Romney Prescribes Tough Love for the Auto Industry
Wednesday, November 19th, 2008
In an op-ed piece for the New York Times, former Republican presidential candidate Mitt Romney asserts that saying “no” to the Big Three is the only way to save them.
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I agree that the only way to make the American automakers profitable is to be able to reduce the costs which keep their vehicles from competing with foreign manufacturers. They major cost difference in tied to union contracts which could be renegotiated in a Chapter 11 reorgnization.
First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
The second part of Romney’s plan involves a change in management. On Capitol Hill yesterday, the heads of the companies offered to work for $1 a year IF they got Congressional cash. That is tanamount to a junkie offering to go to rehab if his dealer will just give him one more hit of dope. Promises are cheap!
But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.
Until the automakers are forced to make changes and have the environment that makes those changes possible, they will continue down the path of obsolescence. They have already been given $25 billion to make more fuel efficient vehicles, something the public has been buying from other car makers for years. Eliminating the ability to continue to pick taxpayers wallets is the only way to ensure that the changes that must be made, will be made.
In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.
At some point this country must decide if it still stands for capitalism or socialism. If not, every poorly run company will be run and controlled by the government and the American citizens will become financiers of failed business plans.
