Obama's Fouled Plan for Detroit

My, what a difference a few short months makes.  This time last year, while the entire business world was well aware of GM and Chrysler's dire straits and the clear political fact that no president would want either of them to fold on their watch, nobody dreamt that the federal government would directly step in and take control, as in ownership, of a major car company for any reason whatsoever.  From the Trabant to British Leyland, the history of government-operated auto manufacturing is a sorry and sordid tale of unrelenting incompetence, failed products, and outlandish cost.

Yet what do we find this week, but your tax dollars being used to, in effect, parcel out the Troubled Two between the UAW and the Obama administration, private ownership be hanged?  Forget the banks, bondholders, and investors that thought they had ownership rights; the only private entity left with any significant stake will be Fiat, of Chrysler, in exchange for much-needed design technology and management skill.

It's difficult to understand, politically, why this preposterous boondoggle is going ahead.  Have not polls indicated voter disgust with bailouts, particularly regarding the car companies?

Does Mr. Obama think this will simply blow over by the next election?  How can it?  The UAW has not exactly shown itself competent to profitably run a golf course purchased with its own money; who could believe it able to turn around gigantic multinational corporations that have defied the efforts of the smartest minds in business and finance for lo these many years?

No, Mr. Obama is simply buying time at vast expense to you; each year, as regular as rain, will come round the same unpleasant decision: throw yet more bailout billions down the Detroit rathole, or let the Democrat's most loyal constituency sink into bankruptcy and collapse.

Unless...

It wasn't meant to be this way.  There is no inherent reason why cars cannot be manufactured by the Big Three.

Thirty years ago, an observer could plausibly argue that Detroit didn't know how to make decent cars; that has been untrue for a while now.  As long ago as 2003, Detroit products equalled Europeans; they've improved since, with Buick even tying the vaunted Lexus.

The problem is that Detroit cannot make money making good cars.  Mitt Romney explained why in the New York Times:

Retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers. That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota's Avalon. Of course the Avalon feels like a better product - it has $2,000 more put into it.

Detroit's extra costs can be explained by three letters: UAW.  Over a century of manufacturing, and particularly in the half-century since the Treaty of Detroit, union workers have squeezed every last cent of value from their supposed bosses leaving nothing left.

Individual workers have every right to join together to try to extract higher pay; unions have every right to negotiate on their behalf once elected as representatives.  It's their job.

However, neither a union nor a car company can create money from nothing: it can only be obtained by selling something people want to buy at a price they are willing to pay.  Thanks to the additional overhead required by union contracts, Detroit can do one or the other but not both.

When America was the only major car manufacturer, this didn't much matter; if you wanted a car there was only one place to go, and you either paid what they asked or you walked.  When Japan began to import cars, UAW political clout attempted to keep them out with tariff barriers; again, a perfectly legal and legitimate response, though of course harmful to the American car buyer.

Unfortunately for the unions, this strategy badly backfired.  Toyota, Honda, and the rest soon grew tired of paying tariffs.  Instead, beginning in the 1980s, they built their own factories in the United States, safely inside the tariff wall.

Today, just as many cars are built in non-union Asian-owned transplant American factories as in the traditional UAW ones.  As you'd expect, the wage costs there are a good deal less - after all, the whole point of a union is to extract more in wages.  Yet the UAW has been unable to organize these transplant factories, because the cost savings don't come from screwing the workers.  Toyota and Honda pay their employees a fair wage, and the workers are quite content; the savings come more from avoiding restrictive union work rules and gold-plated benefits.

As long as UAW-controlled factories must compete with non-union factories, the UAW ones cannot succeed.  The union costs have hollowed out the vast and infinite-seeming resources of their host companies, just as an overgrown tapeworm can eventually kill its host.

When the Going Gets Tough, the Union Starts Cheating

There are only two ways the UAW can continue as an economic force, seeing that two of the Detroit Three are now completely broke and bankrupt in all but name.  One is what we see today: the Democratic Party stealing from taxpayers to prop up their union allies, in an unholy cycle of campaign contributions and political largesse.

The real plan, though, was different.  Given that Detroit can build perfectly good cars - just not cheaply - the Democrats wanted not to subsidize them with your tax dollars, but to use the power of law to force the transplant factories under the thumb of the UAW.  Enter a bill whose very name is a propagandistic lie, the "Employee Free Choice Act", or EFCA.

We've written previously on how EFCA strips workers of the right to a secret and free ballot in union organizing elections, allowing union thugs to intimidate and cheat.  Such a change is so far outside of American traditional rights that even George McGovern, once Mr. Liberal, spoke out against it.

But, if passed, EFCA would have almost certainly resulted in the immediate forcible union organizing of the transplant factories.

And, thanks to another provision of EFCA, the government could impose a union contract 90 days following.  Guess what that contract would have looked like?  Probably very similar to the ones that the Detroit Three have been struggling under, and which has now defeated them.

Shazzam!  That deadly $2000 gap Mitt Romney mentioned, instantly closed!  The Japanese don't like to lose money any more than anybody else; with higher costs, their prices would naturally rise accordingly, making the American firms more competitive.  And, as far as anyone can see, all nothing more than the free market at work!

Of course, you the ordinary citizen would still be stuck with the bill - only less obviously when you went to purchase a car, instead of when you paid your taxes, just as it was during the Big Three's glory days of the 1950s and 1960s.

Alas for Mr. Obama and the UAW, EFCA was a bridge too far.  Not all Democrats believe in intimidation and thuggery; moderate "Blue Dog" Democratic congressmen have gone on record in opposition.  In the Senate, while turncoat Arlen Specter ostentatiously abandoned the Republican party to stand on the left with people who vote like him, he still took care to state that

My position on Employees Free Choice (Card Check) will not change.

Which, considering that he is credited with stopping EFCA earlier this year, is not what Mr. Obama and the unions wanted to hear; still, even last week Sen. Specter said he intended to remain a Republican, but an unfavorable poll threw that promise to the wind.  Who knows what the end result will be?

Still and all, EFCA may lie in the future, but GM and Chrysler employees have union dues to pay now.  Mr. Obama's failure to force through EFCA has instead led to out-and-out nationalization.  It may not have been what he wanted, but now he's got it.