Is the American Automobile Industry Worth Saving? Pt. 2

is the american automobile industry worth saving pt 2

The question presumes that A) Detroit’s ailing automakers ARE America’s automobile industry and B) using our tax money to protect Ford, GM and Chrysler from their own incompetence would benefit the U.S. car industry. Not true, on both counts. And by ignoring the flawed assumptions underpinning the argument for raiding the average American’s wallet, bailout proponents are misleading what they condescendingly call “Main Street.” To which I say no, no, and Hell no.

Clearly, unequivocally, the American auto industry does not consist of Ford, GM and Chrysler. In fact, these three Detroit-based companies COMBINED no longer control the lion’s share of the American automotive market. Foreign-owned manufacturers– the so-called transplants– account for over 50 percent of all new vehicle sales within the U.S. For better or worse, they constitute the core of the American automobile industry.

Feel free to debate amongst yourselves whether or not the fact that the transplants’ profits return to their home country is a crucial difference— just as long as you understand that Ford and GM’s North American divisions have been living off of their foreign ops’ profits for at least the last two years. And that this financial flow inwards is decades old.

And don’t forget another, equally salient detail: Detroit-based car companies are, right now, importing hundreds of thousands of cars and millions of parts from outside U.S. borders. For more than a decade, Ford, GM and Chrysler have been Hell bent on “saving” the American automobile industry by destroying it, sending U.S. manufacturing jobs to Canada, Mexico, South Korea, China and elsewhere.

Anyway, if we accept the idea that BMW, Mercedes, Toyota, Honda, Hyundai and Nissan’s American production facilities are a vital and yes, equal part of the American automotive scene, it raises an interesting and completely ignored question: is the federal bailout for Detroit good for the REST of the American automobile industry? Does it “save” them?

The surprising answer is yes. By supporting Detroit’s inefficiencies, a bailout would help maintain a suitably high “floor” for new car prices. So your tax subsidy to Detroit would protect the transplants’ profits, and by extension, their American workers.

On the downside, a federal bailout screws the consumer. It would help prop-up new car prices, stifling the kind of competition that leads to innovation, and increased value-for-money. As far as the non-Detroit-related taxpayer’s personal pocketbook is concerned, letting American-owned automakers fail is the best possible course of action. The American consumer would get a better product at a lower price, for no extra charge.

Sorry. I know: it’s about jobs, jobs, jobs. Inherent in the idea of “saving” the [strictly defined] American automobile industry is “saving” American automotive jobs, upon which the entire U.S. economy supposedly rests.

Again, you can discuss the “ripple effect” of a combined Ford, GM and Chrysler C11 on the wider U.S. economy without my interference. But however great the impact, it doesn’t alter the truth: the word “save” here means “subsidize,” to no appreciable end. I mean, is there any one amongst you who truly believes that injecting $25b of federal capital into Ford, GM and Chrysler will put them back on their feet, so that their workers and products can compete with non-Detroit automakers? If so, you simply haven’t been paying attention.

And once we’re doing a reality check, if saving the American automobile industry is a euphemism for “giving The Big 2.8 a bridging loan so they can get healthy and competitive at some point in the not to distant future,” we need to face facts: Ford, GM and Chrysler will have to shed jobs anyway. Bailout or no bailout, they’re too damn big for the U.S. car market, now that the new car “bubble” (which they created) has burst.

Enough of this misdirection. Let’s get down to brass tacks. The real question is this: is Detroit worth saving?

No, it’s not. Not in its current form. In this I refer you to General Motors Death Watch 1, wherein I proposed that GM should be parted out. I asserted that its current management should take a hike and its constituent brands reconstituted as independent car companies. (Or not.) In the last three years, I’ve seen nothing to dissuade me from this opinion. As for Ford, it too needs to shed brands and reinvent itself. Chrysler, well, Chrysler’s a basket case. Only Jeep may live on.

So yes, the American automobile industry is worth saving. Only it’s not in any real danger. The only part of the U.S. car biz that’s on the ropes is the Detroit contingent. And the only way to save that bit is to let it fail, so that it may be reborn. But no matter how you slice it, and sliced it will be, “bailing it out” is against the interests of the American taxpayer AND the American consumer who, after all, must foot the bill.

At the end of the proverbial day, a federal bailout for Ford, GM and Chrysler would simply prolong the automakers’– and their workers’– agony. Yes, there will be pain. Lots and lots of pain. But sometimes the more painful the mistake, the more important the lesson. This is one of those times. Detroit can not be saved from the reality that they’ve studiously, callously, stubbornly ignored. Nor should they be.

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  • Gt124 Gt124 on Nov 17, 2008

    Mr. Farago, I found your arguments against the issuance of a bailout package for U.S. car manufacturers to be extremely informative. It is important to examine this type of governmental expenditure given the current economic downturn. You bring up several great points in defense of your assertions. I agree with you that companies composing the Big Three (Ford, GM, and Chrysler) are bloated corporations in need of an overhaul. They need a shake up that will restructure their management and restore their prominence as premier American brands, delivering products with amenable features customers want. However, I believe it should be a concern of our nation’s citizens that foreign automobile makers have such a stranglehold on the domestic market. I do not share your sentiment that this is an unavoidable reality. American cars can indeed make a comeback through careful revision of their manufacturers and their subsequent realignment with the market. You advocate that the industry should be left to fail, yet what do you think about this sector’s synergy with other areas in the economy? According to the Center for Automotive Research, as many as 2.5 million workers could become unemployed nationwide if any one of these corporations go bankrupt. That is a significant amount of jobs lost, especially considering the recession is expected to raise the unemployment rate considerably by the year’s end. It is true that the Big Three have been consistently unable to competently respond to foreign competition, and they have indeed been mismanaged for years. Yet they appear to exist as a cornerstone of the American economy and job market. Therefore, wouldn’t it be a better plan to keep these corporations afloat, but in doing so demand they concede to requirements they have been avoiding for years? Stringent mandates could be attached to the bailout, successfully realizing the implementation of guidelines such as higher fuel economy standards. These types of policies would not only help to address environmental concerns, but they would help automobile manufacturers to put cars on the road better matching the evolving demands by consumers for more innovative products. I agree with you that “the new car ‘bubble’ has burst,” but more pragmatic policy approaches could be introduced to address the U.S. carmakers than to simply let them fail.

  • Brendan Lemmon Brendan Lemmon on Nov 17, 2008

    Your take on this "crisis" is very interesting. I agree with you that this proposed infusion of cash is infuriating, considering that the big three: GM, Chrysler, and Ford are doing exactly what you point out in your post- shipping jobs overseas to stretch their dollar. Does saving the 3 automakers insure jobs here? Yes. Of course it does. But does it also ensure that these companies, in order to cut costs and stay afloat will cut their highest paid workers? Of course it does. Where do those highest paid workers reside? Right here in the good ol' US of A as members of the UAW making union pay at $74 an hour. This money from the government is necessary- these companies employ hundreds of thousands of people and not just at company owned plants. Think of all the laborers and employees that have positions at subsidiaries of these companies. What will they do if the automaker suddenly stops ordering windows or windshield wiper blades? However, the bailout money should come with a very clear caveat- re-structure your business to compete with the other auto makers or we, the taxpayer, will not prop you up. One merely has to look at Toyota to see how a company should treat its workers. During this economic crisis, when American companies are shedding jobs, Toyota has not fired ONE person. See this courier press article for what they are doing for their employees- http://www.courierpress.com/news/2008/nov/01/making-the-most-of-down-time-toyota-uses-for/. In your opinion, what do you see as the best solution to the problem? Do you think that breaking up vehicle conglomerates like Ford (who owns Ford, Lincoln, Mercury, Mazda, and Volvo) should be broken up into single entities to foster competition in the marketplace? This much is clear- changes need to happen, and fast. Otherwise, we may see the end of vehicle manufacturing by American automakers. How strange would it be for the world to exist without Ford, the company started by the inventor of the machine that has changed the world? I thank you for your insightful and informed post. I also welcome your comments and can be reached here- http://www.blemmon.blogspot.com

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