Whoa! Lots of comments from yesterday’s newsletter column (“U.S. Auto Must Fail To Survive”—subscribe to a preview account to access the entire article). We had more in agreement than opposition, but the opposition points deserve a response, many of them are well-founded.
The problem with unions
First off, I am not universally anti-union. I started my career thinking I’d be in labor relations, even getting a masters degree in the subject. Unions, especially if you go back to the early days, may well have saved capitalism from itself by allowing people without access to capital to make a decent living. The problem is that unions are, by their very nature, political bodies. They are about votes and membership numbers; as a result, they resist change, especially when it involves replacing human labor with machinery, even when the economics are overwhelming. The UAW just took it all too far. Too much power, too much politics, too many jobs—the jobs bank for instance? Most people in the rest of the country think this is an insane idea. More outrageous is the lack of foresight the UAW demonstrated by continuing to fight with management over a shrinking pie when everyone could see the writing on the wall. Caterpillar had to fight through this problem 20 years ago and is now doing fine. Even Johnson Controls, which directly serves Detroit, has managed to find a new way to thrive. Why can’t the rest of Detroit do the same?
One other thought, a comment chided me for bringing up the baseball bat story saying one bad apple doesn’t spoil the whole bunch. True, but I still have seared in my memory the “swinging for the fences” comment one witness made about the incident. The reason I included this story is the symbolic power of the image: fighting to protect jobs is the wrong way to think about it. No one has a right to a job. In the long run you keep your job by being worth more than what you are paid. If the UAW had focused on that and helped its members stay ahead of the changing global supply chain instead of “protecting jobs” we might not be having this conversation now.
Management’s failures
Second is management. Some comments said to give management a break, that they’re doing their best. They may be doing their best but it’s not very good. I drive a Ford Explorer and a Jeep Cherokee, both are great cars. Drivers in the US need pickups and SUVs for work and carpools much more than drivers in Europe or Asia. But we also need small cars for solo commuting and city driving. That’s why Toyota is the world’s largest automaker now: it makes BOTH successfully. And last January, the Prius passed the Explorer in sales.
I know SUVs and trucks made a ton of money for a long time, but this oil price problem was no surprise. All OPEC has to do is cut production and our prices go back up fast. Why couldn’t have management prepared better for this? Oh by the way, the scoundrels on Wall Street who copped all those millions while teeing up the current disaster deserve even worse than the auto execs. There is plenty of blame to go around.
The British Leyland Lesson
Third, the government subsidy issue. Yes, I buy that Europeans subsidize their industries more than we do, and that this can give some an unfair advantage, but the problem with subsidies is that companies never seem to be able to break the habit once they get going.
The best parallel is probably British Leyland, which failed despite a $16B bailout from the British government. The company still went under, it just took longer. Look into that case and you see why the union deserves a lot of the blame. The similarities with Detroit are scary.
As GM Goes, So Goes the Nation
Last, and most interesting, were points made about the overall economic impact. One commentator said the jobs multiplier for auto is 10 versus two for banking. I know that the complete supply chain goes way back and that the risk to the economy is real. But still, GM, Ford, and Chrysler are not the whole industry and their operations certainly could continue under bankruptcy—difficult, yes, but will it sink the US economy? I doubt it.
Also, on the banking question, many seem to feel that since we bailed out Wall Street its only fair to do so for Detroit. No one feels sorry for the bankers it’s just that the multiplier effect from banks is a lot less a matter of direct jobs than of liquidity and, therefore, overall economic activity. There will be plenty of industries and companies that want a bailout as we struggle through this mess. The question is whether $25B does more good in Detroit than somewhere else.
Keep the comments coming. We’d love to hear your responses.
