Since I know there’s friends on the other side of Delaware who have an interest in how the bailout goes, I decided to crosspost my article here too.
Dan Ikenson of the CATO Institute asks a valid question: why do we need a Big Three?
This video is a compilation of the longstanding libertarian group’s argument that the bailout isn’t necessary. In a minute and a half there’s several compelling arguments that there’s more wrong with the Detroit automakers than billions in federal aid can fix. After all, if the Big Three are collectively losing billions a quarter doing things as they have, how long will it be before they’re either back asking for more from the taxpayer or the companies become fully-owned subsidiaries of the federal government? Or both?
Perhaps a better question is why are several other automakers succeeding in manufacturing good-quality cars and trucks at a profit for their respective corporations? It’s not just venerable American nameplates like Ford, Chevrolet, and Dodge being manufactured in America – over the last couple decades they’ve been joined by Honda, Toyota, Nissan, BMW, and soon Kia will open a plant in Georgia. Most of these plants are in the southern part of the country and pay wages which are a fraction of their UAW-organized competitors but still provide a solid living for their workers. And that seems to be where the answer lies.
While it is important to note that the United Auto Workers union has relented to some degree on wages for workers just starting out, the trouble is that with shrinking sales and fewer plants remaining open for more than one shift (if at all) the seniority-laden union work rules simply mean that the newer workers are the ones being laid off; this means wages on the average aren’t dropping significantly. Thus, in order to compete with imports the Big Three has to skimp on some aspect of their lineup. Perhaps the quality is one to two degrees less than their Japanese or Korean counterparts or the items found standard on the imports become expensive (read: profitable) options on the American models. They also may run a year or two behind on design trends, and let’s face it – there’s too many similar models in the Big Three lineups to pique interest.
In years past, automakers expired with nary a peep from Washington. In my youth Detroit actually had the Big Four but the former American Motors Corporation went out of business in the 1980’s leaving the Jeep nameplate the lone survivor as it was absorbed by Chrysler. (They first attempted a merger with the French automaker Renault. We see how well that worked.) AMC was a victim of tough competition from Japanese imports, shoddy workmanship (we used to call them AlMost a Car), and generally odd design – while I think the AMC Javelin is/was a cool-looking car, the appropriately-named Gremlin, Hornet, and Pacer only drew snickers and not buyers. The more senior among us probably remember well the DeSoto or Studebaker, two other long-time nameplates that ran out of buyers and folded their tents decades earlier.
While Detroit thinks that the Big Three are collectively “too big to fail”, the market seems to be dictating otherwise. And without the government bailout, it may be that bankruptcy and merger looms for at least one of the Detroit automakers – however that may also bring a dose of sanity to the labor market and bring the costs for the revamped survivor(s) down to be more competitive with the American-built import nameplates. Let’s allow the market to run its course; yes, there will be some bitter medicine to swallow but that may be the only long-term cure.
Crossposted on monoblogue.