Labor

Why are U.S.-Owned Auto Companies in the Crapper?

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As Chrysler plans to idle its plants for a month or more, it's worth puzzling over the various forces that have brought Detroit (Rock City!) to its knees. Over at U.S. News & World Report, Michael Barone has a thoughtful post which engages Slate's Mickey Kaus argument that the fault stems from the passage of the Wagner Act back during the Depression:

Mickey Kaus, pretty much alone among the commentators I've been reading, indicts "Wagner Act unionism" for the decline and fall of the U.S. auto industry. The problem, he argues, is not just the high level of benefits that the United Auto Workers has secured for its members but the work rules—some 5,000 pages of them—it has imposed on the automakers. As Kaus points out, unionism as established by the Wagner Act is inherently adversarial. The union once certified as bargaining agent has a duty not only to negotiate wages and fringe benefits but also to negotiate work rules and to represent workers in constant disputes about work procedures.

The plight of the Detroit Three auto companies raises the question of why people ever thought this was a good idea. The answer, I think, is that unionism was seen as the necessary antidote to Taylorism. That's not a familiar term today, but it was when the Wagner Act was passed in 1935. Frederick Winslow Taylor was a Philadelphia businessman who pioneered time and motion studies. As Robert Kanigal sets out in The One Best Way, his biography of Taylor, he believed that there was "one best way" to do every job. Industrial workers, he believed, should be required to do their job in this one best way, over and over again. He believed workers should be treated like dumb animals and should be allowed no initiative whatever, lest they perform with less than perfect efficiency.

The whole post, well worth reading, is online here. I think the UAW is a deadening organzation, but it has never been the problem in making cars. But to talk about the Wagner Act without discussing Taft-Hartley, which leveled the playing field substantially between management and labor, is dodging an obvious rejoinder to Kaus's claims. In any case, the UAW last year signed a contract that brings compensation for new hires into line with the amounts paid by foreign carmakers in the U.S. I can understand why the UAW isn't backing down right now—they know some sort of bailout, whether under Bush or Obama and despite public sentiment to the contrary, is coming.

The simple truth of the matter is that management signed every idiotic contract and that they never felt they really needed to confront anything because they thought they had a monopoly on car sales. Especially after World War II, when the Big 2.5 had long passed through their entrepreneurial days, they became classic lard-ass corporations who figured they would just raise prices whenever necessary. As Barone notes, they stuck to this plan even when Asian and European carmakers started to give them a run for the money in the 1970s. And they were never shy about using government to keep competition out (various tariffs on trucks and SUVs, etc. are one reason why domestic companies still dominate those markets). You can't blame unions for the slow death of U.S. carmakers any more than you can blame them for the Pontiac Aztek or the Ford Edsel. They may not be helping matters now, but unions are an add-on to a much bigger and systemic problem.

Reason Contributing Editor Mike McMenamin on the end of organized labor. And here's Contributing Editor Brink Lindsey on how the specter of Taylorism haunted American business.

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  1. Another example of someone who lasted long past her prime: Lwaxana Troi has died.

  2. I’d generally agree with your conclusions. Except I think it was both unions and management, in collusion. Let’s not forget that unions have been some of the biggest opponents of free trade, precisely to limit competition for the companies they work for. They also opposed innovation in the form of automation. Management was happy to go along with higher wages and benefits in exchange for political protection and corporate welfare. Unions were happy with the Big Three being on the dole since it kept their jobs safe. Both are perfectly happy with limited competition and few innovations, as long as they are protected and subsidized.

    Who gets left out of this picture? Consumers and taxpayers, who end up paying at both ends to support the wages and profits of both workers and shareholders.

  3. RIP, Nurse Chapel. Hope you get all the Spock you can eat in the afterlife.

  4. Work rules benefit lower-level management, too, because they give managers a ready excuse not to do any actual managing. If the job is explicitly described in fine print with no deviation permitted, what need is there really for a manager? Didn’t stop GM from paying for zillions of them, of course.

    Chapter 11 is the only possible way that these companies can survive. And even then it’s not a sure thing.

  5. You seem to be having a lot of fun with the Pontiac Aztek, but everyone that owns one that I’ve heard about seems to think they’re pretty good.

    And Edsels were just plain cool.

  6. In any case, the UAW last year signed a contract that brings compensation for new hires into line with the amounts paid by foreign carmakers in the U.S. I can understand why the UAW isn’t backing down right now-they know some sort of bailout, whether under Bush or Obama and despite public sentiment to the contrary, is coming.

    They’re also not backing down because part of the real money is the sweet deal for longtime workers and especially retirees– and those guys easily outvote the new guys. (Retirees alone outvote the current workers.)

    The simple truth of the matter is that management signed every idiotic contract and that they never felt they really needed to confront anything because they thought they had a monopoly on car sales.

    This is substantially true, but I doubt that they signed the contracts just because they thought it was fun to give concessions to the union. The threat of strikes certainly had something to do with it.

  7. The UAW and the Big 3 management certainly did collude in their efforts to use politics to maintain the oligopoly they had after WW2 – import restrictions, quotas, etc.

    Of course government had a big hand in intefering with the businesses in a harmfull way as well – CAFE standards and prohibitions on importations of small fuel efficient cars from the Big 3’s own overseas factories to meet those standards ( a sop to the UAW). That hamstrung the Big 3 in any attempt to compete effectivly with the foreign car companies in that small car niche.

    And of course there is government complicity in steep run up in oil and gas prices that caused people to run away from the big cars and trucks that have been the Big 3’s moneymakers. Bans on drilling, pumping up the money supply and devaluing the dollar (oil is traded in dollars)all contributed to the run up.

    The truth is that the American public doesn’t really like small fuel efficient cars – they like big, powerfull cars and trucks and cheap gas to run them on. They only switch toward smaller cars when gas prices get high enough to make it painfull to fill up at the pump.

    The liberals are trying to use government to socially engineer people into those small cars and have been for a good while. Part of the damage to the Big 3 is a byproduct of that.

  8. So basically we have a complacent management structure combined with a complacent union structure. Pouring money into this is like shoveling it into a black hole. Systematically, these corporations are disfunctional. They need to be pared down, get new management and free themselves from the debt they’re saddled with. They need chapter 11 and those people that retired depending on pensions need to go back to work. Its unfortunate, but if we want GM, Ford, Chrysler to survive, they’re going to have to make these changes and government money won’t allow them to do that. They’ll be saddled with even more regulation, their morale will drop even lower and product quality will continue to plummet. For god’s sakes, we have british leyland to look at to see what happens when an auto industry become wholly dependent on government for continued existence. If we want to see cars of the quality of Austin Princesses, Rover sedans, etc, by all means, shove billions their way, but if we think the domestics have a shot in hell of benig profitable again, force them to file chapter 11, prove a viable business plan, jettison their liabilities and give them a shot to become profitable again. It’ll be painful, but its the only way to a better future. Otherwise, just watch them descend into BL style moral and physical bankruptcy and drag an entire industry down with them.

  9. You can blame the government for why car companies suck too.They didn’t go from making beautiful interesting cars to totally worthless crap on their own in the 1970s. The main reason behind the SUV craze was the restrictions on producing large powerful cars like their customers wanted. “Trucks” were the loophole.

  10. Hey Gilbert,

    I’m part of the American public and I’ve never owned a car made after 1990 with an engine bigger than 2.5 litres. Liberals aren’t trying to socially engineer our driving habits, they’re trying (with republicans) to extend welfare to unprofitable industries.

  11. As Robert Kanigal sets out in The One Best Way, his biography of Taylor, he believed that there was “one best way” to do every job. Industrial workers, he believed, should be required to do their job in this one best way, over and over again. He believed workers should be treated like dumb animals and should be allowed no initiative whatever, lest they perform with less than perfect efficiency.

    Sounds like the typicial social engineer’s opinion of the electorate.

  12. ProGlib,

    You owe me a new keyboard!

  13. Actually, I take some of that back. I forgot the history of the SUV. That’s not to say it wouldn’t arise, but yeah, CAFE and import restrictions were a problem.

  14. This isn’t another one of those “nobody could have seen this coming,” things. We can blame anybody who had a hand in protecting the corrupt and barely functional business model of the big 3, including the executives, the unions, the government, and even the public. The auto industry is a good example of what happens when you have long term resistence to a dynamic economy. Instead of telling them that they had to slim down and compete with the new guys, we told them they didn’t have to and that we would protect them. Well – when your child is morbidly obese and on life support, are you still going to tell them “it’s OK honey, you don’t have to go to gym class like all the rest of the kids.” How do you fix it?

  15. SUVs would have existed. They’d already begun production before CAFE standards went into effect. But they’d have been a niche market for hunters and farmers if it weren’t for CAFE.

    The Minivan may be more of a direct spinoff of CAFE. It was pretty much marketed from the get-go as the replacement for the station wagon.

  16. LIT,
    “I’m part of the American public and I’ve never owned a car made after 1990 with an engine bigger than 2.5 litres. Liberals aren’t trying to socially engineer our driving habits, they’re trying (with republicans) to extend welfare to unprofitable industries.”

    I’ve never owned a car made after 1990 with an engine SMALLER than 3.0.

  17. “The Minivan may be more of a direct spinoff of CAFE. It was pretty much marketed from the get-go as the replacement for the station wagon.”

    IIRC, the first Toyota minivans were about 1975.

  18. SUVs were practically the only way to get a 2 ton ,rear wheel drive ,6 paasenger, V-8 powered vehicle for about 15 years.They were geared lower too as CAFE standards lead to higher ratios(lower numerical) in passenger cars for increased fuel economy.

  19. lunchstealer,

    I always thought the minivan was a replacement for the station wagon, not because of CAFE, but because of changing fashion. Nobody in the 80’s wanted to drive their parents station wagon, so they went to the new and cool minivan, which then became the SUV in the 90’s. I anticipate the return of the station wagon for the next decade.

  20. And I’ve only owned post-’90 cars with engines between 2.5 and 3.0 in displacement.

    Captain Average strikes again.

  21. Dello,

    I don’t know what vehicle you are thinking of but the first true minivan was a Plymouth/Dodge around ’83.

  22. I keep hearing this, “Americans don’t want them little sissy cars” crap, and I’m tired of it. If that’s true, why didn’t Volkswagen go belly up? Or Honda?

    The Detroit manufacturers have, for decades, been cramming the pipeline with what they decided to build, and dumping it on the dealers’ lots. Salesmen in American dealerships then urge the customer to “upgrade” to something longer, lower, and wider.

    Not everybody wants or needs a dually pickup, and not everybody wants or needs a Mini. I would like to see an order-based business model arise in the coming re-invention of the Detroit Dimwits (which would require srapping about ninety-seven per cent of the work rules); it would be interesting to see a truly customer-driven(!) product mix.

  23. I honestly don’t understand why anyone actually buys new cars. You can get a 10 year old car for pennies on the dollar, a funner car (2004 Benz hardtop convertable on craigslist for under $20,000: less than a new Honda Civic), and if it has any problems, you can have the entire drivetrain and electrical system replaced for less than new car prices. Hell, you can even throw in a new paint job and still be money ahead.

  24. SIV,

    Yeah, but before the mid-90’s, most people got along fine without driving those things every day. They were tow vehicles and work trucks, not grocery getters.

  25. One of the most often overlooked problems with US automakers is their engineering department. Rather than outsource engineering for model redesigns, regulatory compliance, etc. They kept thier engineers on staff with little to do but “tinker” with the ends and odds of thier models. I am not talking about features that actually sell vehicles, I am talking about the nuts and bolts and parts of the vehicle.

    There was a time that when GM manufactured a car, one particular part for that car (say a ball joint)would fit most of thier vehicles and would cover a span for 5-15 years.

    Now, a majority of parts are model specific and cover 2 years (if you are lucky). If you are the unfortanate owner of a FORD F250 manufactured between 2002-2004 there are 14 choices for brake calipers. 14! The technology in brake calipers has not changes since disc brakes were introduced, why so many redesigns?

    Now thier part manufacturermust build new dies and molds, raising thier operating cost…therefore raising thier cost on parts. This also forces the dealerships to stock more variety of parts, to whcih they have now stopped doing and resorted to “next day availability” and you get the extra whipped topping for the big 2.5.

    Geniuses these guys are not.

  26. I’ve never owned a car made after 1990.

  27. L_i_T,

    Full size station wagons were killed by CAFE and emissions standards.Detroit couldn’t continue to build a passenger car that could haul 8 people and a trailered camper/boat.

  28. Dello,

    Why buy anything new? Either because you can or there is nothing on the used market (which drives up resale)

  29. I’ve only owned one non-wagon. My brief experiment with a coupe. It ended when I couldn’t get a cooler in the trunk, and had to ride with it in the passenger seat.

    But I like to be able to corner, and you just can’t corner in an SUV or minivan.

    Although apparently my Subaru Outback, which is marketed as a wagon, is now classed as an SUV for CAFE purposes, as of 2006 or 07.

  30. They were geared lower too

    Don’t forget that grand experiment, “Speed Limit 55mph.”

    Every car I have driven from those dark days had ridiculously short gears.

  31. SIV,

    Explain to me why the Buick Roadmaster lasted well into the 90’s then?

  32. SIV,

    They were running them around South America. An article in the old “Van World” magazine interviewed the wife of a Chrysler exec. driving one. You’ll notice that most of the import mini’s have the driver nearly (or literally) sitting on the engine. The original minivans were all based on passenger car platforms, thus to make the most room, they put the front seat on what would be the hood.

    Dodge was no different, using the K-car platform. They avoided the sit-on-the-engine platform by having a long car as a base.

  33. Detroit got kind of burnt on the technologically sophisticated small car business by Ralph Nader.He didn’t write his book about VeeDub Bugs which were cruder and less safe than the Corvair.

  34. SIV,

    I seem to recall Nader’s book was not nearly the reason for the death of the corvair. They just weren’t that popular to begin with and their competition was far cheaper and better looking.

  35. SIV,
    “Full size station wagons were killed by CAFE and emissions standards.Detroit couldn’t continue to build a passenger car that could haul 8 people and a trailered camper/boat.”

    No, they just couldn’t have a heavy steel vehicle with a V-8. The “crossovers” of today are station wagons, but with more efficient, small engines (and more gears in the tranny).

    the problem is that they are still heavy, despite lighter metals and plastics. That’s why they still get lousy mileage.

  36. lunchstealer,

    I don’t know how Subaru managed to classify the outback as a “truck” (as that’s the only thing the EPA or whoever controls CAFE cares about for mileage as its considered a work vehicle or something) as its clearly based on a car platform. Are you sure Subaru isn’t just calling it an SUV for advertising purposes?

  37. P Brooks,
    “I keep hearing this, “Americans don’t want them little sissy cars” crap, and I’m tired of it. If that’s true, why didn’t Volkswagen go belly up? Or Honda?”

    Honda and VW provided “entry level” cars. Cheap, good gas mileage (for their time, anyway), dependable, boring. Once people can afford to move up, they do. That’s why cars like the Camry and Civic have gotten bigger (and with larger engines) with every new facelift. And the price has gone up, too.

    The Asians are becoming what Detroit was in the 60’s/early 70’s.

    Enter Tata and Geely, the new VW and Honda.

  38. L_i_T,

    IIRC there was no continuous production of fullsize Buick wagons. The Roadmaster was a “revival”.Full size wagons were doomed by the lower power and bad gearing they had to use to meet emission and CAFE standards.Station wagons were built on full size sedan platforms and the big 3 didn’t really have a good one.Changing tastes in styling played a part but SUVs eventually filled the niche.

  39. I anticipate the return of the station wagon for the next decade.

    They’re already here. We’re just calling them “Crossovers” or “CUVs” this time since the words “station wagon” still have a marketing stigma in the US.

  40. Dello,

    Ever heard of the Fit, Micra, Yaris?

    The asians are still building very basic entry vehicles

  41. Roadmaster, Crown Victoria, and Caprice all survived into the ’90s, but not really as wagons. They were sold to the few who still demanded old-school big detroit iron and would tolerate the marketing. But they were under-powered and the station-wagon variants were gone by 1994.

    Detroit deliberately marketed them as stodgy to make sure their sales remained low enough to keep their CAFE ratios safe, while marketing the hell out of minivans and SUVs.

  42. ….,
    “There was a time that when GM manufactured a car, one particular part for that car (say a ball joint)would fit most of thier vehicles and would cover a span for 5-15 years.”

    Part of the problem these days is that any 5 GM cars have parts from 12 different manufactures in them.

  43. I’m not going to defend CAFE, but its not like the domestics ceased wagon production solely because of it, nor did most people loathe the longer gearing because towing capacity went down. Most V8 wagons, with the longer gearing, could still tow fairly ample loads (3000 pounds) even with the gearing and the pluses that came from a tall final gear were appreciated by many. I think styling played more a part in wagons demise more than practicality.

  44. LIT,
    “Ever heard of the Fit, Micra, Yaris?

    The asians are still building very basic entry vehicles”

    If you call $20,000 for a Fit “entry level”…

    Tata: $2,000.

    Entry level.

  45. LIT,
    “I don’t know how Subaru managed to classify the outback as a “truck” (as that’s the only thing the EPA or whoever controls CAFE cares about for mileage as its considered a work vehicle or something) as its clearly based on a car platform.”

    I can’t answer that, but remember that the the Subaru Brat was a car-based “truck”.

  46. Detroit deliberately marketed them as stodgy to make sure their sales remained low enough to keep their CAFE ratios safe, while marketing the hell out of minivans and SUVs.

    …or perhaps the profit margin on SUVs and minivans was alot higher…i doubt seriously that GM sandbagged a potential high volume car just so it didn’t pay CAFE penalties.

  47. Dello,

    The Fit starts at 14750, which nowadays is close to entry level. That’s around 2450 in 1968, which is approximately the cost of a 1967 Ford Falcon Futura.

  48. There is plenty of blame for Detroit’s management and unions.I think the government deserves it as well.
    The profound decline in American autos corresponds to increased mandates in the 70s.
    they didn’t recover until well into the 90s.

    CAFE standards alone affected reliability,power, and style(better aerodynamics for fuel economy limits design).

  49. Dello,

    I don’t remember whether the Brat was was classified as a car or truck by the EPA, but in marketing it was a “truck” because it had a bed. Same with the Camino and ranchero. That doesn’t mean their official status was CAFE exempt.

  50. “You seem to be having a lot of fun with the Pontiac Aztek, but everyone that owns one that I’ve heard about seems to think they’re pretty good.”

    But the fact that they bought the car in the first place should cast serious doubt on their judgement.

  51. The Brat was classified as a “car” to avoid the import duty on small trucks(IIRC). That is why it had the wonderfully dangerous seats in the bed.

  52. It must be the unions and the Wagner act. Yeah, like there are no unions or collective bargaining in Germany.

  53. Labor costs are 10% of the outlays of American automakers. Ten. You could cut that in half and GM would still be under water.

    BTW, all of the safety and fuel efficiency regulations being blamed for American automakers losing share to imports applied to those imports as well.

  54. Lwaxana Troi has died.

    You mean Nurse Chapel.

  55. It must be the unions and the Wagner act. Yeah, like there are no unions or collective bargaining in Germany.

    You know who else in Germany liked Wagner?

  56. joe,

    It was easier for the foreign cars to meet the early fuel economy requirements when their market niche was already small underpowered fuel efficient cars.

  57. Tata is the name of the whole company. The Tata Nano will be the car for 1 lakh (sp?) or about $2500. Tata already makes ‘mid’ priced cars in the $10K range (which is needless to say is vey pricey for India)

  58. The comparable number for the Wall Street firms that got bailed out is 80%. Eighty percent of their operating costs are labor costs.

    But they didn’t go down because of labor costs, either. Like the Big Three, they had lousy business practices.

  59. Dammit people! Joe is right! I’m sick of hearing about the UAW, the government, and the economy! I know plenty of stupid people that have a lot of money based on investing in businesses with good business practices. On the flip side, a know a handful of people who are insanely smart but are poor from real estate speculation.

  60. Anyways, the joe cheerleading aside, I’ve never owned anything with less than a V8. I’ve driven a V6 before and was thoroughly unimpressed. I’m an aggressive driver and I credit my 0 wrecks to the fact that I can just step on the gas and dodge idiots slamming on their brakes for whatever reason.

  61. All of the car companies, foriegn and domestic, have made poor decisions at times. I think the difference is likely that for decades now our government has not provided the support and protection to our carmakers that Japan and Germany have provided them.

  62. Naga
    I credit my low wreck number to the fact that I can attain brief moments of intangibility for myself and anything I am touching at the time. Other cars just phase right through me.

  63. MNG,

    Damn you and your charm. Your post at 7:19 pissed me off. Then your post at 7:20 totally redeems you in my eyes. “Moments of intagibility” combined with the word “phase”? LMAO!

    Anyways, back to your post at 7:19. Isn’t it a better way of thinking to acknowledge that maybe, just maybe, any protection and support gets cancelled out over time? Post-war economics has been along 2 roads for developing nations. Import substitution and export driving. Doing one or the other seems to drag down GNP over time. But beginning with import substitution then switching to export driven economies seems to be the road to success(ask the Asian tigers).

  64. I think the difference is likely that for decades now our government has not provided the support and protection to our carmakers that Japan and Germany have provided them.

    That’s just crazy talk. Ford, GM and Chrysler had the whole North Americam Market with considerable operations in Australia, Europe and South America. They didn’t require any “support and protection” and let all those advantages go for naught. The UAW, the government both get some some blame, but the failures of the Big 3 are largely the responsibility of folks in Detroit, Auburn Hills and Dearborn.

    Ford is going to come out this shakedown in the industry the best. Chrysler will not see 2010, and I don’t know WTF will happen with GM.

  65. Also, I believe back in the day Big 3 management was paid based on size and market share. Might have somethin to do with it as well.

  66. Forget what I said. J sub D as usual got to the heart of my argument and said it better as well.

  67. J sub D,

    What the hell did you do in the army? Sergeant major or what?

  68. Naga Sadow Master Chief Petty Officer in the Navy. I mostly worked on surface weapons systems.

  69. The comparable number for the Wall Street firms that got bailed out is 80%. Eighty percent of their operating costs are labor costs.

    And did you know Lay’s can make a potato chip in 0.3 seconds, while it takes Microsoft months to develop software?

    What’s that you say? Comparing companies in wildly different sectors of the economy makes no sense? Hogwash.

  70. Ah. My apologies. That explains everything. Your posts, when not satires, are straight to the point with no-bullshit attached.

  71. You want to know what is wrong with GM just go look up the development of the Vega. At one point, the prototype broke in half on the test track.

    DeLorean’s book, On a Clear Day You Can See GM, was devestating back in 1979. Things have only gotten worse since then.

  72. kinnath,

    As long as their new Camaro’s don’t break in half they will have a future customer in me! Not really though.

  73. I had a 69 Camaro the first time it was introduced. I don’t see the need to buy the rehashed version in 2010.

    I’ll stick with my Z.

  74. Kinnath,

    Ahem! I OWN a 97′ Z-28. The “Thirtieth Anniversary edition” with the insane LT1 engine. Are you seriously gonna suggest your 69′, while possibly the most bad ass vehicle on the road(ties with a Challenger in my mind), was the first of its kind?

  75. Z-28’s are indeed bad assed. No Mustang mind you, but bad assed nevertheless.

  76. “And they were never shy about using the government to keep competition out.” This quote totally distorts what happened to the Big 3. When CAFE was passed in the 1970s it absolutely altered free markets and destroyed the Big 3’s business model. Because D.C. didn’t have the political will to repeal CAFE tarrifs were a behind the scene measure that could actually lessen some of the damage done by CAFE. On top of that you have the Asian automakers whose own governments shield their markets while directly investing in their companies to support them abroad and the entire South of the U.S. which spent billions of dollars to literally build plants for the Japanese competitors. It’s funny that Reason spends so much time arguing about how detrimental and horrible government intrusion in the marketplace and th

  77. en refuses to acknowledge a clear example of the government’s marketplace intrusions destroying an otherwise competitive company (ies).

  78. joe, how much is it if you factor in the labor costs of the parts suppliers?

    Anyway, the point is that labor was in bed with management on trade protectionism and lack of innovation. They were perfectly happy to produce obsolete, carelessly manufactured junk as long as the checks kept rolling in. And when they didn’t, they chose to lobby against free trade and for bailouts, rather than innovate and produce better products.

    The fact that the unions don’t give a shit about the quality of the cars they are making, and would rather use their political clout to subsidize and protect automakers, may have something to do with why US automakers are less innovative than their foreign competitors.

  79. MNG,

    Damn straight a Z-28 isn’t a Mustang. Mustang’s are for pussies!

  80. Naga
    And we were getting along so well…

    “Anyway, the point is that labor was in bed with management on trade protectionism and lack of innovation.”

    Protectionism is probably not the reason the Big 3 are hurting, rather it is probably the fact that their competitors have national governments protecting and subsidizing them while the Big 3 have been let down by their government.

  81. In point of fact, Ford isn’t in the crapper. According to Consumer Reports, their cars compare well with the Asian imports. And they aren’t asking for money, either.

    Chrysler’s a basket case, and GM isn’t much better, but Ford has the same UAW contracts and UAW workers, which, under Kaus’s theory, would doom them. The UAW deserves to be dinged, but management at Chrysler and GM deserve to be fired, sans parachute.

    I riff on this a bit more at http://avanneman.blogspot.com/2008/12/whats-up-with-detroit.html

  82. There’s a brain-drain problem in the US WRT engineering talent needed to efficiently manufacture cars and other appliances and improve these products.

    A mechanical engineer, like myself, will be payed more if he enters the public sector or semi-public (military contractors, e.g.) than he will if he works at a factory.

    It’s very common in the private sector to have an engineer (or skilled technician) who teaches a robot or programmable controller to do some complicated manufacturing task to get payed less than the chimp who turns the machine on and off.

  83. The Libertarian ability to trace every single market failure to some fine print, Liberal objective is both impressive in its creativity, and utterly creepy in its sincerity.

  84. MNG,

    Your car ignorance is showing. Your Mustang better be a Cobra or a Saleen if you want respect from me. Also, your economic ignorance is showing. Ever wonder what a “voluntary export restraint” is? It’s basically a subsidy to foreign producers. Look it up.

  85. Protectionism is probably not the reason the Big 3 are hurting, rather it is probably the fact that their competitors have national governments protecting and subsidizing them while the Big 3 have been let down by their government.

    How are they protected in the US market, where most of their sales are?

    Trade protectionism for Japanese cars within Japan, is also much lower today than it was in the 60s.

    Plus … where do you get the notion that they are being subsidized by the Japanese government?

    maybe back in the 60s, but today the only suggestion of that is that they got money to develop hybrids. Which is the same subsidies we give GM, Ford and Chrysler.

  86. Hazel Meade,

    I can’t tell if MNG is being facetious or not. A “voluntary export restraint” is basically a subsidy to foreign auto makers. He simply didn’t mention that we more or less provided “support and protection” as well. All they had to do was break even and gain market share. Also, as I stated above any dynamic economy today more or less shed the import substitution model for the export driven model.

  87. Naga: The wikipedia page says this:
    Typically VERs arise when the import-competing industries seek protection from a surge of imports from particular exporting countries.

    That sounds like a VER is a subsidy to the domestic manufacturer, not the foreign one.

    And here:http://www.gwu.edu/~nsarchiv/japan/scohenwp.htm
    On May 1, 1981, the government of Japan announced that it was voluntarily limiting the number of automobiles it exported to the U.S. market for a two year period. The Japanese did not jump into this action; they were pushed. Although technically acting on a unilateral basis, the restraint program reflected the successful culmination of an orchestrated trade policy crafted by the Reagan administration. The genesis of this initiative was a policy review process begun in the last year of the Carter administration. While poles apart in their economic ideology, both administrations felt compelled to consider a broad range of measures to address the deteriorating economic fortunes of the U.S. automobile industry at the onset of the 1980s.

    This also sounds, er, more like the VERs were basically designed to protect US automakers, not Japanese ones.

    We, do, of course, subsidize Toyota and Honda though all sorts of corporate welfare these days, but that’s US, not the Japanese government paying them to set up factories in Mississippi.

  88. Hazel Meade,

    It’s a bit counter intuitive I agree. Basically, VER’s are the worst kind of NTB(Non tariff barrier) due to the direct transfer from domestic consumers to foreign producers. Foreign producers can charge a higher price and capture much of the quota rents that would have gone to domestic importers. The real losers are consumers. GNP is lower therefore standard of living is lower.

  89. We have the perfect lab experiment right before our eyes. Autos cannot be made profitably in the north, yet they are being made profitably in the south. In the same country. It’s rather like munitions manufacturing during the Civil War, if you reverse the sides. Think about it.

  90. I HATE TO SCREAM … BUT

    This article (and opinion) is the WORST I’ve read on the SUBJECT.

    American AUTO Failed due to the following:

    1. It’s failure to OUT MARKET the competition
    2. Not offering a REAL SELECTION… a Pontiac, Mercury, and Dodge were the SAME car with DIFFERENT names and silly little distinction.
    3. Not meeting the American driver’s demands.
    4. Not engineering to American Needs.
    5. Lack of coming up with clever designs.

    Had AMERICANS been buying MORE GM, FORD, Christler cars that Toyota, Honda, etc…I wouldn’t had MATTER that the EMPLOYEES were being well compensated.

    And that’s the END OF IT .. I WIN !!!

    …and yes, keep dope alive.

  91. Who cares whether other countries subsidize their car companies or not?

    If it makes for better deals and more competition for the U.S. consumer it’s all good.

    Those who argue for protectionist measures to protect the domestic car industry (or any other industry) are essentially claiming that the economic interests of those companies and their employees is of greater national importance than is the economic interest of the consuming public to have more competition, cheaper prices and more choices of product to buy.

    They are incapable of proving any such thing.

  92. Who cares whether other countries subsidize their car companies?

    Indeed, why look a gift horse in the mouth? Do I mind if Japanese taxpayers subsidize my Nissan, making it more affordable to me? I certainly do not.

  93. Ahem! I OWN a 97′ Z-28. The “Thirtieth Anniversary edition” with the insane LT1 engine. Are you seriously gonna suggest your 69′, while possibly the most bad ass vehicle on the road(ties with a Challenger in my mind), was the first of its kind?

    No, I was saying the new Camaro 2010 is a direct homage/rip-off of the 69. The story goes that one of the senior engineers brought his classic 69 into the shop and the young engineers basically copied and tweaked the sheet metal for the the 2010 Camaro.

  94. Japanese aid was mostly to the established corporate structure.

    Now where do Isuzu (Japan’s oldest carmaker) and Mitsubishi one of Japan’s oldest and biggest corporate conglomerates stand compared to upstarts like Toyota and Honda?

    Toyota had some establishment connections but Honda started from the ground up post WWII and survived mostly inspite of rather than because of Japanese industrial policy.

  95. Honda. The car of freedom. I’ve owned two Accords. That’s it, for twenty years.

  96. kinnath,

    Oh. Well that sounds reasonable. My apologies. I’m sensitive about Camaros.

  97. Pro Lib,

    You unAmerican piece of garbage! Them people that make Honda, also made the tanks that bombed Pearl Harbor! Right before they invaded Mex E Co. with Poncho Villa!

  98. MNG,

    I live life in the fast lane dude! I’m not gonna type in some link! Better fix it where it’s clickable!

  99. Naga,

    Here you go.

    Non Sequitur

  100. Damn. I wasn’t interested in the argument anymore, SugarFree. Now you made me into a liar as I am still not gonna click on the link.

  101. It’s a bit counter intuitive I agree. Basically, VER’s are the worst kind of NTB(Non tariff barrier) due to the direct transfer from domestic consumers to foreign producers. Foreign producers can charge a higher price and capture much of the quota rents that would have gone to domestic importers. The real losers are consumers. GNP is lower therefore standard of living is lower.

    I don’t think car prices are so inelastic that higher prices would make up for fewer sales.
    Obviously if you limit supply, demand will go up, but if it made it more profitable to sell fewer cars at slightly higher prices, the car companies would limit their own production.

  102. So, Japanese taxpayers are paying Americans to both build and buy their cars. Why is this bad for us?

  103. Hazel Meade,

    There’s the beauty of it, my friend. Domestic producers benefit. But a larger benefit goes to foreign producers with a smaller home market. Gotta love international economics. I’ll go find the book I was taught from to help ya.

  104. Found it. “Internation Economics-A Policy Approach” by Mordechai E. Kreinin.

  105. Jordan,

    That was essentially my argument to MNG. If both sides are “supporting and protecting” their car industries it more or less cancels itself out. No longer part of the equation and what not. MNG can be tricky but you gotta be trickier and let him tip toe through to the realization that he is incorrect. You will know when he realizes he is incorrect as he will no longer return to do battle.

  106. but it has never been the problem in making cars.

    Then obviously you have never spent more than 5 waking minutes with an auto worker. At the Belvidere Xsler plant, there is a union job assignment which entials nothing more than putting gasoline in the tank. This job requires 45 seconds by union rules, the actual amount of time it takes with the present technology is about 8 seconds. Multiply stuff like this by 5,000 pages. Then add all the stupid money-wasting rules the government adds (like CAFE standards) and combine the two sets of stupid rules into unintended combinations and you have a recipe for insolvency.

    The UAW ain’t the whole problem, just 33% of the problem.

  107. Especially after World War II, when the Big 2.5 …

    Weren’t there something like 9 or 10 US auto companies in 1946? Off the top of my head there was Nash, Hudson, Studebaker, Packard, Kaiser… Sounds like you’re trying to put 1946 in a 2008 context. No can do. Your analysis is only valid post-1964.

    And really, when you do better analysis of financing of large corporations (not just auto companies) you begin to discover that the real killer is monetary policy. When a company takes on debt, subsequent monetary policy makes it harder to pay off that old debt which also makes it hard to take on new debt, while new competitors can take advantage of the new policy while not being burdened with old debt. Montogmery Ward – Sears – WalMart follow roughly the same pattern as Chevrolet – GM – Toyota.

    Design mishaps like the Aztek come directly from having massive debt – the attempt to come up with numerous designs from a limited set of parts.

  108. I can’t really complain about a union workers paycheck when the CEO is making millions running the company into the ground. I have no problem with a CEO making millions for doing their job, but their job is not to run the company into the ground.

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