The Truth About "The Truth About Cars and Trucks"

by Robert Farago

Published: April 28th, 2009

the truth about the truth about cars and trucks

Holman Jenkins offers his analysis of the Motown meltdown under the TTAC-usurping title “ The Truth About Cars and Trucks.” According to the Wall Street Journal scribe, we should blame the current domestic auto industry implosion on the United Auto Workers’ (UAW) monopoly on Detroit production. Oh, and the manipulation of federal law to protect same. I think. “For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress’s fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs. Doesn’t sound much like what you hear incessantly from your Congressman, about how Detroit’s problems are all due to management ‘incompetence’ in deciding to build ‘gas guzzling’ SUVs, does it?” Uh, it kinda does. And I’d like to see a bit more detail on this assertion, please: “Washington’s latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles.”

But Holman is not without reason, as he condemns the feds for molly-coddling the UAW. Again. Still.

“The Obama strategy does nothing to change the basic dynamics of the homegrown auto sector — a labor monopoly combined with endless finagles in Washington to help the Big Three survive competition from Japanese, German and Korean auto makers. But maybe the shock of seeing GM nationalized will at least cause some in politics and the press finally to think about how we got here.”

I agree! But I would do, as I already said as much (if not so elegantly) in Bailout Watch 509. Anyway, Eddy and I reckon the MSM will have a lot of time to do Holman’s kind of thinking. “Look how long it took British Leyland to unwind,” Eddy reminded me. Jenkins should put that in his editorial pipe and smoke it. Then again, we call dibs on the American Leyland meme.

Robert Farago

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2 of 44 comments

Pch101 on Apr 30, 2009
you will find that you tried to make the standard of proof that the evidence must be found in the financial statement. You must be reading a different thread. What I said was "What I do know is that cost data is supposed to be booked in the financial statements." You can't possibly deny this point. Costs are supposed to be booked in the financial statements. Detroit claims that it has labor costs that are substantially higher than does everyone else, as if that's some sort of clincher. Yet if you do the math, you can see that they have smaller workforces, lower operating costs and that they have a tendency to raid their pension and benefit accounts in order to grab cash. Those are just facts, and they're hiding in plain sight. You can admit it or deny it, but they are there. A lot of what you miss is this -- in the case of car manufacture, most of the costs is in the parts and components, not the labor. This may not be true of every consumer product built on an assembly line, but in the case of a parts intensive, costly product such as an automobile, this is the case. Accordingly, slashing labor costs cannot be a lone salvation, because labor is not a large part of the expense load, even when the wages and benefits are above those of other industries. That's exactly why automakers did so well for decades, despite relatively high wages -- they could easily hurdle their costs with relatively high prices. Their problems come fron a lack of pricing power, which comes from having inferior products. Toyota is able to support more workers and higher costs because it sells cars for higher prices. As Geeber points out, Ford appears to be copying Toyota in this regard, hoping that selling a lot of bread-and-butter vehicles of high quality will eventually support higher prices and more sales. That's what the rest of Detroit is going to have to do with they want to stay in the game.

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Landcrusher on May 01, 2009

PCH, You wrote, in this thread, "Here’s a challenge to you — show me something in GM’s financial statements that supports that data point, after everything has been netted out." To which I replied, also in this thread, "If you will only take as proof, evidence on the financials, then you aren’t playing fair. The financials are a lousy place to look for the facts on government intervention. They simply won’t show there." Frankly, the amount extra that UAW costs will never be able to be ascertained by looking at the financial statement - NEVER. It's not that granular, and even if it were, it would always be debatable how much of any figure was actually due to government influence. I won't sit here and list all the costs that won't show up on a balance sheet even one that isn't meant to be as misleading as the investors and regulators will allow.

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