Friday, December 12, 2008

Auto Bailout Down the Tubes

Thank God.  Sorry to Michigan, but this was always a stinker of a plan.  Let's throw $14 billion into three companies that rightfully belong in bankruptcy so that they can.......go bankrupt three months later than we expected. 

Just to be clear, there was nothing about the bailout that could have altered the fundamental problems of US automakers. These seem to be three-fold:
1) High costs per worker.  This is not because current auto-workers are paid ludicrous amounts of money. Those actually working for the Big Three earn about $56 an hour in wages and benefits, while workers at Japanese plants in the U.S. earn about $49. Not a huge difference. The problem comes because in addition to the $56 per hour, the Big Three pay about $17 per worker hour in benefits to retirees. It doesn't matter how much they restructure their existing labor force, that $17 per hour has to be paid.  The bailout doesn't address this.
2) The Big Three make relatively crappy cars.  Quick, you want to drive an Olds? Why does Olds still exist? Hummer? Buick? Seriously, the vast majority of cars made by Detroit suck. This is unfixable by the bailout - and no, making greener cars doesn't help this.
3) Foreign auto-makers have better production systems.  They are more efficient at design, procurement, and production.  Nothing about the bailout changes the relative advantages of the foreign firms.

I, for one, am glad it failed. Let them go to Chapter 7 or 11 and then the market (not some government appointed car czar) will decide whether the pieces of GM, Ford, and Chrysler are worth picking up. In the meantime, go ahead and pledge money to garuantee benefits if you want.

As a total aside - shouldn't the car czar really be called the "auto-crat"?

1 comment:

Bryan said...

I completely agree with everything you state here Dietz. Unfortunately, now they have their $14B to play with so we can watch it play out in the next administration...What a legacy President Bush is leaving behind!

Bryan