Morning Bell: A Better Way to Help Detroit

Conn Carroll /

Almost 30 years ago, a steep rise in oil prices drove consumers to buy smaller, more fuel-efficient cars. Cars that American auto manufacturers simply didn’t make. The resulting huge drop in sales drove Chrysler to the brink of bankruptcy, but before the market could play itself out, President Jimmy Carter came in “rescued” Chrysler with $1.2 billion in loan guarantees. At first glance it may appear that Chrysler was saved from bankruptcy. But a closer examination of the record shows that even with the loans, Chrysler went through a quasi-bankruptcy. Most of Chrysler’s creditors were forced to take losses just as they would have had Chrysler gone through Chapter 11, and the company ended up firing almost half its workforce, including 20,000 white-collar workers and 42,600 hourly wage earners. The only people that benefited from the bailout were Chrysler shareholders.

Fast forward 30 years and sadly little has changed. Again, a steep rise in oil prices is driving consumers to buy smaller and more fuel-efficient cars, and again Detroit automakers are stuck with gas guzzling fleets that no one wants to buy. And, again, Detroit has its hand out in Washington begging for taxpayer money with the threat that if they do not get it, thousands of Americans will lose jobs. Senate Majority Leader Harry Reid (D-NV) told The New York Times: “I think it’s extremely important that we try to do something. These are jobs. These are cars that we should be selling — or manufacturing in America, not someplace else.”

But there are plenty of auto industry jobs being created every day right here in America — and with no government help. Toyota recently opened a new plant in Texas, and is building another factory in Mississippi. Toyota already produces more than 1.5 million cars in America, and that number is set to soar as more factories like those in Texas and Mississippi come on line. Unlike the Detroit automakers, Toyota has a union-free workforce, which gives the company a huge competitive advantage. Toyota still pays good wages but its workforce is younger, not burdened by seniority rules, and the company has smarter and lower benefit costs.

If Washington really wanted to help Detroit, they could end the regulatory nightmare that prevents profitable, fuel-efficient cars from reaching market. For example, Ford is going to sell a car that gets 65 miles per gallon starting in November. But this car will only be available in Europe. Why? Because the car runs on diesel and environmentalists here in the United States have fought to keep diesel taxes high and refinery capacity low. As a result, the car would just not be profitable here in America. A national energy policy that afforded Detroit more engineering options to make more fuel-efficient cars wouldn’t cost the taxpayers a cent and would undoubtedly create more jobs and reduce our oil consumption.

Worse, an automaker bailout would also set a disturbing precedent, resulting in even more private companies clamoring for government sponsorships. Any number of companies could make the case that their respective industry is vital for the economy. There has already been talk of bailout requests from the airline industry. Where will it end?

Quick Hits:

No related posts.