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December 1, 2008

On Bailing out an unsalvageable dinasaur industry

Topics: Political News and commentaries
Listening to U.S. automakers you could easily believe that companies that produce cars can't do so profitably in the U.S.

However, as the Wall Street Journal makes abundantly clear, that just isn't so; there are, indeed, 12 companies that produce cars profitably in the U.S. and these car makers are gaining market share and adjusting amid the sales slump, without seeking a cent from the government.

[...] These are the 12 "foreign," or so-called transplant, producers making cars across America's South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

The root of this other industry's success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.

Consider labor costs. Take-home wages at the U.S. car makers average $28.42 an hour, according to the Center for Automotive Research. That's on par with $26 at Toyota, $24 at Honda and $21 at Hyundai. But include benefits, and the picture changes. Hourly labor costs are $44.20 on average for the non-Detroit producers, in line with most manufacturing jobs, but are $73.21 for Detroit.

This $29 cost gap reflects the way Big Three management and unions have conspired to make themselves uncompetitive -- increasingly so as their market share has collapsed (see the nearby chart). Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one.

[...]

Last year Detroit struck a deal with the unions to unload retiree health obligations by 2010 to a trust fund set up by the UAW. The trio's productivity has improved as well. In 1995, a GM car took 46 hours to make, Chrysler 43 and Toyota 29.4. By 2006, according to Harbour Consulting, GM had moved it to 32.4 hours per vehicle and Chrysler 32.9. Toyota stayed at 29.9. Yet these moves born of desperation have come so late that the companies are still in jeopardy. Both management and unions chose to sign contracts that let them live better and work less efficiently in the short-term while condemning the companies to their current pass over time. It is deeply unfair for government now to ask taxpayers who have never earned such wages or benefits to shield the UAW and Detroit from the consequences of those contracts. There's no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it.

As Jennifer Rubin suggests at Commentary, it still isn't clear, as counter intuitive to do so as it may seem, if the President-elect and members of Congress will remain so "clouded in a haze of nostalgia for the "American car industry" (And they don't mean Honda)" that they will continue to be unwilling to force the hand of the companies into the most viable arrangement -- a prepackaged bankruptcy proceeding that would provide the legal framework for the massive reoorganization required to make these companies viable."

Perhaps the real question is whether or not the socialists and Marxists that will control Congress and the presidency once Obama is in office are so committed to replacing capitalism, the most successful economic system on the planet, with Welfare Capitalism, as a step to replacing the capitalism system completely in order to make us as socialist and as screwed up economically as the Europeans.

Posted by Hyscience at December 1, 2008 8:13 AM

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