Obama's Fouled Plan for Detroit

Nationalization, the Plan B to failed forced unionization.

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.


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.

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Economics.
Reader Comments
"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."

As opposed to GM and Chryslers history of sorry and sordid unrelenting incompetence, failed products, and outlandish cost?
April 30, 2009 1:15 PM
On the quality thing, sorry, but Detroit has NOT equaled the Europeans and they come nowhere close to the Asians. The American press latches onto a few awards now and then but misses the big picture - the Detroit lineup OVERALL is rated far below European and Asian models. Yes, one or two models do well. The rest are horrible. Buy the JD Power or Consumer Reports list and look at the whole thing. Considering the number of models that Detroit produces, their overall product line is horrible. The best overall product line is Hyundai at this point, followed closely by Toyota and Honda. Too little, too late.

Have the Asians stolen our tax money and given it to their auto unions? No. Buying American is now un-American.
April 30, 2009 1:26 PM
Next picture-changer will be the Chinese Volt knock-off, running as taxis on the streets of Shanghai as we speak, not imaginary "vapor-ware" on some designer's computer, and built by 85 cent an hour peasant women in China! American factories have lost everything, patents, techniques, machinery off the factory floors, lock, stock and barrel, to the Chinese cheap labor situation, and the new cars from China will destroy the existing, and any future endeavors at car building state-side, by sheer force of these little yellow women, determined to better the lives of their children, and sacrificing their lives in Chinese factories to pay for it. Asia's huge rice-burning, cheap, hard working, well educated population has doomed American Dreams, and the American worker's way of life by undercutting them by a whole scale in the labor field, and mega-outperforming them on the factory floor! The uber-rich have emigrated their vast fortunes from the American investment scene to the huge Asian markets, and through their power and influence will see to it that the Chinese cars are allowed on American soil, priced for huge profits for their pockets - We the people, and American labor in all fields, are caught up in an international "monetary squeeze play" and cannot possibly win. New factories go up daily in Asia, ultra-modern, unrestricted by union notions, and set up to outstrip the world in production of superior products, and in gaining monetary power over other countries quickly and without firing a shot! Meet your new Masters, the commie Chinese, and your new stable world currency the Yuan - Dollar days are over folks, fold'em and weep!
April 30, 2009 1:39 PM
Actually, China has been suffering massive layoffs too. We're not buying so much stuff anymore so their factories close, just the same as ours would if they were still here.
April 30, 2009 1:50 PM
And, Dear Patience, the little Chinese peasant can return to the old folks and the family farm, for survival, not "unemployment benefits" that run out very fast!. The American factory worker is generations away from family farms, stolen from his ancestors by the shylocks and swindlers of big business generations ago, in order to further enslave him, by controlling his food supplies with factory farms! Not so for the Chinese peasants who ride cheap trains back to fully intact Mao-villages, ready to assimilate with there once family benefactors in and age old tradition of "Family" something long lost in American history, and buried as a form of socialism from the past. Yes the Chinese suffer, no they are not in a "catch 22" totally dependent on a broken system and about to live in tent cities, while others still prosper around them. Our modern American "Factory Farms" do not even need casual labor, nobody in America wants of needs the burden of an unemployed factory worker and his family - they become redundant at lay-off and are doomed to misery until death by dope, drugs, disease and starvation! No "thank-you's" cried out for past services, in desolation, disenfranchised, and abused - guess why I know this so well? 60 years old and still re-training on government pensions 'til I die!
April 30, 2009 2:41 PM
Uncle B: The Chinese living in the country are generally incredibly poor and can not afford living expenses without the assistance of remittances sent from children living in the city working in factories. the 'fully intact Mao-villages' are filled with poor, under fed, and over worked people trying to farm the land by hand in the 21st century. I'm sure there are exceptions, but by and large the agricultural industry in China is under developed and still manual.

As for people in America being abused... well I've certainly never been abused by any company I've ever worked for. I've been asked to do work for less than I thought I should get paid. So I demanded a raises. If I got it I stayed and did the work, if I didn't I found another job. If I were to be fired I have money in savings to live off of a while. While you are free you can never be abused except by your choice. While you are free you have the right to earn your way in this life.

The American dream is not and never has been owning a house nor doing what ever it is you please, spending all of your money until you to are on the brink of bankruptcy. The American dream is the belief that my position in life, your position in life is tied to behavior not birth. If you work hard and behave intelligently you must be financially rewarded. If you do not you must be financially punished. Not by the government, nor by me nor anything other individual but by the system.

I hear retirees complaining that they 'did everything right' but then the stock market crashes and they're left with nothing. If you're approaching retirement you should not have any -any- money in the stock market. Talk to any responsible and intelligent financial planner and they'll tell you that. Get that money out of the stock market and into something safe.

If that unemployed factory worker is indeed 'doomed to misery until death' then that is his fault. Not mine, not the companies, his fault and his problem. You are the only person that can control your fate. You may interact with many people every day, some of them may help you, some of them may hinder you. In the end it is your work ethic and mental capability that determines your position in life. Your failure, your success are yours any one else's.

It may seem cruel to allow people the pain of unemployment or in the extreme the pain of starvation. However, people don't like to starve to death. People that haven't been brain washed to believe that their failure is not their fault do not like to live off of the government, to be parasites living off of the labor of their friends and neighbors. In times of economic hardship small businesses pop up like weeds. Some of them succeed some of them fail.

Those that succeed start employing those that fail, provide more competition for labor, increases wages, and sales, decreases prices.

If however the government will provide for all your needs and many of your wants while you are unemployed why would you bother with the risk and work of starting a business, why indeed would you even bother to go and get a job! If we as a society do not reward goodness and excellence we will not have goodness and excellence. Today in this society we are instead rewarding those that just get by, by those that work as little as possible and those that pull society down by the weight of their inactive lives.
May 1, 2009 9:15 AM
Dear jonyfries Write in just after this round of inflation kicks the wind out of your savings accounts, robs you blind of your lifetime of honest sweat equity in the system, and makes you look like a pauper! Check out the rate of inflation over the last fifty years, my fifty years! then try to apply the famous "rule of 72" and see just how screwed labor really is! Next, come and buy my old house, five years ago, worth meals and board until death, today, worth less than one third that amount! Noble, soul, faithful to the system, I love you for your loyalty, patriotism, but you go see your financial planner, and don't get into the mess my generation is in! put your money on the Shanghai stock market in Yuan, before the crash, and save your dignity, if not your butt!
May 1, 2009 11:41 AM
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