Saving The American Auto Industry and Conservative Principles
As a born and raised Kokomo boy and conservative, the last few months have been filled with many conflicting emotions as the United States Congress and the President have rushed from one Federal bailout to another. On the one hand, I believe that businesses are largely responsible for their own destiny and that it is not the job of government to interfere with the economic process of natural selection. On the other hand, the economic viability of our Nation is dependent on the efficient workings of our banking and financial system and on the large innate employment numbers of the American auto industry and its numerous suppliers. This is a conflict of ideals of titanic proportions and an issue that will be with us, our children and grandchildren for many, many years to come.
In 1952, in testimony before a Congressional committee, Charles Wilson, Chairman of General Motors uttered his famous, yet oft misquoted, statement, “What is good for the country is good for General Motors and what is good for General Motors is good for the country.” The question of our time is now, “What is best for the country and is what is best for the country good for General Motors?” From a strictly macro-economic viewpoint, the question is, “Is it ever the role of government to intervene to save a particular business or industry?”
Before I attempt to answer these questions, I should give the readers some idea of how I believe the auto industry got to its present condition. The American auto industry has seen massive changes throughout its history, virtually since its inception. In the first half of the 20th Century there were hundreds of manufacturers, including Haynes and Apperson here in Kokomo. Because of the manufacturing efficiencies brought forth by Henry Ford’s innovative assembly line process, early auto companies were forced to adapt to the change, merge with other companies or go out of business. An amazing number of companies died out, either through bankruptcy or voluntary business termination. Prior to the 1930s, the owners of the automobile manufacturers held most of the cards in the management and labor relationship and the average auto worker’s life was dirty, difficult and dangerous.
The hand of labor was strengthened appreciably with the passage of the National Labor Relations Act in 1935. This law guaranteed workers the right to collectively organize and its provisions and interpretations gave American workers over fifty years of increased standards of living and improved working conditions. At the time of passage of the NLRA in 1935 and since, there have been many who question whether or not our Federal government should have interfered in the time-honored management process of “Take it or leave it.” Critics of labor laws believe that a free market process will naturally regulate labor and management relations. Although the point can be argued, there is no doubt that the plight of the average industrial worker is better today than before passage of the NLRA.
I believe that the current malaise in the auto industry can be directly traced to a combination of factors that started the downhill slide, beginning with the Arab Oil Embargo in 1973. The oil embargo contributed three significant issues that caused major problems for the American auto industry. First, it changed consumers’ thirst for the big, high powered Detroit muscle cars that had characterized the profitability of the Big Three during the 1950s and 1960s. Cheap oil evaporated overnight and created consumers clamoring for fuel efficient vehicles. Second, skyrocketing oil prices fueled huge increases in inflation that took disposable income out of the consumers’ pockets and dramatically drove up salary and benefit costs for the American auto companies. Third, for the first time, American consumers became open to the purchase of Japanese automobiles, a Pandora’s Box that once opened, could not be closed again.
If the double edged sword of cost/push inflation wasn’t enough, globalization of the world’s economies raised its unforgiving head. The Japanese Yen, trading substantially lower than the U. S. Dollar, gave the Japanese auto manufacturers a distinct economic advantage. Some business pundits in our country attributed the lower costs of the Japanese vehicles to a result of some superior secret Japanese managerial ability. This was pure myth! The labor cost of their autos was cheaper because of a built-in cost advantage due to currency value differences. This phenomenon led to two significant developments, Japanese auto production in the United States when the Japanese currency finally began to rise against the dollar and an exportation of industrial jobs courtesy of NAFTA and an opening of China to manufacturing for American companies. While shipping production to other countries may have lowered per vehicle labor costs, it also served to shrink the market of those able to pay the large purchase prices for gas-hungry mega-trucks, vans and SUVs. In addition, it helped foster an attitude in consumers that made the purchase of a non-American vehicle much easier, psychologically. After all, what exactly is an American made vehicle?
Another burden faced by the auto industry is complying with the mountain of good intentioned Congressional legislation and regulatory mandates that hamstring American manufacturing vis-à-vis their foreign counterparts. Although it is good that we seek to have safer workplaces, minimum wages, cleaner air and water and more fuel efficient vehicles, the plain truth is that the rest of the world does not adhere to our goals or standards. Regulations that we unilaterally subject our American manufacturers are largely ignored by Mexico, China and India. This puts us at a severe competitive disadvantage that will only get worse over time.
Finally, the coups de grace for the American auto industry and American corporations in general was the tremendous rise in pure greed. Greed, in and of itself is not necessarily evil. The desire to make a prosperous living is what this country is all about. Corporations want to increase profits. Business managers want to make higher salaries. Laborers want higher wages. The consumer wants lower prices. It is all natural and, unless carried to extremes, a pretty good system. Somewhere along the line, I believe beginning around 1982, greed began to get out of control. Stock options became in vogue and executive compensation became closely tied to the quarter versus quarter stock performance of their companies. Labor demands for higher wages and better benefits went to extremes that many companies could not live with indefinitely. The investing public shifted from a longer-term perspective to making as much money as quickly as possible. This led to unreasonable demands on management to squeeze every last dime of profit out of their companies in the short-term. Lastly, consumers did what they always do. They spent their money where they perceived the best value for the dollar, regardless of where the purchased good originated.
You can see that we have reached an automotive quandary that is complex, has many causes and cannot be fixed overnight. While part of me says, “Don’t bail out a failed business or industry,” another part of me says, “Let’s give the automotive industry a hand up, not a handout.” The automotive problem was not created overnight and will not be corrected immediately. All parties, management, labor, government, the taxpayer and the consumer will need to do their part to bring the American auto industry back to health. If structured properly, the money we invest in the salvation of this key industry will be returned with interest. If structured poorly, we will have burdened our children and grandchildren for decades to come. Providing bridge financing to the auto industry is one issue where doing good for General Motors will be good for our country. Let’s hope that this lifeline is not too little, too late.
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