Detroit wants your business, and your taxes

Members of Congress are eager to toss another $25 billion to the U.S. automotive industry, and industry sources are saying the money can't come too soon. Some are predicting that at least one of the Big Three automakers might not last until the Obama administration, which has supported a Detroit bailout, takes office. The New York Times is reporting today that Democrats supporting the bailout might not have the votes in the lame-duck session to salvage Detroit. Conditions in the automotive industry are dire, with billions of dollars in losses in the last quarter. The News & Observer is reporting that a collapse in Detroit will ripple through North Carolina's automotive supply industry.

But not everyone is in favor of sending taxpayer money to Detroit automakers who have failed miserably to innovate, upgrade or respond to consumer interests. By almost any measure, the Big Three have failed to be competitive with leaner, more innovative and more responsive Japanese and Korean automakers. Detroit is in this mess in large measure because it insisted on maximizing profits by producing huge, heavy, gas-guzzling SUVs. Other factors, such as labor costs, union restrictions, retiree health care and pension costs, play a role, but, fundamentally, Detroit has missed the boat on how to thrive as 21st century automakers. Japanese automakers are building quality cars successfully and economically in U.S. factories, so it's not just the American labor market that's the problem. Detroit trails in quality of construction, consumer comfort and satisfaction and reliability.

Full disclosure: I drive a 14-year-old Japanese-made car, and my wife drives a 7-year-old car made in America by a Japanese company. The two vehicles combined have more than 200,000 miles on them and remain reliable.

A bankruptcy by GM or Chrysler or Ford would ripple through the economy. Automobile manufacturing is one of the last heavy industries left in America. It would be painful. The question for Congress is whether the pain of bankruptcy would be worse than the pain of having taxpayers subsidize the poor decision-making of Detroit's management. One thing taxpayer dollars should definitely not do is accommodate a merger between GM and Chrysler, which has been openly discussed. The proposal is idiotic. Combining two losing companies does not create a winner; it creates an even bigger loser.

Both GM and Ford have new products in the pipeline that could make the companies more competitive. GM's Volt plug-in electric car is especially promising, if the engineering problems can be resolved. But unless the culture changes in Detroit board rooms, these new products, with or without taxpayer subsidies, will not turn the behemoths around. 

Detroit claimed to have learned its lesson in the aftermath of the disastrous oil shocks of the late 1970s, when its giant road hogs were driven from the market by smaller, more efficient vehicles designed to compete against Japanese and European cars. But Detroit quickly shifted to the manufacture of SUVs, taking advantage of Congress' exemption from mileage standards of "small trucks," which conveniently included big, gas-thirsty SUVs.

A bailout of the Big Three might be in the long-term best interests of the country, just as the 1979 loan guarantee for Chrysler proved to be a wise investment, but I'm not convinced yet.