How Detroit's Automakers Went from Kings of the Road to Roadkill

THIS IS A MUST READ!!!!

The following is adapted from a speech delivered by Joseph B. White, Senior Editor of the Wall St. Journal, at Hillsdale College on January 26, 2009, at a seminar on the topic, “Cars and Trucks, Markets and Governments,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. It is reprinted by permission from Imprimis, a publication of Hillsdale College.


I'D LIKE to start by congratulating all of you. You are all now in the auto business, the Sport of Kings-or in our case, presidents and members of Congress. Without your support—and I assume that most of you are fortunate enough to pay taxes—General Motors and Chrysler would very likely be getting measured by the undertakers of the bankruptcy courts. But make no mistake. What has happened to GM is essentially bankruptcy by other means, and that is an extraordinary event in the political and economic history of our country.

GM is an institution that survived in its early years the kind of management turbulence we've come to associate with particularly chaotic Internet startups. But with Alfred P. Sloan in charge, GM settled down to become the very model of the modern corporation. It navigated through the Great Depression, and negotiated the transition from producing tanks and other military materiel during World War II to peacetime production of cars and trucks. It was global before global was cool, as its current chairman used to say. By the mid-1950s the company was the symbol of American industrial power—the largest industrial corporation in the world. It owned more than half the U.S. market. It set the trends in styling and technology, and even when it did not it was such a fast and effective follower that it could fairly easily hold its competitors in their places. And it held the distinction as the world's largest automaker until just a year or so ago.

How does a juggernaut like this become the basket case that we see before us today? I will oversimplify matters and touch on five factors that contributed to the current crisis—a crisis that has been more than 30 years in the making.

First, Detroit underestimated the competition—in more ways than one.

Second, GM mismanaged its relationship with the United Auto Workers, and the UAW in its turn did nothing to encourage GM (or Ford or Chrysler) to defuse the demographic time bomb that has now blown up their collective future.

Third, GM, Ford, and Chrysler handled failure better than success. When they made money, they tended to squander it on ill-conceived diversification schemes. It was when they were in trouble that they often did their most innovative work—the first minivans at Chrysler, the first Ford Taurus, and more recently the Chevy Volt were ideas born out of crisis.

Fourth, GM (and Ford and Chrysler) relied too heavily on a few, gas-hungry truck and SUV lines for all their profits-plus the money they needed to cover losses on many of their car lines. They did this for a good reason: When gas was cheap, big gas-guzzling trucks were exactly what their customers wanted—until they were not.

Fifth, GM refused to accept that to survive it could not remain what it was in the 1950s and 1960s—with multiple brands and a dominant market share. Instead, it used short-term strategies such as zero percent financing to avoid reckoning with the consequences of globalization and its own mistakes.

Competition from Overseas

In hindsight, it's apparent that the gas shocks of the 1970s hit Detroit at a time when they were particularly vulnerable. They were a decadent empire—Rome in the reign of Nero. The pinnacles of the Detroit art were crudely engineered muscle cars. The mainstream products were large, V8-powered, rear-wheel-drive sedans and station wagons. The Detroit marketing and engineering machinery didn't comprehend the appeal of cars like the Volkswagen Beetle or the Datsun 240Z.

But it took the spike in gas prices—and the economic disruptions it caused—to really open the door for the Japanese automakers.

Remember, Toyota and Honda were relative pipsqueaks in those days. They did not have much more going for them in the American market prior to the first Arab oil embargo than Chinese automakers have today, or Korean automakers did 15 years ago. The oil shocks, however, convinced a huge and influential cohort of American consumers to give fuel-efficient Japanese cars a try. Equally important, the oil shocks persuaded some of the most aggressive of America's car dealers to try them.

The Detroit automakers believed the Japanese could be stopped by import quotas. They initially dismissed reports about the high quality of Japanese cars. They later assumed the Japanese could never replicate their low-cost manufacturing systems in America. Plus they believed initially that the low production cost of Japanese cars was the result of automation and unfair trading practices. (Undoubtedly, the cheap yen was a big help.) In any case, they figured that the Japanese would be stuck in a niche of small, economy cars and that the damage could be contained as customers grew out of their small car phase of life.

They were wrong on all counts.

There were Cassandras—plenty of them. At GM, an executive named Alex Mair gave detailed presentations on why Japanese cars were superior to GM's—lighter, more fuel efficient, and less costly to build. He set up a war room at GM's technical center with displays showing how Honda devised low-cost, high-quality engine parts, and how Japanese automakers designed factories that were roughly half the size of a GM plant but produced the same number of vehicles.

Mair would hold up a connecting rod—the piece of metal in an engine that connects the piston to the crankshaft. The one made by GM was bulky and crudely shaped with big tabs on the ends. Workers assembling the engines would grind down those tabs so that the weight of the piston and rod assembly would be balanced. By contrast, the connecting rod made by Honda was smaller, thinner, and almost like a piece of sculpture. It didn't have ugly tabs on the end, because it was designed to be properly balanced right out of the forge. Mair's point was simple: If you pay careful attention to designing an elegant, lightweight connecting rod, then the engine will be lighter and quieter, the car around the engine can be more efficient, the brakes will have less mass to stop, and the engine will feel more responsive because it has less weight to move.

Another person who warned GM early on about the nature of the Japanese challenge was Jim Harbour. In the early 1980s, he took it into his head to try to tell GM's executives just how much more efficient Japanese factories really were, measured by hours of labor per car produced. The productivity gap was startling—the Japanese plants were about twice as efficient. GM's president at the time responded by barring Jim Harbour from company property.

By the late 1980s, GM's chairman, Roger Smith, had figured out that his company had something to learn from the Japanese. He just didn't know what it was. He poured billions into new, heavily automated U.S. factories—including an effort to build an experimental "lights out" factory that had almost no hourly workers. He entered a joint venture with Toyota to reopen an old GM factory in California, called New United Motor Manufacturing, Inc., or NUMMI. The idea was that GM managers could go to NUMMI to see up close what the "secret" of Toyota's assembly system was. Smith also launched what he promoted as an entirely new car company, Saturn, which was meant to pioneer both a more cooperative relationship with UAW workers and a new way of selling cars.

None of these was a bad idea. But GM took too long to learn the lessons from these experiments—good or bad. The automation strategy fell on its face because the robots didn't work properly, and the cars they built struck many consumers as blandly styled and of poor quality. NUMMI did give GM managers valuable information about Toyota's manufacturing and management system, which a team of MIT researchers would later call "lean production." But too many of the GM managers who gained knowledge from NUMMI were unable to make an impact on GM's core North American business.

Why? I believe it was because the UAW and GM middle managers quite understandably focused on the fact that Toyota's production system required only about half the workers GM had at a typical factory at the time. That was an equation the union wouldn't accept. The UAW demanded that GM keep paying workers displaced by new technology or other shifts in production strategy, which led to the creation of what became known as the Jobs Bank. That program discouraged GM from closing factories and encouraged efforts to sustain high levels of production even when demand fell.

GM and the UAW

This brings me to the relationship between Detroit management and the UAW.

It is likely that if no Japanese or European manufacturers had built plants in the U.S.—in other words, if imports were still really imports—the Detroit carmakers would not be in their current straits, although we as consumers would probably be paying more for cars and have fewer choices than we do. The fact is that the Detroit Three's post-World War II business strategies were doomed from the day in 1982 when the first Honda Accord rolled off a non-union assembly line in Ohio. After that it soon became clear that the Japanese automakers—and others—could build cars in the U.S. with relatively young, non-union labor forces that quickly learned how to thrive in the efficient production systems those companies operated.

Being new has enormous advantages in a capital-intensive, technology-intensive business like automaking. Honda, Toyota, Nissan, and later BMW, Mercedes, and Hyundai, had new factories, often subsidized by the host state, that were designed to use the latest manufacturing processes and technology. And they had new work forces. This was an advantage not because they paid them less per hour—generally non-union autoworkers receive about what UAW men and women earn in GM assembly plants—but because the new, non-union companies didn't have to bear additional costs for health care and pensions for hundreds of thousands of retirees.

Moreover, the new American manufacturers didn't have to compensate workers for the change from the old mass production methods to the new lean production approach. GM did—which is why GM created the Jobs Bank. The idea was that if UAW workers believed they wouldn't be fired if GM got more efficient, then they might embrace the new methods. Of course, we know how that turned out. The Jobs Bank became little more than a welfare system for people who had nothing more to contribute because GM's dropping market share had made their jobs superfluous.

Health care is a similar story. GM's leaders—and the UAW's—knew by the early 1990s that the combination of rising health care costs and the longevity of GM's retired workers threatened the company. But GM management backed away from a confrontation with the UAW over health care in 1993, and in every national contract cycle afterwards until 2005—when the company's nearness to collapse finally became clear to everyone.

In testimony before Congress this December, GM's CEO Rick Wagoner said that GM has spent $103 billion during the past 15 years funding its pension and retiree health-care obligations. That is nearly $7 billion a year—more than GM's capital spending budget for new models this year. Why wasn't Rick Wagoner making this point in 1998, or 1999, or even 2003? Even now, GM doesn't seem willing to treat the situation like the emergency it is. Under the current contract, the UAW will pay for retiree health-care costs using a fund negotiated in last year's contract—but that won't start until 2010. GM is on the hook to contribute $20 billion to that fund over the next several years—unless it can renegotiate that deal under federal supervision.

Quality is Job One

Rick Wagoner told Congress: "Obviously, if we had the $103 billion and could use it for other things, it would enable us to be even farther ahead on technology or newer equipment in our plants, or whatever." Whatever, indeed.

This is a good place to talk about the Detroit mistake that matters most to most people: quality. By quality, I mean both the absence of defects and the appeal of the materials, design, and workmanship built into a car. I believe most people who buy a car also think of how durable and reliable a car is over time when they think of quality.

The failure of the Detroit automakers to keep pace with the new standards of reliability and defect-free assembly set by Toyota and Honda during the 1980s is well known, and still haunts them today. The really bad Detroit cars of the late 1970s and early to mid-1980s launched a cycle that has proven disastrous for all three companies. Poor design and bad reliability records led to customer dissatisfaction, which led to weaker demand for new Detroit cars as well as used ones. Customers were willing to buy Detroit cars—but only if they received a discount in advance for the mechanical problems they assumed they would have.

During the 1990s and the 2000s, a number of the surveys that industry executives accept as reliable guides to new vehicle quality began to show that the best of GM's and Ford's new models were almost as good—and in some cases better—in terms of being free of defects than comparable Toyotas, Hondas, or Nissans. But the Detroit brands still had a problem: They started $2,000 or more behind the best Japanese brands in terms of per-car costs, mainly because of labor and legacy costs, with a big helping of inefficient management thrown in. To overcome that deficit, GM and Ford (and Chrysler) resorted to aggressive cost-cutting and low-bid purchasing strategies with their materials suppliers.

Unfortunately, customers could see the low-bid approach in the design and materials used for Detroit cars. So even though objective measures of defects and things gone wrong showed new Detroit cars getting better and better, customers still demanded deep discounts for both new and used Detroit models. This drove down the resale value of used Detroit cars, which in turn made it harder for the Detroit brands to charge enough for the new vehicles to overcome their cost gap.

GM, Ford, and Chrysler compounded this problem by trying to generate the cash to cover their health care and pension bills by building more cars than the market demanded, and then "selling" them to rental car fleets. When those fleet cars bounced back to used car lots, where they competed with new vehicles that were essentially indistinguishable except for the higher price tag, they helped drive down resale values even more.

So the billions spent on legacy costs are matched by billions more in revenue that the Detroit automakers never saw because of the way they mismanaged supply and demand. This is why the Detroit brands appear to be lagging behind not just in hybrids—and it remains to be seen how durable that market is—but also in terms of the refinement and technology offered in their conventional cars.

What to Build?

The recent spectacle of the Diminished Three CEOs and the UAW president groveling before Congress has us focused now on how Detroit has mishandled adversity. A more important question is why they did so badly when times were good.

Consider GM. In 2000 Rick Wagoner, his senior executive team, and a flock of auto journalists jetted off to a villa in Italy for a seminar on how the GM of the 21st century was going to look. Wagoner and his team talked a lot about how GM was going to gain sales and profit from a "network" of alliances with automakers such as Subaru, Suzuki, Isuzu, and Fiat—automakers into which GM had invested capital. They talked about how they were going to use the Internet to turbocharge the company's performance. And so on. But five years later, all of this was in tatters. Much of the capital GM invested in its alliance partners was lost when the company was forced to sell out at distressed prices. Fiat was the worst of all. GM had to pay Fiat $2 billion to get out of the deal—never mind getting back the $2 billion it had invested up front to buy 20 percent of Fiat Auto. GM said it saved $1 billion a year thanks to the Fiat partnership. Obviously, whatever those gains were, they didn't help GM become profitable.

At least GM didn't use the cash it rolled up during the 1990s boom to buy junkyards, as Ford did. But GM did see an opportunity in the money to be made from selling mortgages, and plunged its GMAC financing operation aggressively into that market. Of course, GM didn't see the crash in subprime mortgages coming, either, and now GMAC is effectively bankrupt.

GM's many critics argue that what they should have done with the money they spent on UAW legacy costs and bad diversification schemes was to develop electric cars and hybrids, instead of continuing to base their U.S. business on the same large, V8 powered, rear-wheel-drive formula they used in the 60s—except that now these vehicles were sold as SUVs instead of muscle cars. And indeed, Detroit did depend too heavily on pickup trucks and SUVs for profits. But they did so for understandable reasons. These were the vehicles that consumers wanted to buy from them. Also, these were the vehicles that government policy encouraged them to build.

When gas was cheap, big gas-guzzling trucks were exactly what GM customers wanted. Consumers didn't want Detroit's imitation Toyota Camrys. Toyota was building more than enough real Camrys down in Kentucky. GM made profits of as much as $8,000 per truck—and lost money on many of its cars. Federal fuel economy rules introduced in 1975 forced GM to shrink its cars so that they could average 27.5 miles per gallon. GM did this poorly. (Remember the Chevy Citation or the Cadillac Cimarron?) But federal laws allowed "light trucks" to meet a lower mileage standard. This kink in federal law allowed GM, Ford, and Chrysler to design innovative products that Americans clamored to buy when gas was cheap: SUVs. When Ford launched the Explorer, and GM later launched the Tahoe and the upgraded Suburban, it was the Japanese companies that were envious. In fact, one reason why Toyota is on its way to a loss for 2008—its first annual loss in 70 years—is that it built too many factories in the U.S. in order to build more SUVs and pickups.

One irony of the current situation is that the only vehicles likely to generate the cash GM and the others need right now to rebuild are the same gas-guzzlers that Washington no longer wants them to build. Even New York Times columnist Thomas Friedman has now come to realize that you can't ask Detroit to sell tiny, expensive hybrids when gasoline is under $2 a gallon. We have two contradictory energy policies: The first demands cheap gas at all costs. The second demands that Detroit should substantially increase the average mileage of its cars to 35 or even 40 miles per gallon across the board. How the Obama administration will square this circle, I don't know.

Thinking Anew

So now, where are we? GM has become Government Motors. With the U.S. Treasury standing in for the DuPonts of old, GM is going to try to reinvent itself. One challenge among many for GM in this process will be coming to terms with the reality that the U.S. market is too fractured, and has too many volume manufacturers, for any one of them to expect to control the kind of market share and pricing power GM had in its heyday. Today, according to Wardsauto.com, there are ten foreign-owned automakers with U.S. factories that assembled 3.9 million cars, pickups, and SUVs in 2007, before auto demand began to collapse. That's more than Ford's and Chrysler's U.S. production combined.

GM's efforts to cling to its 1950s self—with the old Sloanian ladder brands of Chevy, Pontiac, Buick, and Cadillac, plus Saturn, Saab, Hummer, and GMC—have led its management into one dark wood of error after another. Since 2001, GM's marketing strategy has come down to a single idea: zero percent financing. This was the automotive version of the addictive, easy credit that ultimately destroyed the housing market. Cut-rate loans, offered to decreasingly credit-worthy buyers, propped up sales and delayed the day of reckoning. But it didn't delay it long enough. The house of cards began tumbling in 2005, and I would say it has now collapsed fully.

Between 1995 and 2007, GM managed to earn a cumulative total of $13.5 billion. That's three-tenths of one percent of the total revenues during that period of more than $4 trillion—and those are nominal dollars, not adjusted for inflation. Between 1990 and 2007, GM lost a combined total of about $33 billion. The six unprofitable years wiped out the gains from 12 profitable years, and then some. But old habits die hard. Within hours of clinching a $6 billion government bailout last month, GMAC and GM were back to promoting zero-interest loans.

During the 1980s and 1990s, GM's leaders refused—and I believe some still refuse—to accept the reality of the presence of so many new automakers in the U.S. market, more than at any time since the 1920s. This hard truth means the company's U.S. market share going forward isn't going to return to the 40 percent levels of the mid-1980s, or the 30 percent levels of the 1990s, or even the mid-20 percent levels we have seen more recently. One thing to watch as GM tries to restructure now will be what assumptions the company makes about its share of the U.S. market going forward. If they call for anything higher than 15 percent, I would be suspicious.

Since all of you are now part owners of this enterprise, I would urge all of you to pay close attention, since what's about to unfold has no clear precedent in our nation's economic history. The closest parallels I can see are Renault in France, Volkswagen in Germany, and the various state-controlled Chinese automakers. But none of these companies is as large as GM, and none of these companies is exactly a model for what GM should want to become.

As I have tried to suggest, it's hard enough for professional managers and technicians—who have a clear profit motive—to run an enterprise as complex as a global car company. What will be the fate of a quasi-nationalized enterprise whose "board of directors" will now include 535 members of Congress, plus various agencies of the Executive Branch? As a property owner in suburban Detroit, I can only hope for the best.


JOSEPH B. WHITE is a senior editor in the Washington, D.C., bureau of The Wall Street Journal. A graduate of Harvard University, he has worked for the Journal since 1987, and for most of that time he covered the auto industry, serving as Detroit bureau chief from 1998-2007. He writes a weekly column on the car business and the regulatory and social issues that surround it for the Journal's online and print editions, and contributes new-car reviews to SmartMoney magazine. Mr. White is co-author (with Paul Ingrassia) of Comeback: The Fall and Rise of the American Automobile Industry, and won the Pulitzer Prize for reporting in 1993.

The 2012 Pelosi GTxi SS/RT Sport Edition

This is a great video! Special thanks to Russ G. for sending it over..

Wake Up UAW! The End is Near!!!

The R.C. Blog has been highlighting the bailouts since the fall and has specifically gone after the unions (leadership, not members...) for the fall of the Big Three. The R.C. Blog continues to support restructuring or bankruptcy for the three U.S. automakers, not a temporary bailout. Unless the union contracts are restructured, the automakers will eventually fail anyway; why waste taxpayer money on a band-aid.

Major and immediate UAW restructuring is needed in order for the Big Three to get back on track to ultimately become a global player in the auto industry. The chart on the left tells the story...

Great editorial from Saturday's Investor's Business Daily:

The proposed $15 billion bailout of the Big Three failed in the Senate for one major reason: Some lawmakers stood up to the unions. But their stand may be moot, since automakers may get the money anyway.

For a full week, GOP lawmakers bore the brunt of the bitter battle waged over an aid package for GM and Chrysler. Though the idea is wildly unpopular among voters, some Washington politicians were desperate to pass it — particularly the Democrats, who are beholden to the Auto Workers and other unions for tens of millions in campaign donations.

In addition to major restructuring by the automakers, GOP senators insisted on givebacks by the United Auto Workers. The UAW responded with a resolute "No." But the bailout foes won, killing the $15 billion in aid.

And they were right to do so.

As the chart shows, gold-plated union contracts are a big reason for U.S. automakers' woes (though managerial incompetence at the Big Three also played a role). The average Big Three worker made $73.26 an hour in 2006; the average worker at a foreign transplant, $44.20. Bailout foes wanted the gap to be shrunk by the end of next year.

A chart making the rounds on the Internet tells it all: Last year, Toyota made 9.37 million vehicles. GM, virtually the same number. Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the U.S.

Even so, the UAW vowed to make no big changes unto 2011, when their current deal expires. That basically would lock in the Big Three's lack of competitiveness for at least three more years, requiring billions and billions more in bailouts or bankruptcy.

Immediately after the bill failed Thursday night, Senate Majority Leader Harry Reid said he "dreads" seeing what the stock market would do on Friday. "It's not going to be a pleasant sight," he warned. For the record, the NASDAQ rose 2.2%, while the S&P 500 increased 0.7%. He needn't have worried.

As for the UAW, they rolled the dice, betting they could lose in the Senate and still get bailed out. It looks like their gamble paid off.

On Friday, the White House said it might use money from the $700 billion Troubled Asset Relief Program — reversing its earlier stance. Why? "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," White House spokeswoman Dana Perino said Friday.

We're sympathetic, but this is the wrong path to take — especially after the president's own party successfully made its case in Congress, and won.

We don't want to see workers suffer or the auto industry disappear. But the fact is, under bankruptcy reorganization, they won't. The workers will still exist, as will their skills. Unprofitable plants that can't be turned around will close. A bankruptcy judge will sell unprofitable assets to those who can use them productively.

They won't need a "car czar," or congressional oversight, or political micromanagement. And out of this process, a slimmer, more competitive and, yes, even profitable Big Three can emerge if we let it — one that will be able to compete with foreign companies on our own soil.

More Reasoning for the Failure of the Big Three

The Big Three Bailout – Socialism's Redux

The R.C. Blog is pleased to publish the first, in what we hope are many, regular opinion pieces on current economic and political issues from one of the most knowledgeable and charismatic Conversatives in No. Va. -- Christian Stockel.

Mr. Stockel, to be exclusively featured on the R.C. Blog, has a wealth of knowledge and experience in global economics and financial management and was a senior official in the federal government and worked directly on many of the issues confronting our current economic problems.

The R.C. Blog proudly presents "Thoughts from the Right Side"...

Thoughts from the Right Side - Christian Stockel

Congress continued its inquisition of executives from the Big Three today executed under the pretense of finding a way of "saving" the big three from extinction. Unfortunately, the political narrative being fed to the American public hides the real objective Congress and the political allies of the Democrat party. This objective has nothing to do with the survival of the American automobile industry and everything to do with saving the UAW and paving the way for a more involved Federal presence in the private economy. A brief review and comparison of the questions posed to the executives and union bosses tell the entire story. Now don't get me wrong. I enjoy the irony of having Barney Frank and Co. lecturing Detroit executives on fiduciary responsibility, fiscal discipline, and long term thinking as much as anyone else; however, if the CEOs of General Motors, Ford, and Chrysler knew what was good for them and their companies, they would run and file Chapter 11 bankruptcy before their corporate jets lift their wheels from the runways at Dulles Airport.

Despite the popular myth that 3-4 million jobs will disappear unless the auto industry get a chance to suck at the government teat, the fact is bankruptcy (Chapter 11 style) and restructuring would most likely result in a leaner, meaner, and more competitive industry that doesn't rely on UAW labor. The fact is a total restructuring of these firms will enable to follow a successful model of production employed by foreign manufacturers in the southern U.S. The Big Three wouldn't disappear; in fact, they would thrive, free of Congressional money and control. That strikes fear in Congressional Democrats. A successful U.S. auto industry setting up shop in a southern red state (yes there are still some left) and leaving blue state Michigan to fade further would put an inconvenient crimp in the Democrat model of economic development and be an uncomfortable story line to explain to the American public. It is interesting listening to Rep. Barney Frank bemoan how the the blue collar workers are being overlooked in the Federal bail-out bonanza that favors white collar industries and workers. However his real aim is to keep the UAW relevant and their members in job contracts that have hamstrung domestic auto manufacturers for over 30 years and in the Democrat party's hip pocket.

Currently, UAW workers at GM, Ford, and Chrysler earn an average hourly wage of $71.00 including benefits. In comparison, American workers at Japanese, European, and Korean car manufacturers in the US earn an average of $37.00. This does not include the extravagant retirement benefits and iron clad job protection schemes (e.g., you can't fire people that are poor performers) that have been extorted from the Big Three. Add to that the simple fact that a company like GM supports almost two retirees for every active worker and one can easily visualize the tight spot in which the American companies find themselves. Try being swift and nimble with that anchor tied around your neck. Chapter 11 restructuring would put these contracts and job guarantees in jeopardy. After backing Barack Obama and the Democrats substantially in the past election, the UAW is going to use their leverage to protect their current position – as untenable as it may be. The made their bet and won – they will make sure that they get the pay off. Add the ill-named Employee Free Choice Act and you have a business killing environment we haven't seen since 1929. To be sure, the demands and interests of other liberal interest groups will find their way into this discussion. The environmental lobby, economic justice lobby, and I am sure the gay rights lobby will find a way to interject themselves in this effort.

Congress is looking to put together a bailout package that will not only resolve the Big Three's short term liquidity problem and provide a political win for the Democrat controlled Congress, but maintain the current labor and management model that will inevitably result in the demise of our domestic automobile industry. However, in today's short-term news cycle and public memory – that is not important. As sad as this scenario may be, the long term implications will be worse than a large spike in Michigan's already depressing unemployment rate, a sudden lack of new Corvettes, some worthless stock, and the rapid deployment of executive golden parachutes.

In fact, the scenario being played out in Congress is simply a continuation of the political narrative established in the presidential election by the Obama campaign. A narrative that re-wrote history and planted the false notion of the “failure of capitalism” in the public consciousness and the need for a “responsible role” of the federal government in the private economy. This narrative was unchallenged by the McCain campaign and the leadership of the Republican party. (Remember, “our guy” is the one who talked about having the government pay people's mortgages.) This narrative changed the nature of the public debate and is what gave the Democrat party an image of being more responsible than Republicans when it comes to addressing issues in the economy. With the presidency secured and large majorities in the House and Senate, the Democrats are using the current economic crisis as a backdrop to ram through their agenda. This agenda; however, will be far less moderate than Obama let on in the campaign and will be in fact a far-left. socialist agenda. On the heels of unprecedented government ownership and entanglement in the financial industry, Congress is poised to give the government an unprecedented role in the automobile industry. Ideas that have been discussed so far have included government ownership of stock, government representation on the boards of these companies, and of course significant government input in management-labor relations. One can only imagine what the next Cadillac or Mustang will look like with the design, engineering, and management input of Congress. Envision an all electric Pacer with recycled denim interior in pastel colors with an EPA mandated governor limiting it to 25 mph.

As this circus unfolds in front of us, we conservatives should be asking who on our side in Congress is raising the voice of resistance to the steady march of managed economics and left wing madness. Who is articulating the virtues of free markets and limited government? No – sorry – those are just crickets you hear. After getting bruised in the most recent election cycle – few Republicans are offering any political or rhetorical resistance. It is even more painful to see the Republican Presidential candidate reaching across the aisle and looking to make a deal. It seems many Republicans are only looking at the short term political implications of current economic difficulties and ignore the larger risk and potential disaster that will result from this constant bail-out process. Once this precedent is established – no industry will be safe from federal meddling. As the siren call of federal bail-out funds beckons struggling companies, an ever growing list of American industries will be snared in Congress' grasp and corporate boards headed by the likes of Dodd, Schumer, Pelosi, Reid, and Waxman will be a reality. It signals the death of American free enterprise and the unique American economic model. One day in the near future, many of us who know better will all wake up and realize we are living in a cheap copy of France without the benefit of its food and wine.

Big Three Invade Washington Looking for Handouts

GM, Ford, and Chrysler are coming to get their "piece of the pie". You didn't think it would stop with the financial market did you???

Fantastic analysis from my friends at The Heritage Foundation:

Both the House and the Senate are set to gavel back into session this week, and both chambers’ first order of business will be a proposed bailout for Detroit’s Big Three: General Motors, Ford and Chrysler. Rep. Barney Frank (D-MA) and Sen. Carl Levin (D-MI) will introduce legislation to carve out $25 billion for Detroit from the $700 billion Wall Street bailout passed last month. This is on top of the $25 billion Congress already gave Detroit this past September.

Oh, and the auto unions have already told Congress they will ask for another $15 billion next year. If you’re beginning to notice a pattern here, you’re not alone. If Congress goes through with this auto bailout, it will not be the first nor last time Detroit will be coming to Washington with its hand out. It will simply become the way the auto industry is run.

There is no doubt U.S. auto manufacturers are in real trouble. Each company posted large losses in the third quarter, with General Motors and Ford reporting losses between $2 billion and $3 billion. But while all auto manufacturers have suffered a downturn in sales, Toyota still managed to come out in the black this past quarter. The problem is not an inherently troubled industry.

The problem is that Detroit’s automakers are trapped in a business model designed for another era. Union contracts force the Big Three to pay their workers an average of $30 more per hour than competitors like Toyota. The Big Three have to keep 15,710 independent dealerships happy nationwide, compared to only 4,000 for all their Japanese competitors. Finally, the Big Three are saddled with billions in annual “legacy costs” that go to more than 800,000 retirees and pay for enormous amounts of facilities they will probably never use again.

The policy question facing Washington is how best to facilitate the changes Detroit must make to survive. The left wants to run everything through Congress. Speaker Nancy Pelosi (D-CA) wants to choose what types of cars the automakers can build and craft a centralized plan to “assure the long-term viability of the industry.” Frank wants a “very tough oversight board” that could “veto ventures” new management wants to pursue. Detroit will never go through the necessary changes with Congress in charge. The types of changes needed will be painful and unpopular, and it is difficult to imagine politicians allowing them, never mind insisting on them.

There is an alternative. And it’s right there in the U.S. Constitution: bankruptcy. Since the founding of our country, the bankruptcy process has been an essential part of the nation’s commercial fabric. Bankruptcy is not the end of the road; it is, rather, a new beginning. The reorga­nization process provides unique flexibility to unlock the fundamentally sound productive capa­bilities of a faltering business by freeing it of many obstacles to success, such as unviable contracts, crushing debt and poor management. Reorganiza­tion is the right tonic for businesses like the Big Three that need to adjust quickly to new economic realities but are, at their cores, sound, productive and potentially profitable.

The fight over how the Big Three should be reformed will be an early test for the incoming liberal majority. The auto industry is hardly the only sector of the economy that is facing difficult choices. How Washington deals with Detroit will set a precedent for other businesses. As Sen. Richard Shelby (R-AL) told “Meet the Press” this weekend: “This is just a beginning of corporate welfare in a big, big way.”

Who's Next Onboard the "Socializing America" Train? It's the Automakers!

From the September 29 R.C. Blog:

"The Congress and Federal Government need to get out of the business of providing unlimited financial support, bailouts, incentives, and plum financing to private enterprises. It has been going on for decades and is spiraling completely out of control with this latest problem. If Congress sets a precedent for federal bailouts of private companies that have a tremendous impact on the economy and stock market, who will be next? Ford? GM? United Airlines? The auto and airline industry already get significant "financing" and incentives from the government, but they'll come looking for much more after this bailout package passes."

As predicted, the "others" would soon line up and they are. Any bailout of the auto industry in America is merely a band-aid on a much larger problem.

The "real" problem with the Big Three is the same problem they have been dealing with since the 1970s -- the unions. If the Big Three operated with the same workforce and efficiency as Toyota, Honda, and Nissan, they would be in a much stronger financial position.

When the unions went away from protecting American workers from unfair labor practices in the early and mid 20th century and began holding the private sector hostage to outrageous demands for pay, health benefits, work hours, etc., it began taking its toll on U.S. business. This is the core reason why the U.S. manufacturing industry in the Midwest is already gone and why the automakers are next. It may take another decade or so, but the Big Three will die or get gobbled up by the New Big Three -- Honda, Toyota and Nissan...

I've said it for years, and I'll say it again, American unions are crippling American business. They were vital at a moment in time when the American workers were being treated like slaves (read "The Jungle" by Upton Sinclair); today, they are simply a thorn in the side of American ingenuity and productivity.

From today's news wires:

Momentum is building in Washington to aid wounded U.S. automakers with cash to help their finance arms and possibly even money to help seal a deal for General Motors Corp. to acquire Chrysler Llc.

Officials "at the highest levels" of the Treasury, Energy and Commerce departments have talked to top automaker executives on the topic, presidential spokeswoman Dana Perino said yesterday. "It's a possibility that they could qualify under it."

Congress recently authorized $25 billion in low-interest loans designed to help automakers develop new energy efficient technology but to also help keep the companies afloat amid hard times.

Each of Detroit's Big Three automakers are burning up cash as the U.S. auto market downturn continues with no end in sight. Analysts say GM and Ford are spending more than $1 billion per month more than they bring in. They add that GM could reach its minimum operating cash level of $14 billion sometime next year. GM's sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Chrysler's figures are unknown because it's a private company. But industry analysts say the automaker apparently is in the most dire condition, and its owner, Cerberus Capital Management Lp, is in talks with GM, the combined Nissan Motor Co. and Renault SA and others about selling the company.

Perino said that the administration is "working as quickly as we possibly can" to finalize the regulations necessary to release the $25 billion in congressionally approved loans to automakers, but she wouldn't put a specific time frame on it or rule in or out any further federal aid, beyond the loans, to stave off bankruptcy by any of the U.S. automakers.

Republican presidential candidate John McCain and Democratic presidential nominee Barack Obama have called for the $25 billion to be expedited. Obama has also said the loan program should to be doubled to provide $50 billion.

The slump has set off fierce lobbying on behalf of the auto industry ahead of the U.S. presidential election, with supporters arguing that a bankruptcy of an automaker would have a cascading impact across the country.

David Cole, chairman of the Center for Automotive Research, estimated that a failure of GM or Ford could threaten as many as 2 million jobs.