Ron Morley's Freedom Blog : auto industry

More money to be wasted on U.S. auto industry

Ronald D. Morley — Sun, 29 Mar 2009 14:36:00 GMT

It's the day before we are supposed to be told whether or not the Federal government will continue to shovel money into the hands of the moribund American automakers, GM and Chrysler. In spite of protestations from the White House that “bankruptcy is an option” there is, and I don't think I'm going out on much of a limb here, no chance that the companies will be allowed to enter Chapter 11 proceedings. This situation can no longer be viewed as strictly an economic question: what's best for the economy overall?, but from a political viewpoint: what's best for the Obama regime? Looked at from that standpoint the answer is obvious as to the course the Federal government will take – more money will be wasted in an attempt to keep ineffective corporations afloat, the only question will be – how much more of the taxpayers' money will be wasted to gain political favor for the new President?

The Obama regime (yes, I'm aware of the connotations of the word, but “group of sycophantic toadies” is too long for general use), and its allies, will mount a large propaganda campaign in order to justify the waste of still more money that the country doesn't have, in order to prop up corporations that have shown themselves incapable of making good use of their resources. Nothing has really changed since the last time the Federal government made “bridge loans” to the automakers. The unemployment situation is worse than it was in late November, so we'll be told that the country can't take the chance of losing the supposed three million jobs that directly or indirectly depend on the U.S. automakers continuing in business. On top of that, since the State now has a financial interest in the companies, we'll be told that further “investment” is needed in order to “protect the investment taxpayers have already made” - the State's excuse for throwing good money after all. And, I suspect, we'll hear about how our “national security” depends on the continued existence of a “viable” American automotive industry.

This last is totally specious as automotive factories are not suitable for manufacturing tanks, APCs, or most of the rest of the panoply of modern war. The only vehicles the auto companies produce, on a routine basis, for the armed forces are Hummers and trucks – which could be purchased elsewhere if needed. The idea that automobile plants could be converted to the production of heavy equipment, as was done during WWII, is no longer viable. Given the pace of any large conventional war the conflict would be over long before the needed conversion could take place. Even in WWII it took the better part of eighteen months before significant military production was rolling off Detroit's assembly lines and the process was sped up to some degree because large amounts of manufacturing capacity was still idle from the effects of the Great Depression and didn't need to be shut down prior to being converted to military use. In the long run our nation's security interests would be far better served by strengthening the economy over the long run by ending State interference in the marketplace – the very sort of interference that is being pushed as the solution to our economic ills.

We will be told that the recent report of General Motors' auditors, which expressed grave doubt as to the company's ability to continue as a “going concern”, is overly pessimistic. The State's propaganda mill will push the idea that all that is needed is to make sure that GM continues to operate during the current economic crisis. The company will announce that its coming products, such as the Chevy “Volt”, a high-priced (recent estimates put the price at ~$35,000) “green” vehicle, will allow the organization to regain profitability as soon as the economy recovers from the current downturn. We will be asked to suspend disbelief, in much the same manner as when we go see a science fiction movie, and accept the idea that the automakers will be competitive when things improve, in spite of all the historic evidence to the contrary. All that will need to be done is to shovel more billions of dollars of “loans” to GM, loans which are supposed to be repaid, in order to assure that this rosy view of the future comes true. No mention will be made of the fact that GM's indebtedness to the Federal government will approach the amount it owes its UAW-approved healthcare trust fund. It is costs associated with on-going healthcare expenses (an estimated $47 billion) that are a large part of GM's financial problems; yet, somehow repaying government loans will not have the same effect on the corporation's balance sheet. This type of thinking can only come from government employees who have access to unlimited funds thanks to their ability to reach directly into the pockets of every American.

Finally, the Obama regime cannot afford to alienate the country's labor union movement, which would surely happen if the UAW was not to be given a huge chunk of the public's money. The simple fact is that the UAW, in spite of all the damage it has done to the automakers over the last fifty years, is to be rewarded by being granted the opportunity to feed at the public trough. Ordinary Americans, most of whom make considerably less than the average UAW worker, will be required to subsidize the lifestyles of those workers. Labor inefficiency will be rewarded at the expense of the overall economy. The majority of Americans will be required to accept a lower standard of living so that a few politically connected workers may be spared the “economic turmoil” that the rest of us will be subjected to.

So, come midweek, don't be surprised to hear that the Federal government, after having carefully examined “all options”, will “invest” more money in the dying American automotive industry. It will make no sense economically. Indeed, it will be counterproductive in the long term. However, politics is more important, in Washington, D.C., than anything else, including the long term health of the overall American economy.

More Washington hypocrisy and the State takeover of the auto industry

Ronald D. Morley — Fri, 12 Dec 2008 14:52:00 GMT

The hypocrisy which surrounds the proposed bailout of the U.S. auto industry is reaching heights rarely seen, even in Washington, D.C. The automakers are being held to a totally different standard than is the UAW, which is, at least, partially responsible for the dire financial straits that the car manufacturers find themselves in. The politicians who support the bill, and are revealing themselves to be Statists of the worst sort in the process, are not calling on the union to make the sorts of changes they are demanding of the automakers. The UAW is not being told that it must make the wage and benefit concessions that are needed if the Big Three are to regain any type of long-term financial stability. This point has been driven home, in no uncertain terms, this morning after last night's failure of the Senate to pass the bailout bill. Not one of the Democrats who are so eager to expand the power of the Federal government, House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, Senators Christopher Dodd, Diane Feinstein, Debby Stabenow, Carl Levin, and others, have called the UAW to task for failing to make wage and benefit concessions. UAW President Ron Gettelfinger stated yesterday, prior to the Senate vote, that the union would not make any concessions in the area of wages and benefits. Yet the Statists are strangely silent about the union's role in the breakdown of the domestic automakers' financial positions.

Not one of the supporters of the bailout of the auto industry is willing to take on the UAW. Instead, supporters of the move, such as Michigan's Governor Jennifer Granholm, are loudly shouting that the Senate Republicans killed the bill as an act of revenge against the UAW. Americans are being told that failure to nationalize the industry, euphemistically called “making bridge loans to the companies,” will result in the total loss of America's manufacturing base. One of Governor Granholm's arguments, made in an interview on NPR's “Morning Edition” today, is that failure of one of the Big Three will “cause a ripple effect throughout the economy” in the form of failure of suppliers to the industry. The governor then went on to state that such failures would have an adverse effect on foreign automakers such as Honda and Toyota because they are also customers of the same companies that supply parts to the Big Three. There is, evidently, no chance that the parts suppliers will shift production to meet the demands of the foreign companies, or move into new fields of endeavor.

The UAW has been told that it doesn't have to make wage and benefit concessions as, according to Governor Granholm, “the union has already done that.” This is patently untrue as UAW wages and benefits are still significantly higher than those of the non-unionized employees of the foreign auto companies. Why is the union not being required to make changes in the same way that the Big Three are? Why is UAW President Ron Gettelfinger not being hauled in front of Congressional committees to answer questions, such as why union workers should be exempted from the pain being suffered by those of us who aren't paid outrageous wages for performing jobs that have been made as simple and repetitious as possible? Why should most Americans be required to finance the lifestyles of a relatively small number of employees of companies which face dissolution no matter how much money is “invested” in them by the State? The answer is simple: union votes are more important to Statist politicians than is the overall health of the United States. Hypocrisy reigns supreme in Washington and ordinary Americans will pay the price in further economic troubles and loss of yet more freedom as the State absorbs another chunk of the economy.

Of course, all of the above was written before word came from the White House that President Bush is going to allow money from the $700 billion Wall Street bailout to go to the automakers. The Big Three will become simply another arm of the government and the American people will pay a high price in economic terms and loss of yet more freedom. This doesn't change the points made above, but it does mean that the Statists have scored another victory through the use of lies and distortions.

Facts, distortions, and the coming auto company bailout

Ronald D. Morley — Mon, 24 Nov 2008 00:31:00 GMT

The debate continues, among the economically illiterate lawmakers in Washington, D.C. About whether or not the Federal government should make some $25 billion available to the Detroit automakers to, supposedly, enable them to remain in business. As part of the theater surrounding this debate the Senate Finance Committee held a hearing today, 11/18/2008, at which the various Senators on the panel questioned executives of the GM, Ford, and Chrysler. During this process Connecticut Senator Chris Dodd, a supporter of wasting the taxpayer's money, trotted out what has become an all to familiar litany of Detroit's supposed sins and bad business decisions.

These bad business decisions include: not building cars that American want to buy; not “looking to the future” for their supposed failure to develop high mileage autos; resisting the imposition of Federal regulations such as higher CAFE mileage requirements, air bags, and ABS; and, of course, paying their executives “too much.” These canards have been repeated so frequently that they have become part of American folklore and few people stop to think about the truthfulness of the statements. On the whole the wide-spread acceptance of these so-called “facts” is further proof that Joseph Goebbels was correct; repeat a big enough lie often enough and people come to accept it as the truth.

Few of the charges against the Detroit automakers hold water when one really looks at them. Take the oft-repeated assertion that Detroit has failed to “build cars that Americans want to buy.” Until gasoline prices spiked this last summer that statement was, on its face, untrue. If Americans did not want to buy SUVs and large fuel-inefficient pickup trucks, why were so many of them being sold? And they were being sold not only by the Big Three. Honda, Toyota, Nissan, and other companies were also busily cranking out this type of vehicle by the tens and hundreds of thousands. And guess what? The fuel efficient cars that Americans supposedly wanted so badly to purchase sat on dealer's lots. Even Toyota's ballyhooed Prius failed to set sales records because Americans wanted to, and did, purchase larger vehicles that they perceived as being better able to meet their day to day transportation requirements.

Only when gasoline prices went above $4 per gallon did Americans suddenly begin to demand that large numbers of small, fuel-efficient vehicles be available for them to purchase. Guess what? It's not possible for the automakers to instantly re-tool their production facilities and begin turning out the much larger numbers, of the now popular small cars, required to meet all of the market's demand. It's unfortunate that the State-inspired housing bubble burst at the same time that Detroit, and other automakers, faced large re-tooling costs, but that is not a sign that the management of the Detroit car companies are incompetent. One has only to look at the inventories of Honda, Toyota, Nissan, etc. to see that those companies also have large numbers of unsold SUVs and pickups on their books.

The main reason that Detroit companies are facing dissolution and the foreign companies are not, does not lie entirely with management incompetence, but with the cost structures of the companies. And here is where Detroit has problems that cannot be resolved short of allowing the Big Three to go bankrupt if necessary. The simple fact is that Detroit's labor casts are far out of line with what the auto market will support. The inflated wages demanded, and won, by the UAW over the last fifty years of contract negotiations are no longer supportable in a global automobile marketplace. Detroit's labor costs are two to three times that of their foreign competitors and American workers are no longer productive enough, nor are profit margins high enough, to allow that state of affairs to continue.

Of course, it's much more palatable for our so-called “leaders” in Washington, D.C. to upbraid the management of the Detroit automakers, and they are not blameless in this mess, than it is for them to tell the American people the truth about UAW wage rates. Given UAW President Ron Gettelfinger's statements in the last several days that “it would be unfair” to ask “the workers” to make any more sacrifices to keep the American auto industry intact, it is unlikely that any of our lawmakers will make wage and benefit concessions any part of the new regulatory regime that the Detroit manufacturers will face when the bailout is finally approved, as it will be when Barak Obama assumes power at the latest. Rather, the State will require that the Detroit companies manufacture small fuel-efficient vehicles, which are already going back out of style with the reduction of fuel prices in the last few weeks. There will be more regulations regarding such things as executive pay and benefits, research and development efforts, and whatever else any given lawmaker's favorite hobby-horse is. None of that will help Detroit's balance sheets at all.

Until the Big Three are allowed to go bankrupt, as it appears certain they will so long as the State is kept from “rescuing” them, they will continue to be uncompetitive, primarily, because of their labor costs. If nothing else is accepted as an argument against a Federal bailout of the Detroit automakers it is this: until the industry's cost structure is brought into line with the realities of global competition any money which the taxpayers of the United States give to the Detroit companies will simply be wasted. This is because the “loans” would only put off the inevitable day of reckoning and will end up being a classic case of throwing good money after bad. Of course, once the Obama regime makes the bailout a fact, further losses will be used as a reason for sending yet further money to the companies, since it will be seen as senseless to have wasted the $25 billion currently being discussed. Lawmakers will find it easier to continue shoveling money into the pockets of overpaid U.S. autoworkers than they will to either stand up to the UAW and insist that it lower its wage demands, or to admit that the initial bailout made no economic sense in the first place. It will be easier to continue to heap opprobrium on the management of the car companies and to increase the control the Federal government will exercise over yet another section of the American economy than it will be for of leaders to admit that they were wrong and the marketplace was right.