Friday, November 14, 2008

Whither the Big 3

Democrats are going to do what they do best, throw money at a problem. They are proposing $25 billion in loans to the Big 3. No doubt there will be strings attached, big, long strings. What the Democrats priorities are will determine whether the domestic auto industry survives or not. Most likely it will be to save as many UAW jobs as possible. While that sounds great, the last thing the Big 3 needs is more UAW workers. Nor do they need an auto czar to micromanage what cars are produced or mandate or forbid sales of certain models. Despite Democrats desires, the big three as well as Toyota and Nissan made gobs of money off of SUVs. That’s where the market was. And the survival of the industry rests more from what people will buy, than what is politically correct to manufacture. Throwing money around subverts the UAW and industry’s need to face economic realities. Just like a recent auction of a real estate development where the distressed seller opted out of the auction price because he felt he could make more from government largesse, there is no incentive for the UAW to reduce costs. Uncle Sam will prop them up. While many place the blame on Big 3’s management for agreeing to untenable UAW demands, that is simply hogwash. If you have ever experienced the whipsaw tactics of unions, you would understand. With your competitors operating, very few companies can withstand a two or three month strike. Not only will you permanently lose market share, you are bled dry by fixed costs. It becomes a choice of going out of business now or postponing it for 5 years. Most bet on waiting for a miracle. Congress has been pushing for a merger between GM and Chrysler. You might ask why GM needs Chrysler. Surely they don’t need more assembly plants. Surely they don’t need to fund the shortfall in Chrysler’s pension plan. Surely they don’t need to fund their retiree benefits. They have sufficient models. They don’t need Jeep when the have GMC. It is a lose-lose proposition. The best solution is for GM to file for bankruptcy. They need out of some of the more burdensome UAW work rules. Just like the airlines, companies after bankruptcy evolve into a leaner and more flexible operations. As far as the rest, their best bet is to find offshore partners. Ford probably can, but Chrysler most likely is toast no matter what happens.

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