A Rational Look at the U.S. Auto Industry
I’m surprised at the ANGER millions of Americans feel towards the domestic auto industry. This anger is based somewhat on three myths.
MYTH #1: The Big 3 always lose money and always will. FACT: The U.S. auto manufacturers were making money earlier in 2008, before the deep recession hit. The auto industry’s problems are not unique. A virtual Who’s Who of American companies are in trouble, as are foreign companies. Even Toyota posted their first loss in over 70 years!
MYTH #2: The Big 3 are in trouble because they stupidly concentrated on the production of trucks and SUV’s. FACT: American companies, because of their high labor costs, do not make any money with smaller vehicles. You can argue that they should never have agreed to the high labor contracts, but that’s a different issue. Given the differential in how much Detroit pays its workers, versus the labor costs of their foreign competitors, the Big 3 had to produce gas guzzlers, or go under.
MYTH #3: There is a level playing field worldwide, so U.S. Auto Makers should be able to survive without government help. FACT: Foreign governments help their own automakers in many ways. The most important is government-subsidized health care. America is one of the few major countries that does not have Universal Health Care. Remove the cost of health care from domestic auto contracts, and the Big 3 would be in a much stronger position. I am not endorsing nor opposing Universal Health Care, just pointing out that Detroit is at a disadvantage because the American government is less supportive than foreign governments of their domestic auto industries.
WHAT IS THE SOLUTION? Just about everyone agrees that theU.S. auto industry cannot survive without a major RESTRUCTURING. First and foremost, The Big 3 cannot continue to pay significantly more to their employees than their foreign competitors. Whether a Chapter 11 Bankruptcy Proceeding would be the best way to restructure wage contracts is a matter of opinion, with experts disagreeing. The recent “emergency bridge loan” of billions of dollars by the federal government is providing a very brief window of time for the United Auto Workers to agree to the painful slashing of their contracts. If they refuse, then the American car industry is doomed to extinction.
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