Wednesday, November 19, 2008

No Automobile Bailout!

I had to think hard about this – almost a minute – well thirty seconds anyway.

A bailout would be the worst thing we could do to American manufacturers, including the automobile ones. Instead of biting the bullets and remaking themselves into modern competitors, a bailout would prolong their agony, but the end would be the same, and a lot of taxpayers’ money would be gone along with the companies.

I saw a very succinct explanation of the problem by Mitt Romney (Let Detroit go Bankrupt, New York Times, November 18, 2008), son of the former president of the former American Motors. He knows the auto business, and he saw the right and wrong things done to try to save American Motors, and later Chrysler.

The biggest problem facing American car manufacturers is their cost structures make them uncompetitive. Their pensions and health care costs are about $2,000 per car higher than their foreign competitors building cars in American factories. As Mr. Romney pointed out, the foreign competition can sell a car for the same price that has $2,000 more value in it, and shows it.

Another article (A British Lesson on Bailouts, by Nelson D. Schwartz, New York Times, November 17, 2008) illustrated the point of the failed bailout of British Leyland in the late 1970s, when poor management, shoddy workmanship, and intransigent unions merely prolonged the agony and to the British taxpayer and delayed the inevitable. It was so bad that soon every MG automobile sold in the United States resulted in a $2,000 loss. Eventually all of British Leyland was liquidated or sold off, and in one of its many dumb moves, Ford bought Jaguar and operated it long enough to lose over $10 billion. Now Tata of India owns Jaguar and Rover, and I have a feeling that they will be able to do much better than the previous British and American ownership because they can rid themselves of the institutionalized high costs.

Al Gore’s parents may have sung him to sleep when he was 27 years old with “Look for the union label” as his lullaby, but don’t you look for the union label unless you want to subsidize expensive failure. It’s bad enough we have to pay top dollar for a mediocre public education system, so when you do have choices, choose wisely.

No comments: