Why Bailing Out Detroit is a Mistake
Everyone agrees that General Motors has two problems.
The first problem they have is “legacy costs” which are the high costs of health care they must pay for retired employees. Every worker at GM is currently paying for the benefits of 2.5 workers who are retired. While the national average that workers contribute for their own health care is 32%, non-salaried workers at GM only pay 7% for their own health benefits. The retirement budget will actually double in the next few years because nearly half of almost 400,000 workers who are currently in the program are going to retire in the next five years. In fact the leader of the United Auto Workers, Ron Gettelfinger, has said the only way out of the health problem is for the United States to adopt a national federalized health insurance program.
The other problem is simply that GM and the other Detroit automakers in trouble simple have no idea about how to make cars that Americans want. Toyota foresaw the need to make fuel efficient cars in the 1970s and made it a major point of its global growth. Meanwhile American automakers spent most of their money lobbying Congress to pass import taxes on foreign small cars and allow American car makers special allowances out of making gas efficiency a priority. Each year they made a few inferior small cars as tokens and instead focused on making profitable SUVs. By making the big SUVs they played a definite part in convincing the American public that energy dependence and forward thinking energy policy were unnecessary.
Toyota spends millions of dollars studying what their customers want. They have a special think tank in Torrance, California which constantly collects data. In fact, according to Fortune magazine they have a special name for this type of research ” genchi genbutsu - go to the scene and confirm the actual happenings”. Toyota has invested in thousands of U.S. workers and built U.S. plants in areas of the country that needed employment. They advanced the concept of the hybrid car to the extent that they came up with the only successful hybrid concept on the market.
Finally, the United Auto Workers do not want to compromise. The labor movement is important in industrialized societies to protect workers but the current situation is out of balance. The labor unions themselves assisted executives at GM and the other companies to move in stupid directions of marketing and product development. In press releases, the UAW has basically said that under all circumstances they must be the highest paid workers in the world.
The United States bailout of Chrysler years ago was said to be a success by some because there was a profitable return on the loan. However, it was a dismal failure because it did nothing to change the behavior of the most juvenile industry in our country. Compare the auto industry in America to the computer industry or the aircraft industry which are fighting bitterly against world competition instead of asking for government handouts and bribing their local Congressman and Senators as has happened in Michigan.
Artificially maintaining GM and the other failing Detroit automakers will suck up possible resources that could be used to further decentralize the industry. In California, a company may be able to make electric cars for $10,000 if it can find the funding. This is an industry that needs to be diversified and not held by a few corrupt companies in one place in our nation. To those that say our national security demands we help GM and the others, I say it is exactly for national security that we must allow diversification and the development of more competitive companies who understand that innovation not corruption is the way to success. If our country really needs change than we need to find new companies to develop new and better types of vehicles.
Tony Magaña grew up in McAllen Texas, attended Texas A&M University, holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.
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