A quarter
century later, President Bush appears to have decided that neither
General Motors – once the target of federal trustbusters
-- nor Ford is too big to fail. He didn’t flatly rule out
federal aid, but in an interview he pointedly suggested that the
American automakers need to develop “a product that’s
relevant.” And, he added, “I think it’s very
important for the market to function.”
He’s
right about all that. But then it has been the federal government
itself that posed the biggest impediments to the functioning of
the marketplace, particularly in the American auto industry.
To be sure,
there are other reasons: mismanagement and the recovery of Europe
and Asia industry from World War II and communism, for example.
But GM and Ford are doing fairly well overseas. The big problem
is here at home. And the reason is that over the decades, federal
policy has reduced the American automakers to the heavily regulated
status of utilities.
Though the
government doesn’t directly set the rate of return, it does
so indirectly through the action of mandatory labor laws that
allow unions to ratchet up wages whenever there is a profit –
or even when there is little or no profit.
This reflects
the “progressive” theory that the workers need a union
to balance the supposedly ruthless, unchecked power of the corporation.
This might have seemed to make sense in a market dominated by
just three companies. But in the age of what Bill Ford Jr. last
week rightly termed the Big Six, it makes no sense at all. The
requirement to negotiate with the unions has made it all but impossible
to adapt quickly and flexibly to sudden changes in the marketplace.
Unless the
underlying problems are fixed, American automakers will always
be operating with one arm tied behind their back. Cost-cutting
is simply the slow road to extinction. The 14 plant closings announced
by Ford last week won’t actually be implemented for several
years, and the 25,000 laid-off workers will be shuffled into the
“jobs bank,” where they will continue to draw full
pay and benefits indefinitely – because of the existing
union contract.
Bankruptcy
is widely seen as a way around this problem. Federal judges can
abrogate contracts. But threatening an airline attendants union
in such a fashion is one thing; threatening the United Auto Workers
is another. A strike, or even work-to-rule, would be potentially
fatal, leaving the market to the tender mercies of competitors.
Fear of just such a showdown at its chief parts supplier, the
bankrupt Delphi Corp., has caused GM to commit a substantial chunk
of cash for Delphi’s pay and benefits – even as GM
itself was reporting an astonishing $.8.6 billion loss for 2005.
Miracles
do happen. The no-longer-so-Big Three are starting to produce
some fine products. When it was at death’s door in the 1980s,
Ford put everything it had behind the peanut-shaped Taurus –
and enjoyed a spectacular return to profitability.
Alas the
profits were soon eaten up by new union contracts. Even Chrysler’s
bailout was only a temporary palliative; it’s now part of
Daimler. Unless the political will is somehow found to create
policies that are “relevant” to the 21st century,
the prospect is that some day the Big Six will once again become
the Big Three – and headquartered somewhere else than Detroit.
