Stephen Derickson:

Pure balderdash! The Early Retirement Bugaboo with full benefits, compounded by foreign competition was the problem with the automobile manufacturing as well as the failed steel industry and as recently as Bush, the government was still intervening.

The same problems faced by the Big 3 will be faced by the Postal Service, Teachers Unions, and generous government pensions that have early retirement plans but do not have infinite funds without making more outrageous financial demands of those who do not enjoy early retirement. They face no foreign competition but are doomed to failure.

Unions have sucked the life blood from manufacturing with “Supplemental Unemployment Benefits (recognize the similarity with the steel industry) rewarding sloth in a “jobs bank” for a number of years, constantly increasing demands while worshiping seniority and retaining featherbedding work rules. Chapter 11 Bankruptcy will reduce lavish pensions and health benefits paid by a dwindling customer base to level the playing field with transplanted foreign automakers.

Seems a bit circular in your last paragraph.

Consider just one thing gov has done to destroy the industry. The Big3 can never make just one version of any car model; there’s always California and everybody else.

I think the autos are just a leading and visible failure. From where I sit, it looks like everything is collapsing. When the econ is thriving, we’re all fat, dumb and happy – not prep’n for rainy days. Things sour, and the wheels come off of sector after another (private & public). All of the pensions are way under funded. Nobody likes a doomsayer, but I expect a year from now the auto crisis will be viewed as something that happened before “D-Day” or “D-Month” or whatever we look back on it as – the point where SHTF.

Trendy democrats and their union bosses killed the auto industry and economy with their moratorium on domestic drilling; that led to $150.00 a barrel and $4.00 dollar gallon of gas.

Global warming is a bigger gimmick than the bird flu.

Mr Derickson,

Are you saying the foreign competition does not retool their plants or retrain their workers? Do they not have the same research and development costs? Keep in mind a lot of these so called foreign cars are assembled in this country.

Why do you think these so called foreign autos control 54 percent of the market? Could it be they make a better product? Have better customer service after the sale? Could their non-union plants produce cars at lower cost? How many times has the UAW tried to unionize these plants and failed? Isn’t it the workers that say yea or nay to a union? Could it be they’re more automated since they don’t have to fight union work rules?

The steel industry had the same problems and government intervention didn’t help it one bit. Where is Bethlehem Steel today? Government intervention didn’t help the railroads in this country either. Where are the New York Central, Missouri Pacific, KATY, Wabash railroads? Yea, the government did a great job with them too. Should the government bailed out the buggy whip manufactures at the start of the 20th century?

For the past 30 years the government has done everything it can to drive manufacturing out of this country through prohibitive taxation and regulation. We the consumers of this country didn’t abandon the domestic auto industry, that industry abandon us.

Don’t blame the plight of the big 3 on foreign manufactures. Put the blame where it belongs, on the big 3 business model and the government.

You guys just shot yourselves in the head. You backed a party that doesnt give 2 cents for you. How many fellow democrats(especially elitists) drive foreign vehicles? Heck, most of the new administration owned foreign vehicles. So, now you have a treasury secretary who doesnt pay taxes and an administration that doesnt drive the cars that you are trying to produce. I am Conservative and all I have ever owned is American vehicles. In fact, most of my Conservative friends own an American car.

You allowed your Unions to sell you down the creek with unrealistic benefits and demands that Management fell for. As stated, your party won’t allow domestic drilling, and your President, of Obama Motors, wants to build cars that no one wants to buy. Now that sounds like a good business plan! Wait till cap and trade starts. You are in for a long trip.

The very people you elected forced your companies to add all kinds of additions to the vehicles to increase the costs even that much more. Yep, those Democrats that you voted for really had your interest at heart! How many of you were at the Tea Party yesterday? We are trying to take America back to reality. Sounds like thats why you need most if you ask me!

Actually the steel industry and the car industry suffer from similar problems - a union/corporate oligopoly. In the case of the steel industry bargaining took place industry wide - with the union representing all the workers on one side and the companies jointly bargaining with them on the other. Under this situation, there is little competition between companies and companies function more like Soviet style agencies.

The real problem has to do with America’s corporate model.

The modern corporation was invented in 1862 (in England first and everywhere else in the Modern world soon after that).

Prior to 1862 the U.S. had the broadest distribution of wealth in all of history (even with 3 million slaves down south). In 1860 we went to war to give those 3 million slaves the same social contract that everyone else had. Yet, despite a successful outcome in that regard, 25 years after the civil war the distribution of wealth was more lopsided and concentrated than ever before in America’s history.

What happened? The invention of the modern limited liability corporation.

The United States is based upon one governing principle: Free Contract.

The corporation is an ownership collective. That gives it bargaining power over individuals in a free contract situation. This created the gilded age and massive concentrations of wealth and dispersions of squalor as well as economic instability (ever ten or 15 years there was a financial panic).

This problem wasn’t really solved until the Great Depression. The solution seemed reasonable: to level the playing field, an ownership collective should have to bargain with a labor collective.

But the model we embraced tipped the playing field the other direction: A corporation had to bargain with a collective that represented, not only it’s own employees, but those of its competitors as well - meaning the bargaining unit for employees was bigger than the bargaining unit for the corporation.

This problem was exasperated by the fact that average tenure of a CEO for a corporation is about 4 years. A person that makes it to the top of a corporation has 4 years to make his mark then cashes out - meaning they have very short time frames. That means, a CEO is apt to not endure a prolonged strike, because it undermines their earnings during the their tenure.

During the 50s when GM was pumping out the cars and making fat profits they gave the UAW everything they demanded. When there was no more money to give the Union, they started giving them promises in the future - health care and pensions - let future CEOs figure out how to deal with it. This was less of a problem while markets were expanding and their was plenty of growth.

The problem emerged when our industry was confronted by a superior social contract.

In Japan there are 6 to 8 car companies, not 3, for a much smaller market. There for it is much more competitive. That’s to start with.

But the corporate/labor model is vastly different. It’s worth pointing out at the start- Japan has, for the last 60 years the broadest distribution of wealth in the world - comparable to any Scandinavian country.

In Japan companies have company unions. In the U.S. company unions have always proven effective. Japan augments their unions with widespread tenure. Tenure, if you’ve ever noticed how a University manages itself, results in Employee primacy. In both Japan and the United States, the law ostensibly dictates that corporations be run under shareholder primacy. In the U.S. we know from tracking CEO pay, that this translates into executive primacy. In Japan because of tenure, this translates into employee primacy. So even though corporations compete voraciously against each other, they still reward their employees equitably. The key here is that employee primacy translates into concern over the long term health of the firm (things like continued growth and market share). As it turns out employees are better proxies for shareholder interest than American board of directors are.

Similar effects are achieved in Europe where workers, and sometimes local communities, often have representatives on the board of directors.

The main thing we know here is that Unions overstepped themselves. They demanded wages and concessions that undermined the competitiveness of the firms they worked for. One reason for this is that their bargaining representatives were not looking out for the company’s health, they were looking out for the pay of the workers for the entire industry.

We have to go back and look at our social contract and our corporate/labor models. We know that if we don’t allow for some kind of collective bargaining where there is collective ownership, wealth concentrates and undermines society leading to financial meltdowns like we now have. On the other hand, industry wide collective bargaining leads to uncompetitive oligopolies.

We have to find a new model. And you can be sure - neither Unions nor Management are interested in seeing a fundamental change along these lines. The UAW could never want to disempower itself or its leadership, and Management could never want to loose its bargaining power. However America can’t be competitive when it’s CEOs make 400 times the worker’s salary when Europe and Japan’s CEOs make only 5 or 10 times a worker’s salary.

This is a time of reckoning, and I don’t believe that the stake holders, managment and labor, but especially management, have realized it yet. This problem is going to kick around for another 20 or 30 years. If we solve it we can maintain our place in the first world. If we don’t solve it, we will become the Brazil of the Northern Hemisphere. Indeed we are well on our way to that now.

Tim

Excellent analysis.

Tim, very good. Why won’t anyone see that the US automakers along with the UAW danced with each other as partners into the mess they’re in. They are BOTH at fault.

The parallel to the steel industry is apt. And, don’t minimize the post WWII era as part of the problem. Post WWII, Germany and Japan had to rebuild their heavy industrial infrastructure, and they did it with the latest technologies available at the time. Once they got up and running, they were able to beat us on both cost and quality, just because they had the newest stuff. At the same time, US corporate boards started granting long term labor contracts with things like permanent medical care and so on AND started paying out 90% of earnings in dividends AND stopped spending on capital improvements. It all dovetailed together to lead to collapse.

Back in the 70’s, the Japanese started beating the US car builders on quality, and almost put them out of business. It’s happening again. I mean, really. Anybody remember the ‘72 Vega?

This isn’t a liberal or conservative issue. This is about supporting our neighbors, friends and families. There are lots of comments that I disagree with, but there are too many people who just don’t realize that we are negatively impacting our communities when we support foreign automakers. I drive an American car, and would strongly encourage everyone to do the same. Keep the dollars as local as possible, and we can help each other out of this economic mess!!

…………Mr. Derickson, I have always owned American built cars, but I will say that the Big-3 ran into trouble in the 1970’s-1980’s when the quailty of American cars really fell far behind. The Big-3 lost a lot of customers then, and deserved to lose them.

Yes, American cars have come back in quality (I’m a very happy 2007 GM owner), but don’t fool yourself and think you will ever get all of those folks back who started buying imports, most of them are gone forever.

Also, as far as calling cars “American” you must just mean an American owned company, because many of the “Foriegn” cars sold in America are built by Americans right here in America.