Mitt Romney lays out the fundamentals of change needed by the the Big Three U.S. automakers. The fundamental problems result in a cost per auto ~$2,000 more, mostly for labor costs for U.S. cars than for Japanese cars.
Update from WSJ 11/17/08:
"Senate Democrats plan to introduce legislation today that would provide $25 billion from the $700 billion Wall Street bailout package for the auto makers, the Detroit News reports. The Bush administration has come up with an alternative that would let the car companies "take $25 billion in loans previously approved to develop fuel-efficient vehicles and use the money for more immediate needs" the Associated Press says. Democrats are seeking more money because they don't want funds targeting fuel efficiency to be used for other reasons, such as bridge financing, the Detroit News says, but President Bush doesn't want TARP funds extended to industrial or other nonfinancial firms."
David Brooks outlines the upside and downside of bailing out the U.S. auto makers. He's right. It is a hard call, but I think I come down on the side of not preventing bankruptcy, painful as that is for all concerned. How else to right the archaic industry model that has such huge embedded costs and sclerotic thinking?
With reasoned thinking, a bankruptcy court may well do what the Congress and Executive branch cannot.
The worst scenario is to pour government $ into preventing failure only to have it happen anyway later.
"This is an excruciatingly hard call. A case could be made for keeping the Big Three afloat as a jobs program until the economy gets better and then letting them go bankrupt. But the most persuasive experts argue that bankruptcy is the least horrible option. Airline, steel and retail companies have gone through bankruptcy proceedings and adjusted. It would be a less politically tainted process. Government could use that $50 billion — and more — to help the workers who are going to be displaced no matter what.
But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success."
Op-Ed Columnist - Bailout to Nowhere - NYTimes.com
2 comments:
I don't know whether it's folklore or not but I recall that Henry Ford's concept of labor and industrial relations was that if you paid your workers well they could afford to buy the very cars they were producing and this would stimulate the economy.
Have things flipped the other way today so labor unions have all the power and need to give the corporations a break? Are workers making it impossible for the auto industry to compete?
Whatever the answer is, Ford has their most advanced factory in Brazil now...
"Ford's most advanced assembly plant operates in rural Brazil,"
http://info.detnews.com/video/index.cfm?id=1189
So, who will buy these cars? The Americans? But they don't have jobs! So, it seems that Ford will makes cars in lower wage areas of the world and sell the lower cost cars to those who do have jobs -- in China, or in other developing South American countries. Of course, some in the US too... but...
So, so-called US corporations go international and have no commitments to the US.
So, what's left? Are we supposed to cry about it? No. Americans need to build the new markets and forget the past. We have to tap into our creative powers again.
But it seems that affluence isn't enough to push us forward. We're not so creative with our hard won leisure time. So, what's left? Necessity! Things have to get really bad I guess before we act.
What's the first obstacle? I saw a very interesting program this week on Canadian Broadcasting Co. about how there are all sorts of innovative businesses that want to introduce new energy production facilities (sorry I forget the exact production methods but they were diverse) and they have to wait many years to get government approval... still waiting after 10 years, hiring lawyers to fight the government to allow them to proceed.
The implication was that the governement has committed itself to supporting existing, large-scale power providers and does not want to promote competition by allowing new innovative facilities that contribute energy to the power grid.
So, it seems that essentially what we're dealing with here is another form of socialism, where the government gets so involved in business that they begin to create inefficiencies, create monopolies or oligopolies ("a market form in which a market or industry is dominated by a small number of sellers" wikipedia)...
I'm not sure how this applies to the US, whether it's exactly the same... but anyway, the idea is that we need to make government allow new industries to emerge more easily. And I don't mean left liberal activist nutty ideas like placing a few (or even many) windmills on Vermont ridgelines! But instead changing the role of government from the decider who supports certain businesses and protects them from emerging businesses, to a facilitator of industry, like a moderator's role.
Toby,
(my comments in italics)
I don't know whether it's folklore or not but I recall that Henry Ford's concept of labor and industrial relations was that if you paid your workers well they could afford to buy the very cars they were producing and this would stimulate the economy.
I think that's true. When Ford first began producing autos he paid wages significantly above the norm for manufacturing jobs, $5.00/day as I recall.
Have things flipped the other way today so labor unions have all the power and need to give the corporations a break? Are workers making it impossible for the auto industry to compete?
The fact that union wages and benefits are far too high compared to foreign producers is a result of the bargaining between labor and management in the heyday of the auto industry. Management of one company did not want a devastating strike that would cause it to lose sales to its U.S. rivals.
Remember that the UAW bargaining strategy was always to pick one company to bargain with, usually the one they though may be weakest at the time so that the contract reached would set the standard for the other companies when their labor contracts expired. This divide and conquer strategy was successful for Walter Reuther and George Meany in the old days. The result is the high cost of labor per automobile today.
Now a reckoning is at hand.
Whatever the answer is, Ford has their most advanced factory in Brazil now...
"Ford's most advanced assembly plant operates in rural Brazil,"
http://info.detnews.com/video/index.cfm?id=1189
So now that the days of global competition and other countries' economies are growing rapidly, Ford and others build where the action is, i.e., strong markets and lower labor costs. This is the same strategy as Toyota's which has built several auto plants in the U.S. and Canada.
So, who will buy these cars? The Americans? But they don't have jobs! So, it seems that Ford will makes cars in lower wage areas of the world and sell the lower cost cars to those who do have jobs -- in China, or in other developing South American countries. Of course, some in the US too... but...
So, so-called US corporations go international and have no commitments to the US.
Remember that a corporation's responsibility, first and foremost in a relatively free market society is to its owners, the shareowners and those people from whom it borrows money.
I agree that we need to become creative again. The whole country was built around the notion of 'creative destruction,' where new, different and better companies replaced older businesses and business models. This reality has been mostly driven by technology that was 'faster, better or cheaper.
When the government inserts itself deeply into a corporation as a shareowner or bond holder, the risk rises that even more bureaucracy will be created, this time at taxpayer expense.
So, what's left? Are we supposed to cry about it? No. Americans need to build the new markets and forget the past. We have to tap into our creative powers again.
But it seems that affluence isn't enough to push us forward. We're not so creative with our hard won leisure time. So, what's left? Necessity! Things have to get really bad I guess before we act.
What's the first obstacle? I saw a very interesting program this week on Canadian Broadcasting Co. about how there are all sorts of innovative businesses that want to introduce new energy production facilities (sorry I forget the exact production methods but they were diverse) and they have to wait many years to get government approval... still waiting after 10 years, hiring lawyers to fight the government to allow them to proceed.
The implication was that the government has committed itself to supporting existing, large-scale power providers and does not want to promote competition by allowing new innovative facilities that contribute energy to the power grid.
So, it seems that essentially what we're dealing with here is another form of socialism, where the government gets so involved in business that they begin to create inefficiencies, create monopolies or oligopolies ("a market form in which a market or industry is dominated by a small number of sellers" wikipedia)...
I'm not sure how this applies to the US, whether it's exactly the same... but anyway, the idea is that we need to make government allow new industries to emerge more easily. And I don't mean left liberal activist nutty ideas like placing a few (or even many) windmills on Vermont ridgelines! But instead changing the role of government from the decider who supports certain businesses and protects them from emerging businesses, to a facilitator of industry, like a moderator's role.
I believe you have hit the nail on the head, Toby. Where government has helped most in the past is not by picking winners and losers, but funding research and development with programs that create and release technology to be embraced in corporate settings. Think NASA, DARPA, the National Science Foundation, the National Institutes of Health and others.
The key is not to fence in creativity with government bureaucracy, rules and regulations.
So I don't think 'moderator' is the best descriptor. I'd say 'catalyst' or 'energizer.'
Post a Comment