fearlesshistory

The recent talks between Congress and the auto industry (manufacturers and unions) have, perhaps unsurprisingly, derailed. Many Americans argue that the “Big 3″ had their chance and that they made the mistake of creating and pushing fuel-inefficient SUVs and were woefully unprepared for the eventual rise in gasoline prices. But is the demonization of the auto manufacturers necessarily fair?

Let’s put some things straight;According to the Department of Labor, the auto industry directly employs more than 800,000 workers. Add to that the number of workers who support the auto industry through sub contracts, dealerships, mechanics and repairs, and other industries the number of Americans at work tops 2 million. While that may not seem a lot, consider this - the current unemployment is hovering around 1.5 million (for a total of about 6% unemployment) and allowing the auto industry to enter into bankruptcy (or fail utterly) would add 2 million to the unemployment rosters, more than double the unemployment rate, increase the burden on states and municipalities who are required to provide unemployment help (stipends, training, job placement, etc.) as well as contract the economy even more sharply.

While many (rightly) assert that this recession isn’t nearly as bad as the Great Depression (whose unemployment rate was between 25-30%), do we really need for things to get that bad in order to try to do something?

Sure, it may grate against many Americans’ nerves that an industry that has been “unresponsive” to consumer needs is getting bailed out, but they may want to look in the mirror at the reason for that “unresponsiveness.” The American populace has been enamored with large, big engine vehicles for quite some time now. SUVs were the most profitable vehicles made by any auto manufacturer, hands down. For proof of this, you need look no further than Toyota, Nissan, Honda, BMW, Mercedes-Benz, and even Porsche - all of whom debuted SUVs over the past ten years. Times were good, the land bubble was growing apace, everyone (including people who had privately-invested 401(k)s, money markets, and other investment funds) was making money off the (now) toxic loans and nobody asked any questions. Meanwhile, the flagship SUV, Hummers,  got an astounding 10 to 13 miles per gallon but were selling like hotcakes and the people who drove Priuses were treated as freaks in society. Though the industry tried to “Restore the balance” with a Hummer H3 that got up to a whole 20 MPG, the ads (which motivated a lot of people to buy the H3) touted the “American-ness” of owning such an outsized, and completely useless, “Sport Utility Vehicle.”

Americans need to admit their complicity in the industry’s failure - enough Americans bought SUVs that the industry made record profits through the 1990’s and up until this year. In fact, every indication is that the Big 3 did not need to change its sales models if the credit crunch (which is a repercussion of the mortgage meltdown) had not happened. Obliviously onward we would have sailed, defiantly thumbing our noses at $4 a gallon gasoline and never taking our SUVs off road in the Kalahari desert, or through a lava field in Hawai’i, or across a 2 foot deep stream.

Now it’s time for the hang over, my friends. There are two ways to approach this crisis and neither are going to be pretty.

First, there’s the bail out of the auto industry - though that term is not necessarily accurate because unlike direct cash infusions given to white-collar, scheme-plotting Wall Street firms, the auto industry will receive loans in exchange for selling stock to the federal government. Essentially, the industry will be nationalized. The taxpayer would foot the bill in the short term, but the auto industry would keep unemployment from reaching double digits and reduce the tax burden on municipalities and states.

Second, the auto industry can be allowed to fail. 2 million unemployed people with an average age of 55 will clog the unemployment offices, medicaid system, social security system, and job retraining programs. The costs for such services would double for the taxpayer, at least. But in addition, since cities and states are struggling in this weakened economy, they will have to turn to the Federal government for aid, which in turn will take out loans to supplement the 2 million new people out of work. In the end, the taxpayer would foot the bill, only instead of getting return on their investment in the form of stock options, interest, and a healthy auto industry, they’ll have a slew of unemployed, rapidly-aging blue collar workers to find new manufacturing jobs for.

In closing, it should be noted that the auto industry has taken CEO bonuses and excessive pay much more seriously than financial institutions have; all three CEOs promised to work for $1 this next year while restructuring is underway. While a relatively empty gesture (they have millions and can afford a short year), it is nonetheless more than AIG did when it send its executives to a $200,000 California spa retreat or a $80,000 UK fox hunting trip after receiving funds. Even the UAW, historically reticent to diminish workers’ wages, have made concessions to achieve “competitiveness” (not “parity”) with Japanese auto workers.

I think Leo Gerard put it best:

Oh, and before some people bemoan the “growing socialist state” might I point out that unemployment, medicaid, medicare and social security are socialist programs? Might I also go a step further and assert that, in the face of greatly diminished retirement and savings, if those very same people were suddenly unemployed they would have no compunction against turning to the very same reviled programs for assistance?

QED

————————Resources—————-

Automotive Industry employment statistics , Department of Labor, Bureau of Labor Statistics.

 Employment Situation Summary , Department of Labor, Bureau of Labor Statistics.

Hummer H3 “Tofu” - Genera Motors Corporation

Hummer H3 “New Math” - General Motors Corporation

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