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The Big Three Make Their Play

Management of the Big Three automakers will be on Capitol Hill today, begging for federal money to bail them out of the mess they are in. Right there beside them will be their partner in failure, the United Auto Workers.

As a general proposition, when an industry and its unions want the same thing from the federal government, the answer should always be no. In the 1970′s, the airlines and their unions fought deregulation. So did the trucking industry and the Teamsters. Both got told no, and the American economy is much better off as a result. In 1980, shipping costs were fifteen percent of GDP. Today they are about ten percent. Translation: when the Interstate Commerce Commission cartel ended, shipping costs declined by a third, reducing the price of goods generally.

The big American automakers once bestrode the world of American capitalism. Charles Wilson, president of General Motors before becoming defense secretary in the Eisenhower Administration, is famously supposed to have said that “what is good for General Motors is good for the United States.” (This takes the world-record for being quoted out of context for political purposes. What Wilson actually said, in a closed Senate committee hearing, was “What is good for the United States is good for General Motors and vice versa,” which is a very different statement indeed.)

But they suffered the fate of becoming a cartel, with the antitrust laws functioning as the necessary enforcement mechanism to prevent attempts to compete for market share. Further, they had the American market entirely to themselves for decades, except for niches like sports cars and the Volkswagen beetle. With virtually guaranteed profits, they shared these profits with the UAW with ever more generous labor contracts. With a guaranteed market, they became fat, lazy, uninnovative, and incredibly bureaucratic.

When the party ended in the early 1970′s, with the first oil shock, they proved unable to compete with the foreign cars that began to pour in from Japan and Europe. While the quality of their cars has improved, they have been struggling ever since to find a business model that works. They remain bureaucratic and uninnovative, while the UAW leadership has found it politically impossible to adapt to the new reality.

Falling oil prices in the 1980′s and 90′s postponed disaster, allowing fat profits from SUV’s and pickup trucks. But the market for gas-guzzlers has dried up with $4.00 gas and the Big Three can’t make money on small cars because of their built in labor costs.

So they and the union have come, hat in hand, to Washington, asking for a bailout. It would, presumably, stave off collapse, but for how long? There is nothing fundamentally wrong with the American automobile industry. Honda opened a brand new plant in Indiana yesterday. What’s needed to save the Big Three, as distinct from the industry as a whole, is to destroy the poisonous legacy of the cartel days. And that is best accomplished–as Jennifer has noted–in bankruptcy court, not with a bailout.


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