects are bleak for US automakers
Detroit is Out of Gas -- should taxpayers kick in?
| When the Iron Curtain fell, old Soviet factories had to go out of business, since Western competitors were more efficient. Should the US erect an artificial wall to shelter inefficient corporations? There is a better way than yet another deeply indebting bailout. We trim and append this 2008 op-ed in North Carolina’s News & Observer of Nov 7 by an associate provost for international affairs and Albert R. Newsome professor of history at UNC-Chapel Hill. |
by Peter A. Coclanis
The Big Three automakers (GM, Ford and Chrysler) have cut more than 100,000 jobs in the United States alone since 2005. Yet together they are still losing about $2 billion a month. GM's share price has fallen 78 percent this year, Ford's is at its lowest level since 1985, and Chrysler, now private, is by its own admission on the verge of collapse.For much of the 20th century Ford and GM (founded in 1908) and Chrysler (founded in 1925) were the largest automobile makers not just in the US but in the world. Over the course of the past 40 years, though, the top management of the Big Three, in cahoots with their counterparts in the UAW (AKA "Big Labor") have succeeded brilliantly in destroying the Detroit-centered auto-industrial complex, and, in so doing, large parts of the upper Midwest as well.
However, the crisis is not general but specific to some companies and to some parts of the United States. One part of the industry, dominated by the Big Three and the UAW, is located in the Rust Belt. The other component, foreign-owned and nonunionized, is centered in the Sun Belt and in nonmetropolitan (and often anti-union) parts of the Rust Belt. The former is sounding its death rattle, while the latter -- dominated by Toyota, Nissan, BMW, Mercedes-Benz, Honda, and Hyundai -- is quite dynamic.
The "US" auto industry until recently has been doing well. Total car and truck sales between 1996 and 2006 were at record levels, and the industry as a whole employed almost as many workers in 2006 as it had in 1990. The output came from non-union plants in places such as Vance, Ala. (Mercedes-Benz), Lincoln, Ala. (Honda), Greenville, S.C. (BMW), Georgetown, Ky. (Toyota), etc, while unionized auto plants in places such as Flint, Mich.; St. Louis; Kokomo, Ind.; and Lansing and Hamtramck, Mich., closed their doors.
How and why did the Big Three get in the position they are in today? For starters, corporate smugness, complacency -- the Big Three, by and large, stopped innovating in the 1950s -- and insularity. As automotive journalist Brock Yates noted long ago, the "Detroit mind," as he called it, is as rigid and conformist as any in corporate America. Big Three execs have never felt comfortable with small, fuel-efficient cars, preferring instead vehicles like the Chevy "Subdivision."
Under Detroit pressure, the federal government caved in on tariffs and quotas on imports in the 1980s and set the bar low on fleet fuel standards and in recent years offered tax advantages for super-size SUVs. Today various members of the Michigan congressional delegation are promoting sundry bailout measures, trying desperately at the 11th hour to reward a halfcentury of ineptitude and greed.
The unions did not help the situation when they opposed shop-floor innovations and resisted flexible work rules. Enjoying protective tariffs, they were confident, as were the "suits" in management, that they could just pass on the costs of high wages and exorbitant "benes" to American consumers who’d remain loyal to inferior products.
JJS: If Congress does not bailout Detroit, the manufacturers of better cars such Toyota and Honda, who happen to have factories in America that employ thousands, will fill the breach. What’s needed to fill the breach in workers’ income is geonomics. That is, let’s quit taxing wages, and instead publicly recover the value of sites and resources. When a jurisdiction taxes or otherwise collects land value, then owners put parcels to good use, which generates employment and that ups wages. Plus, a tax on land lowers the price of land, so the cost of living drops. On the spending side, lets have government quit paying corporate welfare and instead pay the citizenry a dividend. With geonomics, workers and society as a whole would be much better off.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Checks for $600 Won't Fix Our Economy
Why American Automakers Are Failing
Stuck in Reverse on Fuel Economy |
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