Jason Kelly
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This is the big week for deciding whether to bail out American auto companies. The media's point-counterpoint delivery has oversimplified the discussion into these two camps:
- Chrysler, Ford (F), and General Motors (GM) are too big to fail because their collapse would leave millions of Americans unemployed. Bailing the companies out with taxpayer dollars will be cheaper than cleaning up the aftermath of their disappearance.
- The three companies are dinosaurs that failed to innovate as the auto industry changed, and should be allowed to collapse. Their models are broken and keeping them barely alive on taxpayer dollars will only postpone their inevitable demise.
Lost in that characterization of the problem is government's failure. The government acts as though it has never had any responsibility to its auto industry. That's a view that other countries don't share.
Japan is Detroit's fiercest competitor. Here in Japan, a country of only 120 million people, there are nine domestic auto companies. Nine! They thrive while U.S. firms wither because the Japanese government helps them out. One of the main reasons the Japanese are farther ahead in the electric car category is that the Japanese government pays for a good deal of the research and development of superior batteries.
America's car companies pay too much for labor. Unions are then often blamed for being overly demanding, but what are they really demanding? Fair pay for hard work, if we believe their spokespeople. Let's give them the benefit of the doubt. A big portion of that "fair pay" happens to be for healthcare coverage. Japanese firms face nothing near the mountainous expense of Detroit's labor force healthcare coverage. Why? Because Japan offers socialized medicine that picks up the tab for the bulk of worker health coverage. Toyota (TM) doesn't pay for trips to the hospital. The Japanese government does.
In Germany, government involvement is even more overt. Did you know, for instance, that Volkswagen (VLKAY.PK) is 20% government owned? It was created by the Nazi government in 1937, later became part of the German postwar state, and is now 20% owned by the government of Lower Saxony. That probably comes in handy when negotiating tax rates, labor compensation, and import/export regulations. We're not talking about a neighborhood enterprise here. Volkswagen is Europe's largest auto company and the third-largest in the world.
Japan pays for automotive R&D and labor healthcare, the government of Lower Saxony owns a fifth of Volkswagen, but Uncle Sam pays for nothing. America's auto companies are entirely on their own, trying to turn a profit for Wall Street, trying to support a work force that the government admits is so vast that it can't be allowed to go unemployed, all while facing competitors who enjoy a cheaper cost structure thanks to the support of their home governments. American auto companies are competing with other nations, not just other auto companies.
"Nobody wants American cars," somebody is bound to say. Really? Then how to explain all those SUVs on the road? Somebody wanted them. American auto companies created the truck and van market, and they still dominate it. The big three have not been entirely out of touch when it comes to the market. They've seen sales drop more than they've dropped at major imports, but every auto company is suffering in an 11-million-unit market. Nissan (NSANY) North America, for example, saw a 33% decline in sales last month. There's just not enough business to go around. Government support that started long ago will help foreign auto companies survive. Government support that has been so far absent will be needed to help U.S. auto companies survive.
When it comes to answering the question of whether Detroit can innovate, I have one word: Malibu. It's the most stunning midsize car in America. Fully decked out, it's less than $28,000. The U.S. workforce can still deliver, even in basic categories like midsize cars. The appeal of U.S. products in truck and sports car categories has never been questioned, which is another idea to keep in mind.
Here's what I think should happen.
Uncle Sam should acknowledge that foreign auto companies have had an unfair advantage in the U.S. market because of their governments' involvement, and that it's time for the U.S. government to step up and do its part for that labor force it considers so important.
Next, it should offer immediate reprieve to Chrysler, Ford, and GM by making their entire workforces government employees on military pay scale with all military personnel benefits for a pre-determined period, say five years. Paychecks would come from the U.S. Treasury. Healthcare would be covered by Uncle Sam. Retirement would not be covered, so the auto companies would need to keep restructuring that legacy cost on their own.
Next, the government should commit to creating an entirely nuclear power grid that would be operational in a decade. The massive infrastructure development would spur the economy by providing jobs. Lots of people need them.
Finally, the government should provide financial support to Detroit tied to a time schedule for offering completely electric fleets at reasonable points in the future. Tiny companies like Tesla and Zenn are not far from offering cars that will work for 90% of commuter needs. Surely, with government help, the well-developed business structure at the big three can catch up in five or ten years.
Enough with coal-burning power plants. Enough with claims of sufficient oil in the Bakken Formation to sustain the country for another five decades of carbon-burning nonsense. The planet can't take many more years of carbon pollution at current rates, much less decades.
The only reason we're not making electricity with no-pollution nuclear power plants is that the coal lobby doesn't want such a system. The only reason we're not driving electric cars that can be conveniently re-charged at home at a regular outlet is that oil companies don't want such a system.
Now is a fabulous opportunity to break through the lobbies, embark on a bold path toward a cleaner transportation system, and save America's car companies all at once. I'd love to see it happen.
Do I think it will? No.
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This article has 18 comments:
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The hand
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773 Comments
My Website
Nov 17 05:27 AMyour comments on the coal lobby are really off base. the reason we do not have nuclear power is because the environmentalists have blocked waste processing and made the licensing process almost impossible. this increases the time it takes to build a plant, and time is money in construction. Unless a lot of things change in the licensing process, they are too expensive because of licensing delays.
your concept that if a small company has an electric car, it can be scaled up for mass production. this ignores details like reliability. in small runs, you do not have the liability risk of large runs of a product. this is why the automakers correctly introduce innovation on a small scale first to work out the inevitable problems.
Have you ever worked a labor force that had a chip on their shoulder? pretty things do not happen. you cannot force a pay scale on anyone.
Jason, your development of this article was good describing the uneven playing field in the automotive industry. however, your solutions pretty much are unworkable. Sometimes, there are not any good solutions - and this is true with GM, F and Chrysler.
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WayneFromWylie
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1 Comment
Nov 17 07:15 AMI agree with 'The hand' in that the beginning of your article lays out some interesting facts. But 'The planet can't take many more years of carbon pollution at current rates, much less decades.' is where your article begins to run off course. Too often, Washington is trying to punish it's major industries, like Washington, or Microsoft or whomever.
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tginomorebush
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100 Comments
Nov 17 09:02 AM-
Roy M.
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355 Comments
Nov 17 09:12 AMWhat a BLACK HOLE !!
How many vehicles GM has to sell just to make even ?
The government can use that 2 billion per month to
build 8 hospitals per month for the public.
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Rede2fly
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3 Comments
Nov 17 10:05 AMThe idea that millions of autoworkers will be unemployed is false. I worked for a unionized industry that went through the BK event and what it does is to make everything more efficient. Pay and benefits were slashed. Debt was cut and now the industry is more efficient.
BK is the cure for what ails them, not more handouts from the taxpayers.
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working at frod
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54 Comments
Nov 17 10:51 AMIt is the government that sets the safety, fuel and emissions standards. while a good safe car is important for everyone the so called mandates do come at a cost. Most consumers are unaware of these costs and assume it is the labor and raw material costs that make autos expensive.
To not think that millions will lose a job if these three companies go away for good you should try to explain why so many have already lost there god jobs up to now. Citi is slashing jobs by the thousand and the do not build a thing. How can you expect for people to keep working when the product they do make ceases. The millions of jobs are not just at the big three co( plus a few thousand suppliers). Thousand of small buss. and mom and pops will be forced to go under due to the loss of customers. The foreign autos will be force to scale back plans due to the loss of customers. Local governments will be force to cut back on schools and law enforcement due to the loss of sales tax revs.and decline property taxes. Foreclosures will be uncontrolled due to the out of work being unable to keep up on their bills. The health care industry will feel the loss of thousands on insured patients. If the fuel prices are to blame for the airline industries troubles, How are they going to cope without any passengers to fly.
On Nov 17 10:05 AM Rede2fly wrote:
> Jason
> The idea that millions of autoworkers will be unemployed is false.
> I worked for a unionized industry that went through the BK event
> and what it does is to make everything more efficient. Pay and benefits
> were slashed. Debt was cut and now the industry is more efficient.
>
>
> BK is the cure for what ails them, not more handouts from the taxpayers.
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JeffreyNC
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2 Comments
Nov 17 11:22 AM-
Gumby
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237 Comments
Nov 17 12:03 PMYou overlooked to mention that Japan had been buying dollars to prop up our dollars so that we could artifically afford Civics and Corollas. Japan probably will reduce buying dollars as it consolidates the control of American car market toward 80 or even 90% up from 50% now. Our dollars will start sinking and we will pay more for gasoline as OPEC will demand more dollars to reflect stronger yens and even Euros and British pounds. Our American capitalists are running away from our own issues whenever we see mirages of better solutions from overseas that will prove to be mirages neverthelessly. Yet our capitalists will not own up to their repeatable mistakes of the past as we will continue our pursuits of politically expedient escapades from the howlings of our American voters...
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Gumby
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237 Comments
Nov 17 12:16 PMYou overlooked to mention that Japan had been buying dollars to prop up our dollars so that we could artifically afford Civics and Corollas. Japan probably will reduce buying dollars as it consolidates the control of American car market toward 80 or even 90% up from 50% now. Our dollars will start sinking and we will pay more for gasoline as OPEC will demand more dollars to reflect stronger yens and even Euros and British pounds. Our American capitalists are running away from our own issues whenever we see mirages of better solutions from overseas that will prove to be mirages neverthelessly. Yet our capitalists will not own up to their repeatable mistakes of the past as we will continue our pursuits of politically expedient escapades from the howlings of our American voters...
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Gumby
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237 Comments
Nov 17 12:17 PMMaybe the Republicans has WWIII being planned out for you poor little saps ! I dont know where we will go next!! You can bet that Switzerland will remain a neutral nation, dont worry about that??
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Gumby
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237 Comments
Nov 17 12:21 PM-
Gumby
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237 Comments
Nov 17 12:24 PM-
Gumby
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237 Comments
Nov 17 12:26 PM-
John Bosolin Jr...
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1 Comment
Nov 17 01:29 PM-
User 299973
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1 Comment
Nov 17 03:20 PM-
MonkDonk
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17 Comments
Nov 17 04:05 PM-
Third Party Guy
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8 Comments
Nov 17 10:06 PMAlso, please explain to me what is the difference between throwing the coal industry to the wolves instead of GM? I don't know the exact numbers, but I imagine that pushing that industry to fail would be just as detrimental to the U.S. economy as letting GM fail.
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tjfct
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1 Comment
Nov 18 01:00 PM