Setting the Record Straight

November 21, 2008

Guzzling From the Tin Cup

The Best Favor Detroit Did Not Want
     Doubtless, the U.S. auto industry won’t see it this way, sr-dingelljpegbut Congress did Chrysler, Ford and GM a huge favor as their CEOs testified elsewhere on Capitol Hill. House Democrats ousted John Dingell as chairman of the Energy and Commerce Committee.
     As we noted in Help the U.S. Auto Industry: Vote Against It, as chairman, and before that as a high-ranking member on the panel, the Michigan Democrat did grave harm to the auto industry by giving them what it asked for. What it asked for essentially boiled down to “help us fail to compete with foreign automakers.”
     Just before the gas crisis in the early 1970s, Congress wanted to require catalytic converters on all cars to reduce pollution. Dingell helped the automakers defeat the first measures, while foreign automakers began including them on their cars.
     Dingell also helped automakers defeat efforts in Congress to require cars to have low-impact bumpers as a safety feature and to reduce weight to reduce fuel consumption, again while foreign makers included them on their cars.
     He also helped the automakers prevent stronger CAFE standards governing fleet fuel-efficiency. Together, they wrangled an exemption of trucks and certain large cars from the standards and even gave them a business-tax advantage. Foreign automakers widened the gap between average miles per gallon on their cars versus domestic ones.
     After the gas crisis eased and energy-conscious President Jimmy Carter was ousted from the White House, lights were turned back on federal monuments and all the calls for alternative energy sources began being ignored. At the same time, U.S. automakers began promoting ever-larger behemoths for the road, spending billions on advertising to begin a new trend.
     An advertising pro once told us the mantra on Madison Avenue had become “you can sell a boomer anything,” and this was the age of the all-consuming boomers. The macho-vehicle rage began and Detroit reaped the higher profits on more-expensive machines exempt from the CAFÉ fleet averages. Toyota, Honda and others continued heavy research on greater fuel-efficiency, alternative propulsion techniques and alternative fuels, and churned out the high-quality cars that resulted from that work.
     When Detroit began seeing the flight to better-quality cars made abroad, its best response was from Lee Iacocca who claimed that at Ford, “quality is job 1” even before the company lifted a hand to try better quality.
     With all their congressional goodies in hand, Detroit-based automakers decided they did not have to compete with foreign-made cars and didn’t. So when the muck hit the fan with the latest fuel crisis, their downfall was secured.
     As far-sighted managers, foreign automakers bucked the effort by Detroit to paint them as home-wreckers by locating research and manu- facturing plants in the United States and hiring Americans to build their cars.
     Of course, members of Congress heard none of this explanation during the round of hearings on the industry’s request for a piece of the financial meltdown bailout, pleaded for by CEOs of the “Big 3” who had flown to Washington on private jets with huge expense accounts and tin cup in hand.
     But House Democrats, most of whom favor the bailout because of the union jobs they think would be saved, did the auto industry a favor and doubtless will put in back in condition to compete, if it survives.
SCENES FROM A COMMITTEE     The new chairman is Henry Waxman, a tireless and dogged California Democrat who wages war on behalf of the environment and consumers, a combination that is just what the auto industry needed lo these many years instead of the Democrat who helped them on their path to oblivion.



November 10, 2008

Right-To-Work Hurts Big 3

Automakers: Mind What You Wish For
     How can we lay the U.S. automaker crisis at the feet of the Republicans who were in control of the government for the past 14 years? How about this.
     The Big Three, whose method of operating has been, and is likely to continue to be, one of aiming for instant gratification, were aided and abetted by the Republicans and their decades-long drive to emasculate labor unions in the United States.
    That, of course, contradicts the conventional wisdom that has become a religion among the Big Three (why do we call them that any more—they’re the only three). The automakers have complained and complained the United Auto Workers and its demands on behalf of the union’s workers are what have hurt their industry.
    To be sure, the UAW did overreach in the heydays of the 1950s and 60s and became so strong they also became their own worst enemies and needed to be trimmed back a bit.
    But the UAW would say, and we would agree, that the Big Three were unable to compete with foreign automakers on U.S. soil because the foreign firms built their plants in “right-to-work” states. Whatever union that workers in those plants may have pales by comparison with the UAW.
    How did those right-to-work states come into being? In the wake of the industrial revolution born at the end of the 19th century, labor unions were formed to redress the greedy excesses of their employers who were operating as fief to serf.
    Until the Taft-Hartley Act in 1947, workers and their employers thrived quite well with union rights to require workers to support the unions. Soon after the act was passed, taking away those union rights, 12 states enacted “right-to-work” laws and another 10 states have followed as Republican Party policy relentlessly defeated Democratic and union efforts to repeal Taft-Hartley.
    The result has been that average wages for workers in right-to-work states are 6.5 percent lower than those of their counterparts in states that have not enacted the laws. Of course, they attracted foreign automakers, and Toyota opened the first of its 13 U.S. plants in 1989. An overlay of right-to-work states today closely matches the map of what the red (GOP-voting) states before the election just completed.

National Right To Work Legal Defense Foundation

National Right To Work Legal Defense Foundation

    With the gas-shortage crisis of the mid-1970s and the popularity of more fuel-efficient and safer cars produced by foreign automakers, who also employed features U.S. automakers would have included had they not (thanks to the leadership of Democrat John Dingell) defeated congressional efforts to require them, Americans began turning to the better cars once made abroad, but now made at home with foreign-sounding names.
     As the 1970s crisis waned, Instead of looking ahead as Toyota and Honda did, U.S. automakers went for the bigger instant bucks and began pushing sales of SUVs and huge macho trucks, neither of which got anywhere near the gas mileage foreign makers continued to offer.
     And now U.S. automakers are asking for help from the same federal government they joined their GOP friends in beating on so unmercifully for decades.




November 3, 2008

Detroit’s Money-Guzzlers

Is Our Auto Industry Relevant?
     The U.S. Congress and the Bush administration arranged to give the U.S. auto industry, which now numbers three companies, $25 billion in its own version of the much more massive financial meltdown. Now the industry is back asking for $25 billion more, because the first 25 was only half of what they originally asked for.
     Following the original $25 billion, General Motors and Chrysler began using the money to concoct a merger, which would lower a once-proud industry back to just two members. The other would be Ford, and some mixture of a merger from within the three has been talked about since earlier this year.
     Sorry, but so what? Why do we need them any more? Even if we helped them, what would the American people get out of it? The government’s money and efforts might be better spent preparing the current employees for the fallout of the U.S. auto industry’s collapse, with retraining, adult education, financial help and guaranteed health care.
     Recent U.S. history tells us a bailout of Detroit would be folly. We would be ignoring George Santayana’s admonition: “Those who don’t remember history are condemned to repeat it.” So let us remember, beginning with the fact Chrysler has been at that federal trough before.
     In late 1973, with the U.S. automakers gloating over recent victories over congressional efforts to force them to make their cars safer and with better gas mileage, the Organization of Oil Exporting Countries slapped an embargo on oil exports to the United States. That pushed a growing supply-and-demand into a crisis that led to miles-long lines of cars queuing up for gas from draining pumps.
     Unknown to U.S. automakers, their victories over regulation efforts already were beginning to cripple them as Americans turned to safer cars made abroad. With the OPEC embargo, their victory over tough gas mileage efforts was about to bite U.S. makers in the rear.
     In 1979, as the Carter administration and Congress struggled to overcome the financial damage of the embargo, Chrysler, still U.S. born and bred, said it was facing bankruptcy and needed a $1.5 billion bailout from the federal government (that’s more than $9 billion in today’s dollars).
     Instead of bailing out Chrysler, the administration and Congress worked out an arrangement guaranteeing a $1.5 billion loan from the private sector and required the company to raise another $2 billion to cover its operations, but without federal backing. Chrysler also was required to make certain commitments, but none required the firm to make cars that would match the subsequent success of foreign-made models.
     The Carter administration also launched with Congress a series of energy-conservation and alternative-energy initiatives to reduce the stranglehold foreign oil had just placed on the United States. They included requiring all automakers, including the three domestic ones, to meet higher mileage standards.
     A year after the Chrysler loan, Ronald Reagan ousted Carter and it didn’t take long for the country to return to its fuel-wasting days and a large-scale ignorance of the need for conservation. The U.S. automakers merrily went along with that mood and began manipulating the mileage standards so they could continue building ever bigger vehicles getting relatively low mileage and spending billions in advertising to convince the American public bigger was better and pooh-poohing the need to conserve newly abundant gasoline. Eventually Chrysler recovered enough to make it attractive to a German automaker, which swallowed it up, reducing the U.S. automaker number to just two.
     Volvo, Toyota, Honda and several other foreign car makers continued with their business models of the early 1970s, continued to make ever-more reliable, safe and fuel-efficient models and exploring alternatives to the old-fashioned combustion engine that still ran all cars. U.S. automakers could have done the same thing, but they did not; all they were interested in was getting around the regulations, getting their friends in Congress to eliminate them or at least weaken them.
     Prodded by the U.S. auto industry, Americans began buying bigger and bigger cars, moved to SUVs and macho trucks, such as Hummers, so big some psychologists termed them penis substitutes. They also moved much of the manufacturing of the parts for their vehicles to Mexico and other countries, so most of the elements of their cars ended up foreign-made.
     As Detroit advertised its way to a return to its old profligacy, foreign automakers began making cars in the United States (notably in states antithetical to labor unions), research alternative fuels and gas-conserving models and, particularly Toyota and Honda, building reputations as makers of the world’s best-made cars.
     When the new gas crisis hit the United States, motorists found themselves driving gas guzzlers as the average price of gasoline more than doubled. Foreign makers had joined in some of the mad rush to gas-guzzlers, but kept their eyes on the prize, so they weathered the new crisis in much better shape than U.S. automakers (Chrysler had returned to U.S. ownership) and well-suited to move U.S. automakers all the way out of the title of the “big three.”
     Therefore, the government needs to focus on helping auto industry employees at this point, as well as the state of Michigan and the city of Detroit and all the other towns across the country that depend on Detroit and its suppliers. But help the automakers themselves? Why?
     We already know how the U.S. automakers are going to behave after the current financial crisis begins to ease in a year or two. The same way they did after the previous crisis, and guess how the executives of those three firms fared during the relatively plentiful years.


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