ON CAR BUSINESS AS USUAL

NO CHANGE

At first glance it was a bit startling to see the President of the United States, accompanied by his auto industry task force, holding a press conference to announce that a private sector company, Chrysler, will be imminently filing for Chapter 11 Bankruptcy.  As the New York Times reports:

"Chrysler, the third-largest American auto company, will seek bankruptcy protection and enter an alliance with the Italian automaker Fiat, the White House announced Thursday.

The bankruptcy case, which officials envisioned as a swift, “surgical” process, was filed in United States Bankruptcy Court in New York. It marks the first time a major American car company has tried to restructure under bankruptcy protection since Studebaker in 1933.

“I have every confidence that Chrysler will emerge from this process stronger and more competitive,” President Obama said during a noontime appearance at the White House."

But on further reflection, it shouldn't be surprising that the leader of the free world should be involved in such a way over the restructuring of a private sector company.  As Jenkins Holman Jr. explained in his WSJ op-ed titled "The Truth about Cars and Trucks" yesterday,

"For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.

Doesn't sound much like what you hear incessantly from your Congressman, about how Detroit's problems are all due to management "incompetence" in deciding to build "gas guzzling" SUVs, does it?"

And despite the current seemingly Herculean efforts by the government, the prognosis isn't much better going forward, as Mr. Holman goes on to explain:

"Yet the muddled, covert bailout continues: Washington's latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles. The truck tariff remains in place. The fuel-mileage rules continue to protect the UAW monopoly by discouraging the Big Three from shipping small-car production offshore.

In a real bankruptcy, which is the natural fate of companies unable to meet their obligations, Chrysler and GM would be run (or liquidated) for the benefit of their creditors, not their workers. But, here, "pattern bargaining" will remain the law of the Detroit jungle. The UAW will continue to use its unnaturally augmented clout to extract uncompetitive pay and benefits (it can do no other given its internal incentives).

As it has for 40 years, Washington will pitch in with one improvisation after another, disguised as energy policy, trade policy, health-care policy or environmental policy, to stop the rivets from popping off. Politics, especially Democratic electoral politics, will play a more dominant role than ever."

Read the whole piece, and one gets the distinct sense that all this is not just business as usual, but bigger than ever.  Maybe one day, it'll be different.  But not today.

Comments

[Alex Tolley]

The WSJ is just about the only ones who believe that CAFE is the problem. Yet the big 3 had problems even before CAFE, and foreign automakers don't seem to have a problem with it.

There is no question that management and unions are both complicit, much like they were in the nationalized industries in Britain and the newspaper printing business in Britain too. At some point both sides are going to have to learn the realities of business.

Frankly, I would rather Chryler and GM die, providing some market share opportunities for new, innovative car companies. Ford plus the rump of GM should be all that should be left of the US owned domestic auto business.