Now have come the Detroit 3 “automakers” with outstretched palms demanding a piece of the half-baked federal bailout pie, formally known as the Troubled Asset Relief Program. Democrats control Congress and could pass, if they wanted to, a “bailout” package specifically for Detroit, but their leaders are afraid to do so since such an unpopular and consequential act would be out in the open for all to see. Instead, they prefer the backdoor approach of pilfering money from the TARP, money that they themselves have already allocated for another purpose – an ill-conceived bailout of financial firms.The Detroit 3 “automakers” are functionally bankrupt, if not right now then in a few months, or possibly in a few days. They have received much sympathy from those who want the US to retain an auto industry based here and all of the jobs connected to it. But that sympathy is misplaced.
What have the Detroit 3 companies become? At one time they were automobile and truck manufacturers, but they have gradually and almost imperceptibly morphed into something else indeed. They are now private social-welfare-plus-executive-stock-plan cooperatives, which finance themselves through the financing of increasingly uncompetitive motor vehicles that they manufacture at a loss. And these social welfare cooperatives have finally run out of money and now want American taxpayers to subsidize them.
Most of us do indeed want to save American-headquartered auto companies. But sensible people realize that the Detroit 3 business model has failed, and nothing short of a major restructuring
will fix it. To understand how to save them from themselves one has to be clear about the current reality.The US has two auto industries -- the Detroit 3 “legacy” companies and the many foreign–headquartered companies that manufacture vehicles in the US, primarily in non-unionized plants. These second generation US manufacturers are doing very well as the Detroit 3 inexorably ossify.
It’s a wonder the Detroit 3 lasted this long. Compared to the second generation US manufacturers, their competitors, the Detroit 3’s labor costs are way higher ($73 total average hourly compensation, 52% higher than the $48 for Toyota in the US), the quality of their vehicles is lower, the array of their brands is counter-productive, and the number of dealerships is unsustainable. These issues have been written about for years, and yet even as they slide further and further into oblivion the Detroit 3 have been unable to change in a meaningful way. They say they are about to turn it all around, but they’ve been saying that for 30 years.
Anyone who really wants to secure the long-term survival of the Detroit 3 can only hope for one
thing – their complete restructuring in bankruptcy, which would give new, fresh management the power to forge new labor and dealership arrangements, perhaps additionally with warranties guaranteed for some period by the US government to assure new buyers. The companies would continue to exist, and would emerge from bankruptcy in the fighting trim necessary to be competitive in the 21st century.Many Democrat politicians, however, do not want that – they seek to preserve for their union supporters the very extreme union contracts that are a major reason the companies have failed. When the Detroit 3 CEOs showed up in Washington the other day, too many Americans were paying attention and the outrage at a possible “bailout” was too great. So the Democrat party leaders retreated to regroup and try another day (preferably after dark) under the ruse of sending the Detroit 3 leaders away to prepare a plan for how they will spend any money given to them. When the heat dies down and most attention is elsewhere, Democrat party leaders will likely give the Detroit 3 the money they want, and thereby place the irredeemably dysfunctional companies on government life support, from which they will never wean themselves. At that point, why should they, even if they could?
For additional commentary, see a great piece from Dennis Byrne (link) and lots of statistical information from Mark J. Perry at Carpe Diem (link).
John Michael Greco
No comments:
Post a Comment