Stick the Fork in General Motors?

 

 

In the late 1960s a friend of mine drove up to my house to show off his new car, a tiny green Datsun. In those days, we considered anything from Japan junk and this four-door sardine can did nothing to change my opinion. But Datsun eventually became Nissan, and less than 20 years later, Congress was compelled to restrict Japanese imports to protect our domestic car manufacturers.

The Japanese responded quietly but effectively by building automotive plants within the United States. Nissan has one in Tennessee while Toyota has five with another under construction. Honda followed and then along came Mercedes-Benz, Hyundai along with other foreign competitors, which located factories in rural American counties. These are all non-union facilities with comparable Big Three pay and health packages but considerably less retirement benefits.

Our own auto industry has taken its show on the road as well. General Motors and Ford have successful overseas operations, but they have managed to run their domestic operations into the ground. Our auto industry assumed that cheap fuel and easy credit would be a mainstay. Whether management was incompetent or shortsighted, they’re now seeking a government bailout, which begs the question: We have an estimated 250 million registered vehicles in America – do we need one car for nearly every person living in this country? Do we need to prop up the auto industry up by selling more cars to many people who may not be able to afford them?

The Hummer, muscle cars and the Yukon XL are only some examples of how companies clung to their fuel hogs while their competitors saw the gas fumes in the ether and got it right. (The 2009 Ford F-150 is rated at 16/MPH on the highway. If the government lends a helping hand, shouldn’t stricter mileage requirements be part of the package?)

Government is under a lot of pressure from many corners. The UAW has about 200,000 active members building cars and another 400,000 members in ancillary-related industries. To this amount, add spouses, children, and retirees. This is an enormous voting block. It would be nice to imagine that offering Motown a helping hand is an apolitical act, but we all know better.

I truly believe management is culpable although the union has contributed to the industry’s woes. (On a personal note, I was a Teamster for several years and later a shop steward for the Machinist’s Union at JFK International Airport.) Many fine people would potentially lose their jobs and an enormous segment of our economy would collapse at the worst possible economic moment should these giant corporations go under.

The federal deal that’s supposed to get the engine humming again is this: Automakers are about to receive $25 billion in subsidized loans to retool and now want another $25 billion on the same terms to fund retiree health benefits. I consider the lack of adequate funding for the retirees as absolute mismanagement. We have already arbitrarily bailed out banks, insurance companies and investment firms. With this precedent, we can expect many other businesses, both small and large, to line up at the trough. (And let’s not forget the billions loaned to the airline industry after 9/11, a move that did little to stave off bankruptcy for several carriers. It is not hard to guess who has paid for that small dalliance.)

We need to discern if this potential bailout is an investment or gift. At the very least, stockholders, bondholders and executives should not benefit at taxpayer expense. Even with the loans, there are no guarantees that the domestic car industry will be any healthier in the future—or that the U.S. taxpayer will remain the responsible party for the debt.

We should also not lose sight that the foreign automobile manufacturers in the United States are profitable and they pay taxes, as opposed to our hallmark companies, which do the opposite.

We’ve come a long way since the days of those clunker Datsuns when “made in the U.S.A.” was almost a religion. But the game is bigger now and we’re playing on a complex global playing field and this requires a different strategy.

In the case of the automakers, we have ailing American companies operating overseas, and healthy foreign companies operating in America. If foreign investment in America is not treated evenhandedly, or if American companies are allowed to live on life support through subsidies, the ultimate consequences will be more far reaching than sticking the fork in General Motors.

Tags: Ford, GM, U.S. car companies