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U.S. Auto Industry Crashes; Taxpayers Serve as Airbag

Paulson's big bailout has distracted us from yet another that is possibly even less deserved.

by
Tom Blumer

Bio

October 2, 2008 - 8:30 am
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My late father and I had frequent and sometimes heated discussions about the state of the auto industry during the late 1960s and early 1970s.

I was the smart alec at the dinner table and in the passenger seat on the way home from high school who came down on the side of “exploited, alienated” labor.

Dad, while intensely loyal to American-made goods — he had difficulty convincing himself that buying a used Toyota would not harm U.S. industry — warned that gold-plated labor agreements and management arrogance would ultimately bankrupt the Big Three (General Motors, Ford, and Chrysler). He decried the UAW’s greed and management’s capitulation, warning that they were all too shortsighted to recognize that they had created the conditions that would lead to the industry’s demise — and that when it came, the joke would be on them.

I remember saying at one point, “Well, if I’m the worker, and I can get overpaid while I work, and make it to retirement with a nice pension while the company suffers or even goes out of business, who was the joke really on?”

Forgive me. I was only sixteen.

There’s no forgiving the Big Three and the UAW. With the exception of a brief period during the late 1970s and early 1980s, they have rarely shown a level of maturity beyond that of a 16-year-old.

By the late 1970s, Detroit was in serious trouble. Ford lost $1 billion one year, a prince’s ransom at the time. GM suffered similarly. Chrysler went to the government and got $675 million in loan guarantees, or about $2 billion in today’s dollars. As you’ll see shortly, today’s taxpayers should be so lucky.

Facing real adversity, the companies and the union took some short-lived stabs at growing up. Ford’s proactive employee involvement program generated serious cost savings. The company even started doing what had previously been nearly impossible — firing line employees for stealing, with the union backing them up instead of defending the indefensible. Similar efforts bore some fruit at GM and Chrysler. But the improvements did not go nearly far enough or last long enough.

Then in the early 1980s, Detroit asked Ronald Reagan for, and got relief from, “unfair” competition from foreign imports. A 1985 Heritage Foundation study noted that “the [resulting] quotas were imposed in response to pleas by the U.S. auto industry that it needed time to grow strong enough to compete with the imports on the free market.” In reality, they enabled the industry and the union to avoid making the difficult decisions necessary for long-term viability.

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