Another Iraq Casualty: U.S. Auto Industry

US automakers on their way to meet President Bushby Jesse Jackson One casualty of the debacle in Iraq seldom gets much press, but the inevitable focus on the mess in Iraq too often overshadows other vital challenges. The American automobile industry is hemorrhaging. Today, Ford will announce that it will offer buyouts to 85 percent of its salaried work force. Ford is looking to lay off a staggering 52,000 employees by September 2007. Chrysler has already been merged with the German automaker Daimler-Benz. General Motors is gushing red ink. This industry has been America's industrial stronghold since Henry Ford perfected the assembly line. After World War II, President Eisenhower's defense secretary, Charlie Wilson, wasn't far off when he said, ''What's good for America is good for General Motors and vice versa.'' GM was America's signature company. Its unionized employees won what became the foundation of the American Dream: secure jobs that paid a family wage, with health care, pensions and paid vacations. Now that social contract is being shredded by the global marketplace. The foolish, ideological commitment to mindless trade policies over the last several decades has devastated Detroit. U.S. automakers must now compete with companies from Europe and Japan that bear no health care costs. General Motors has about three retirees for every one autoworker; Ford has two for every active employee. Toyota in this country has about 100 retirees in total. The health care and pension costs put U.S. automakers at a staggering cost disadvantage: over $1,200 a car. If they compete on price, they lose money. If they don't compete, they lose market share. At the same time, we desperately need the industry to move to hybrid and alternative-fuel cars. Detroit is ready to build cars that use alternative fuels made from corn or grasses. But the oil industry that resists putting in the E85 (85 percent ethanol) pumps. These would cut the demand for oil drastically -- and put a crimp in their record profits. The Ford layoffs alone will hit Michigan, New Jersey, Georgia, Missouri and Ohio big-time, and states like Kentucky will feel the pain. It won't stop with the auto jobs. The auto suppliers, housing markets, hotels, the retail industries that depend on the demand generated by relatively well-paid auto employees will be depressed. We see the pain caused by the steel industry's decline. But the steel industry is a pimple compared with the rash of economic losses that the decline of Detroit will cause. Obviously, this crisis requires urgent, intense national action. Are we prepared to let the auto industry die? If not, what steps can be taken to relieve the burdens of their health care and pension costs? What should be expected from the automakers in return in terms of investment, jobs guarantees, fuel efficiency and alternative-fuel cars? What penalties or incentives should be provided to the oil industry to force proliferation of alternative-fuel pumps in gas stations? How does all this fit into a concerted drive for energy independence? Yet when the CEOs of the auto industry sought to meet with George W. Bush before the election, he canceled two meetings with them. When they finally met, an obviously distracted president gave them all of one hour, and nothing was decided. This is catastrophic. Understandably, the president and his advisers are focused on what may be the worst foreign policy debacle in our history, in Iraq. But the collapse of Detroit may well be the equivalent defeat in our economic history. Surely our auto companies' futures cannot be left to a market in which their competitors enjoy massive state subsidies and mercantile trade policies. We need a considered national policy for our industrial future. We tend to think of Iraq as a crisis ''over there.'' In fact, it is taking casualties here at home. The cost of the war is evinced not just by the brave men and women who are sacrificing life and limb, not just by the literal trillions of dollars that will be wasted, but by the collapse of America's own economy. It remains neglected as our leaders focus on troubles abroad rather than threats here at home. [Originally published in the Chicago Sun-Times, December 12, 2006}

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One Response to “Another Iraq Casualty: U.S. Auto Industry”

  1. I like Jackson’s overall approach, and his insistence on the public sector making aid to US automakers contingent on new investments, new product and employment guarantees represents a ‘high road’ approach.

    But Jackson is wrong: the main culprit is not foreign competition from low cost labor or a competitive disadvantage from companies’ pension obligations.

    The Wall Street Journal [http://www.jsonline.com/story/index.aspx?id=440305] reports that Detroit automakers pension plans for the workforce is ‘flush with cash’. With a surplus of $9 bilion, this is more than enough to meet obligations ‘for years to come.’ On the other hand, executive pension plans are currently $1.4 billion in the red.

    Detroit has, for years, followed a Low Road strategy of cutting labor costs rather than investing in the workforce to make it more agile and productive, investing in new processes and aggressively investing in fuel efficiency and alternative fuels. Instead, Detroit has lobbied for tax breaks to people who buy SUVs as a way to boost sales in one segment of the auto market in the short-term.

    This, of course, is a failing strategy: it is simply impossible for Americans, and others around the world, to continue to consume petroleum at current rates. It’s not just a moral or a political thing–mother nature will impose this on us. So, that means that, in the medium to long-term, the market for gas guzzlers is a dead end. Why invest so much in it?

    On the other hand, you have companies like Toyota. Toyota, 30-40 years ago, was at the forefront in major breakthroughs in process and product innovation. They cut costs by investing in their workforce, going to a decentralized management structure which gave more autonomy to front-line workers, aggressively developed lean and just-in-time manufacturing. The result was more innovation, less waste, more profit margin and greater market share. It has been Toyota and Honda that have driven the creation of the hybrid and super fuel efficient car markets.

    Ford, on the other hand, has only recently announced that it will produce to customer demand, and not to fill warehouses. Duh!

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