Thursday, November 20, 2008

Please, No Bailout for Detroit

I was listening to the Jim Bohannon Show on the radio and wrote him an email with the following points. The points may seem a little incoherent without the context of the discussion on the radio, but here they are:

Foreign-owned car companies are still American companies. They have American plants that employ American workers that build cars for the American market. When foreign companies have physical money-making assets in America, it makes them much more reliant upon us than it makes us reliant upon them. The assets are physically in OUR country. Foreign goverments are much less likely to take actions against our interests if they have investments in our country. Would you pick a fight with someone who had some of your valuable possessions?

It's not like consumer demand for autos will go away completely. Sure, demand is down right but it will bounce back, and demand for car repair services will remain too. If one or more of the "Big 3" lose market share, that is because people are freely choosing to buy other companies cars. If one companies went out of business completely, the rest of the companies would be strengthened.

There will still be a need to build cars. The question is really who builds them where. Michigan, with their anti-business policies and over-protection of the harmful auto unions (harmful to running a profitable business) will lose jobs, but numerous other states where Toyota, Honda, and Nissan produce cars will gain jobs. A bailout will simply subsidize Michigan's bad choices and transfer the costs of their economic decisions to the rest of the US taxpayers.

Sure, the credit crunch hurt the auto industry as a whole, and the weakest companies may not, and should not survive, at least not without restructuring. We've got to get away from subsidizing bad businesses and thereby removing the incentive for change.

A bankruptcy would help the Big 3 break free of some of the crippling constraints put on them by the unions. The Big 3 total labor cost per employee is $73/hr., while Toyota, Honda, and Nissan average $44/hr, and the average American worker recieves $29/hr. Chrysler employees get 35 days of paid vacation/holidays per year. Employees are paid even while laid off, and there are even more retirees receiving generous pensions than there are employees receiving generous pay for 35-40 hrs/week of work.

The Big 3 also suffer from a productivity gap with the Toyota, Honda, and Nissan. The Big 3 have been getting better but still lag behind. That is, they take 20% more worker hours to produce a vehicle.

Given all of this, I am opposed to my money going to pay union salaries and benefits in Michigan.

Here are a few more thoughts beyond what I wrote to Jim Bohannon:

I am not without sympathy for those in Michigan and elsewhere around the country whose jobs would be affected by this, but the effect is not the "3 million" jobs being bandied about. That figure includes any job that is related to the Big 3 automakers, including repair centers and dealerships around the country. The fact is that if Big 3 cars will still need to be repaired, and if Big 3 dealerships close, then Toyota, Honda, Nissan, etc., will open more dealerships as their market share increases. And consumers will end up with cheaper, more reliable cars.

Further, if any of the Big 3 go bankrupt, it would not mean that every auto worker would lose their jobs. Obviously some would, but most won't. And whoever is satisfying consumer demand for autos and increasing market share will be hiring employees too.

The trouble some auto companies are having is simply not the same systemic threat that the financial sector crisis posed.

UPDATE: Romney concurs

1 comment:

Anonymous said...

I agree that we shouldn't bail out the big 3, I think they should take responsibility for thier own actions. We don't give tons of money to just any buisness when it is going bankrup, that wouldn't make sense. So why now?? It's not like if they go bankrupt there will not be any car, there are other companies building cars that are doing just fine. So let these buisnesses follow the natural course of events and don't try and supperficialy interfere!