Will Bureaucrats Let Detroit Save Itself?

Probably not.

We all know that the US operations of all our auto manufacturers are in deep trouble, but things aren't quite what they seem.

Their troubles in the US market are all too real.  The New York Times reports:

In the latest sign of the deepening troubles, GM reported a stunning second-quarter loss of $15.5 billion on Friday because of a continuing fall in United States sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles.

That followed a loss of $8.7 billion reported last week by Ford. Overall sales fell by 13 percent in July.

The Times went on to describe the part of the problem that's easy to see:

American automakers have decided - critics would say, belatedly - to shift production from trucks and sport utility vehicles to smaller, more gas-efficient cars, including hybrids. But it takes time to switch equipment for production. And it is unclear whether the automakers have sufficient cash to remain solvent until their new vehicle lines are ready for customers.

It takes a long time to design an automobile for the US market.  One of the most time-consuming parts of the process is getting the new design approved by the government.  We've been told, for example, that it takes a solid year for the government to approve a new engine / transmission combination and that the approval process starts over if they find anything they don't like.

Jerry Flint, who's written about Detroit since 1958, points out that our government has a decision to make.  In "Desperate Times," he says:

Our government will soon have to decide if we want a domestic automobile industry. If it does nothing, that industry will be dead in three years. There would still be an auto industry here: Toyota, Honda, Nissan, BMW, Mercedes, Hyundai and Kia, maybe even Volkswagen and Fiat, would be assembling cars in the U.S. [emphasis added]

If we want a home-owned industry, our government will have to help for a change instead of piling on, treating the automobile and the industry like devils. But it's our choice. The Brits don't mind being water boys [who merely assemble cars designed in other countries]. Maybe we won't either.

Mr. Flint points out that if we lose our domestic presence in the auto business, there will still be auto assembly plants in the US, but that all the high-value design and engineering jobs will go overseas along with most of the profits.  He points out that our bureaucracy imposes a great many costs on auto markers at a time when they need every penny to survive until they can get new models on the road.

Like the Federal Drug Administration, the agency which looks at new automobiles is notorious for being slow, expensive, and arbitrary.  With General Motors burning through cash at $1 billion per month, it's not clear that GM can survive long enough to get a new car approved for sale in the US.

Nobody wants to buy the vehicles the "Big" 3 are making now; their foreign competitors make the cars Americans want to buy and it will take years for them to design and get approval for new models.  That's the part of the problem which everybody talks about, but there's a subtlety.

An Overseas Ray of Sunshine

Their success outside the US is not as well known as their losses here, but the "Big" 3 are making money on their operations in other countries. GM gets nearly 60% of its sales overseas and makes $2 billion in annual profits outside the US.  GM could abandon the US market and survive if it moved soon enough.  Nobody wants to admit it, but in fact, that's what's happening:

General Motors is quietly moving operations out of the U.S. Back in 1979 GM had 468,000 hourly workers in the U.S.; it now employs 76,000 in the U.S.  GM has passed engineering responsibility for small cars to its Korean unit and its family-size cars to GM Europe. Rear-drive platforms are designed in Australia. Hummer is for sale, and Buick is nearly gone, with only three models. The U.S. folks are responsible mainly for big pickups and big sport utilities, and we know what's happening to those sales--and a few Cadillacs. GM calls this process globalization, but it's really a move out.

Al Gore would rejoice if there were no factories in the US at all, but as a matter of national policy, do we really want to give up that many well-paying jobs and have everybody flip burgers instead?  We need a domestic auto business for the jobs, profits, taxes, and manufacturing expertise it provides.

The former Big 3 already make economical cars in Europe which compete well enough for them to make money there.  Gasoline prices in Europe have been high for years, they've had to make economical cars, and they're good at it.  So why don't they sell those cars here if that's what people want to buy?

In a word, bureaucracy.  Cars which meet European specifications as to shape of headlights, bumpers, seat belts, and so on, simply can't be sold in the US.  The American and European bureaucrats have made sure that their rules are utterly different.

Back when Ford tried to make a "world car," the one part that turned out to be the same was the gas tank cap, every other part had to be different.  Re-engineering a European car to meet US specifications is tantamount to starting over from scratch.  The Big 3 have little to sell in the US and won't for some years, even though they make very competitive, economical cars in Europe.

One Ford van which is quite popular in Europe is actually made in the US and shipped there.  This video extols its popularity and tells how it made a circuit of the Nuremberg race track is just over 10 minutes; the qualifying time before a new driver is allowed to race at all is 9 minutes in a Porsche which has a slightly different suspension, a bit more horsepower, and weighs a lot less.

Why isn't this popular, economical, domestically-produced van available here?  The bureaucrats won't let it on our streets.

The Solution, if We Want One

Mr. Flint is correct in saying that now is not the time to add new regulations to make it harder to get new cars on the road, but it was left to an online magazine writer to have the crucial insight how to save domestic auto designing and engineering:

What's killing GM and Ford right now is the inability to provide highly fuel-efficient vehicles. Both Ford and GM make a lot of very fuel-efficient vehicles in Europe - but, thanks to differences in regulations, it takes a lot of cost and time to modify European designs to bring them to the U.S. This makes no sense at all. Europe is a sophisticated region and their vehicle regulations are roughly equivalent to our own as far as safety and other things go.

I see no reason that we can't simply have a waiver that says U.S. companies can import any model that meets European standards and sell it in the U.S. We should just recognize their regulations. Mexico does this: Any car that meets either European or U.S. regulations can be sold in Mexico.

The only reason we can't do this easily is that bureaucrats hate to give up turf and wouldn't voluntarily admit that European specifications work as well as ours do.  They'll scream and yell about protecting the public as if European cars were death traps, but it's simply not so.  If anything, Europeans have fewer miles of interstate than we do; their cars may be better engineered for narrow roads and they certainly get better gas mileage.

Letting economical European cars be sold in the US is a brilliant idea.  Our car makers could import fuel-efficient models from their factories in Europe to keep their dealer networks solvent while they convert their US factories.  Ford could sell its popular van in the US without paying shipping costs because it's already made here.

Tooling up to produce their existing European models would take way less time and cost way less money than designing cars from scratch.  As Mr. Flint says, "Our government will soon have to decide if we want a domestic automobile industry. If it does nothing, that industry will be dead in three years."

Will Offensicht is a staff writer for Scragged.com and an internationally published author by a different name.  Read other Scragged.com articles by Will Offensicht or other articles on Economics.
Reader Comments
I see no reason that we can't simply have a waiver that says U.S. companies can import any model that meets European standards and sell it in the U.S. We should just recognize their regulations. Mexico does this: Any car that meets either European or U.S. regulations can be sold in Mexico.
September 27, 2008 2:28 AM
Mexico? Dear God, no. The Mexican government is a shell company propped up by the drug cartel. We do NOT want to accept whatever regulations they have.
September 27, 2008 8:38 AM
Just because their government has issues doesn't mean it's not sensible to mix European and American cars on the same roads. Weigh the idea on its merits, please.
September 27, 2008 2:54 PM
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