- The Washington Times - Wednesday, December 24, 2008

ANALYSIS/OPINION:

COMMENTARY:

Henry Ford would be ashamed. His successors in America’s largest industry groveled and begged Congress for $34 billion in “loans,” which have little chance of repayment. When Capitol Hill balked, a resigned, poorly informed President Bush granted “only” $13.4 billion - original plans for $17.4 billion changed when less than $15 billion remained in the Troubled Asset Relief Program.

Inventor of the practical automobile - he called it the quadricycle - at the end of the 19th century, Ford founded the first automotive company, innovated other industries (film making, aviation) and actively supported the U.S. at war. He accepted capital in return for shares in his ventures; but never considered handouts, particularly from government.

Using autumn’s $750 billion financial sector TARP program, opposed by more than 70 percent of Americans, President Bush has granted General Motors and Chrysler funds (61 percent opposing) that will prolong the companies’ inefficient misery until the next crisis - analysts predict mid-2009 - and simultaneously extend America’s economic crisis. Worse, no substantial binding demands were made of the companies and their unions.

GM and Chrysler executives and workers get a bonus that does nothing to improve the companies’ weaknesses, but most Americans get coal in their Christmas stockings — $45 added to every citizen’s share of America’s national debt, equivalent to $75 for every taxpayer.

The American automotive industry’s long, complicated and painful decline need not have happened. Internationally proving the point, Ford - which founded its first overseas manufacturing facility in England in 1911, eight years after founding its first U.S company - remains a European industry leader. In Brazil, where the company pioneered the market in 1919, Ford boasts arguably the world’s most innovative and cost-efficient manufacturing facilities. GM’s Chevrolet brand has led the Colombian market for 25 years through management innovation and sound marketing.

Chrysler disinvested internationally during 1980s and ‘90s crisis-filled years. A $1.2 billion government loan guarantee in 1980, repaid in 1983, resulted in no significant restructuring and only prolonged the company’s chronic misery, despite huge additional government-backed benefits. A 1983 Heritage Foundation analysis prophetically concluded, “In the case of the Chrysler bailout, a big chunk of taxpayer money was committed to a shaky and inappropriate venture. Every American became an involuntary and uncompensated partner in a company whose future is still in doubt. The precedent established is extremely dangerous. On top of this, the bailout even failed in its purpose.” (https://www.heritage.org/research/regulation/bg276.cfm).

From the beginning, Ford pioneered employee benefits. Most notable, the company doubled the average daily wage to $5 in 1913 and expanded black employment from 50 in 1916 to 1923’s industry-leading 5,000. Henry Ford’s sound management legacy continues: The company is the sole member of the Detroit-based industry to not receive government funds.

Following World War II, when Ford devoted its energies to manufacturing high speed boats and B-24 bombers, the Big Three dominated the industry worldwide. The good times seemed likely to roll indefinitely, with cars, executive staffs, pay packets and union “work rules” all becoming increasingly grand.

When business eventually slowed, the largesse did not. Union contracts included huge health and pension packages, making U.S. auto workers the country’s highest paid blue-collar laborers, while white-collar employment inexorably grew. To keep the assembly lines rolling, labor agreements got progressively sweeter with every contract renewal.

As it could not, it did not last. Today, U.S. automakers’ average assembly line worker salary and benefits packet is $70 per hour, versus $47 for foreign companies manufacturing domestically. Strict redundancy rules prevent American companies from modernizing facilities and cutting payrolls, and retired worker benefits are the nation’s highest.

Greg Knox, founder of a southern Ohio GM supplier, declined president of GM North America Troy Clarke’s request to lobby members of Congress, saying, “Politicians and management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades. …”

Mr. Bush’s bailout set certain non-binding targets for management and labor, but radical, obligatory reorganization is required - in design and technology, executive staffing and remuneration, and union contractual terms. There are only two business-oriented ways to do it.

Management and labor can boldly negotiate binding decisions, involving every aspect of the business. Outmoded models and brands must be discarded. Corporate jets and multimillion dollar pay plans, plus worker and retiree remuneration programs nearly 50 percent higher than foreign competition are indefensible and must be scrapped.

However, if such negotiations fail to achieve what is necessary to return the Big Three to profitability, bankruptcy is far from unthinkable.

It sounds terrible, and is certainly embarrassing, but bankruptcy has an advantage: The Big Three, their suppliers and the unions would have to reorganize or close up shop.

Of course, going out of business is not an option. Auto makers and suppliers, management and labor, federal and state governments all recognize the above negotiating alternatives can set the entire industry on a renewed, profitable course. There will certainly be painful months for many, including some thinly financed suppliers.

But capitalism teaches very clear maxims: Make the best product at the best price; take well-founded market place risks; maintain access to adequate finance; expect reward from excellence, not from windfall payments for making mistakes.

Sadly, politics stands in the way. Unions want to give up as little as possible and pressure their Democrat political partners for a different option. The $13.4 billion U.S. government bailout, supplemented by $3 billion from Canada, is similar to putting a cold compress on a lethal cancer: it provides temporary relief, but the patient will die because the underlying disease has not been eliminated.

There is no easy solution to America’s ailing auto industry; however, the expensive grant from President Bush is doubly bad. The industry’s chronic problems will not be solved and - crucial for economic recovery - heavily taxed consumers will have less to spend - including for new cars.

It is a shame most Americans will receive the equivalent of an expensive lump of coal in their Christmas stockings, thanks to an equally expensive “gift” to those involved in the auto industry, a sop that in the end will in no way serve to reform our bloated, outmoded auto industry.

John R. Thomson is a geopolitical analyst focusing on developing countries from his base in Bogota, Colombia. He recently completed a six-week visit to his native United States.

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