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Detroit Deserves 40 Billion Bucks

For the wanton destruction of their business by the government.

By Will Offensicht  |  September 8, 2008

In a time when a Presidential campaign can burn through half a billion dollars, it's easy to overlook relatively small stuff.  Not only that, there's an unending line of individuals, companies, and pols' relatives with their hands out for government largess with all manner of arguments as to why they should have their hand in your pocket.

There are times it seems that everybody wants to get his snout in the public trough.  It's not often, though, that a supplicant argues that the taxpayer's money is theirs by right.  Reuters brings us news of just such a case:

Automakers deserve as much as $50 billion in government-backed loans so that they can build more fuel-efficient cars, according to a top General Motors executive, the New York Times reported. [emphasis added]

Indeed, the New York Times had this to say:

G.M.'s vice chairman, Robert A. Lutz, said the car companies need money to retool their plants but probably cannot raise enough capital on their own because of the tight credit markets. He said the automakers have already made considerable progress in transforming themselves and that the government should help them proceed faster.

The truly astounding thing is that the Big Three are right.  They really do have a legitimate claim on the taxpayers' money.

The Case Against It

We'd be the last to suggest that GM and friends deserve a loan on their merits or on their business acumen; they've made multiple bone-headed business blunders over the years.  We've pointed out how they gave up opportunities to let people who rent cars try out their vehicles at no cost to them; we ride in more foreign-made rental cars now than ever before.  We've also found their one-on-one marketing efforts to be pathetic.

It's hard to understand how we've changed from a world in which General Motors by itself sold the majority of American cars to today's situation in which all American car companies combined don't reach that level.  This took place over the course of decades!  Any company can have a bad few years with lousy leadership; all Detroit has been lousy for several lifetimes.

Considering their performance, the surprise isn't that they've slid so far, it's that they haven't slid farther: after all, they're still in business, for the time being at least.

As patriotism is the last refuge of the scoundrel, so government subsidy is the last refuge of an incompetently-run business.  Bearing in mind the sordid history of "corporate welfare", rightly held in utter contempt by the left and not nearly as derided by the right as it ought to be, we're not wild about auto companies getting any further into bed with government.

Back when they couldn't beat Japanese car companies on price or quality, the Big Three asked the government to make it illegal for Japanese car companies to send so many cars here.  We've explained how our negotiators lost that one.  When the agreement expired, Toyota wanted it extended; GM wanted it ended.

As customers, we'd prefer that the union-saturated Detroit manufacturers went out of business entirely.  The high costs the United Auto Workers impose on the Big Three let Japanese and Chinese car companies charge higher prices than they otherwise could.

They complain about their labor costs, but who pays in the end?  We do - it's all built into the prices they charge us.  When the UAW asks for more money, every penny comes out of our pockets.

We've explained how the New York Times broke their union to stay in business.  The issue wasn't just work rules and overmanning, they had problems with employee theft.  Unionized order entry clerks were pulling invoices out of the piles of computer input cards and splitting the proceeds with favored advertisers; when they handed over the card, the advertiser paid half the amount punched into the card.  Anyone familiar with the UAW knows that the Big Three have the same problem; God only knows to what extent.

Most non-union workers now understand that unionized firms either shrink, go offshore, or go out of business; that's why most workers no longer choose to be in unions.  Unions want to get rid of secret ballots in union elections so that their "organizers" can put pressure on individual workers to sign up, one pledge card at a time; such thuggery is the only remaining way they can get new dues-paying members.

Unfortunately, even without giving this unfair advantage to unions, Detroit doesn't seem to be able to muster the gumption to break their union chains once and for all.  If an organism can't defeat a parasite, the only way to get rid of the parasite is for the organism to die.

As the collapse of Eastern Airlines taught the airline unions a quarter-century ago that there was only so far you can push a company, it may be necessary for at least one of the Big Three to actually die - shut down, fail, go into liquidation, cease to be - for the facts of life to be made sufficiently clear to the others.  My Japanese friends told me years ago that they'd never have helped Chrysler when it got a government hand-out in the 80s - without a bankruptcy, you can't be sure the businesses are really in trouble.  After a death in the family, the survivors act much more reasonable.

If the American car companies were run by ethical, decent people hampered only by militant unions, we'd have more sympathy, but they aren't.  It's standard operating procedure for unions to accuse Evil Management of venality and corruption, but in this case the truth is probably worse than even the unions dare to state.

Federal Circuit case 02-1184, -1185 tells how Alan Waner sued Ford for infringing his patent on a plastic liner which kept fenders from rusting out.  One of the judges wrote:

The facts as set forth in the majority opinion do not reflect well on the Ford Motor Company.  Mr. Waner offered to sell them his idea for fender liners; they were interested; they then told him they were not interested, and proceeded to take his idea and place its embodiment on their vehicles.

The case was heard in a Detroit courtroom; Ford used its "home court advantage" to avoid paying Mr. Waner for his invention despite the judge's disgust with them.  The Big Three are not nice people to do business with - not as vendors, not as customers.  Suppliers work hard to sell to Toyota or Honda, but as Mr. Nick Scheele, President of Ford, pointed out in a 2002 email that went to all employees, the Big Three have become customers of "last resort."

The giant American car manufacturers are an illustration of the Confucian Cycle - at their peak they were larger than many countries.  As Confucius pointed out millennia ago, the only sure cure for a dysfunctional bureaucracy is the utter destruction of the organization that feeds it.  A leader of genius can "teach the elephant to dance" and save an organization that's lost its way, but it's usually simpler to let organizations go bankrupt so that new firms can grow up in their places.

The Big Three are large, 100-year-old bureaucracies.  They mistreat suppliers, they rob inventors under the protection of our "justice" system, but it's not because their employees are evil; they're normal human beings who are enmeshed in bureaucratic rules and procedures just like all the government employees you know and love.  Letting the companies go under would be in keeping with the capitalist principle of "creative destruction" whereby companies who lose sight of their customer's interests are discarded, because going bankrupt is a lot easier than fixing a bureaucracy.

No, the Big Three don't deserve government help because they're efficient, effective organizations.  They aren't.  Their unionized employees don't deserve a bail-out either; thanks to the union leadership they have chosen to elect, collectively they're greedy grabbers who want to force you and me to pay $50 per hour for tightening left nuts as cars come down the assembly line.  A plague on both their houses.

Why, then, do we say Detroit deserves $40 billion?

The Greater Threat

America was shocked when OJ Simpson was acquitted of murdering his wife.  Most Americans were convinced by the evidence presented on TV that Mr. Simpson had, in fact, committed the dual murder; a later civil court in effect declared the same thing, finding him civilly liable for the deaths of his wife and her lover.  What could have persuaded the jury to free a man who, according to all reasonable evidence, was a cold-blooded killer?

There's a simple reason.  Freeing a killer into the community is a threat to peace-loving members of that community; most killers kill again.  Mr. Simpson, however, killed only his wife and her lover; he did not represent a terribly large threat to innocent bystanders.

As long as nobody else marries him and is then unfaithful, the world is probably pretty safe from his predations.  In fact, nobody else has seen fit to marry him, nor has there been any intimation of more bloodshed.  Even so, why did the jury turn him loose?

The jurors saw a far greater threat before them, a threat to each and every one of them, a mortal threat to every member of the community.  In the person of the odious perjurer Mark Fuhrman, they saw a police department that had arrogated to itself the authority to decide who was and who wasn't guilty and to manufacture evidence as needed to reach the desired outcome.  In other words, the jury found that the LAPD had framed a guilty man.

Any police department which is comfortable with framing people, guilty or not, is vastly more dangerous than any individual murderer no matter how fearsome.  Even the most bloodthirsty mass murderer can kill at most a few dozen.  A corrupt police department operating under color of law can destroy the lives of countless thousands.

The jury decided to send a highly public message to the police - don't do that.  Mr. Simpson, guilty though he be, was lucky enough to benefit from the even greater guilt of someone else.

The automakers of Detroit are in just such a position.  True, they have damaged their own businesses through incompetence and greed, but that does not give government the right to gratuitously finish them off.

The Power to Destroy

We've previously explained the difference between communism and fascism.  Under communism, government owns everything.  Under fascism, businesses are nominally owned by private individuals, but government tells the businesses what they can and can't do.

Our government is becoming more and more fascistic in myriad ways both large and small.  We're all familiar with draconian zoning regulations which go so far as to take away a man's house when he didn't pay a fine for parking his own car in his own driveway.

In a less dramatic incident, my relatives bought a house lot for retirement.  After they'd paid land taxes for some years, zoning regulations changed to increase "set back," or the minimum distance from the road to the house.  Their land suddenly became unbuildable.  They'd been robbed by the government - their land was now worthless - but no compensation was forthcoming.

When the EPA tells a farmer he can't farm his own land because it's home to an endangered mouse, he's been subject to what lawyers call a "taking," which is when government takes something valuable from you but doesn't pay you.  This has become standard practice even though the Constitution forbids it.

Ecological types don't want government to have to pay compensation for takings because if people knew the costs the environmental movement imposes on us, they'd vote against them.  Similarly, people who want this or that building put on the "historical register" so the owner can't change it would rather steal from the property owner by regulatory fiat than pay to buy up his right to change the facade, or buy the building outright themselves and do with it as they will.

Automobile manufacturing is subject to uncounted numbers of regulations, many of which conflict with each other.  For example, they're under immense pressure to improve fuel economy.  When GM wanted to switch from round headlights to square lights to lower hoods a fraction, which would cut wind resistance and improve fuel economy, they had to get separate approvals in all 50 states.

What did that round of paperwork cost?  Who really paid for it?

We've explained how government regulations which mandate air bags save maybe 400 lives per year at a cost of at least $5 million per life saved because of the immense cost of putting $2,000 air bags in 10 million cars per year.

These and a multiplicity similar regulations impose tremendous costs on Detroit.  Despite the dire straits the American car companies are in, and the simplicity of administrative solutions, the government refuses to remove its foot from their throats.

No, quite the contrary; at the behest of environmental activists, Democratic congressmen and regulators intend to require them to completely change their business model, their manufacturing practices, and their entire operation, all at their own expense.

Letting the bureaucracy bankrupt the Big Three by enforcing all these new regulations would be utterly unjust; that would be as unfair a taking as not letting my relatives build a home on the land they'd bought for that purpose.

No, if we won't insist that our government change the regulations to let Detroit survive at low cost, we'll have to pay to let them survive at high cost.  It's only right.

The Bottom Line

If we bail out the Big Three, though, we ought to remember that when we last bailed out Chrysler, the unions took a hefty pay cut and Lee Iacocca cut his pay to $1 per year until all the loans were paid back.  If GM and friends are serious about getting our money, we'd like to see them cut everybody's pay and slash the pay of the top 4 or 5 layers of management to $1 per year until we get all our money back.

If they aren't willing to do that, if the workers aren't willing to put their own personal skin in the game as the Mazda employees did years ago, why should we give them one thin dime? The bailout ought to go as recompense for the "taking" of their business by egregious regulation, not as a sop to further subsidize predatory players, whether union or executive.

Either way, the threat posed by an intrusive government is by far a greater threat than any one private company, no matter how large and incompetent, can ever hope to pose.

If you don't like the quality, designs, or technology of a General Motors car, you are free to buy a Toyota.  If you don't like dealing with the EPA or IRS, what can you do?  The only way out is to move your business offshore, as so many companies have done; but as Americans, we'd rather they didn't.

Force government to pay for the harm it does; maybe it'll do less harm.