WASHINGTON -- "Nothing," said a General Motors spokesman last week,
"has changed relative to the GM board's support for the GM management
team during this historically difficult economic period for the U.S.
auto industry." Nothing? Not even the evaporation of almost all
shareholder value?
GM's statement comes as the mendicant company is threatening to
collapse and make a mess unless Washington, which has already voted $25
billion for GM, Ford and Chrysler, provides up to $50 billion more --
the last subsidy until the next one. The statement uses the 11 words
after "team" to suggest that the company's parlous condition has been
caused by events since mid-September. That is as ludicrous as the
mantra that GM is "too big to fail." It has failed; the question is
what to do about that.
The answer? Do nothing that will delay bankrupt companies from filing
for bankruptcy protection, so that improvident labor contracts can be
unraveled, allowing the companies to try to devise plausible business
models. Instead, advocates of a "rescue" propose extending to Detroit
the government's business model for the nation -- redistributing wealth
from the successful to the failed, an implausible formula for
prosperity.
Some opponents of bankruptcy say: GM must not be allowed to fail before
it perfects batteries for its electric-powered Volt, which supposedly
is a key to the company's resurrection. This vehicle was concocted to
serve GM's prolonged attempt to ingratiate itself with the few hundred
environmentally obsessed automotive engineers in Congress. They have
already voted tax credits of up to $7,500 for purchasers of such cars
-- bribes that reveal doubts about consumer enthusiasm for them at a
price that would reflect cost.
Congress could help the Detroit Three by allowing them, when meeting
CAFE (corporate average fuel economy) standards imposed by Congress, to
count fuel-efficient cars they import from their overseas factories.
Congressional Democrats oppose that because those imports are not made
by members of the United Auto Workers. Those Democrats, their rhetoric
notwithstanding, really care most about the union. "Saving the planet"
comes second and last comes the health of the auto companies.
Some opponents of bankruptcy stress that it might terminate health care
coverage enjoyed by UAW retirees who are too young for Medicare. Think
about that. If people want to retire before 65, or 35 for that matter,
that is their business. But there is no public interest in protecting
the luxury of retirement in the prime of life just because in palmy
days a private contract between a union and a corporation established
it as an entitlement for all seasons.
In his new book, "The Great Inflation and Its Aftermath," Newsweek and
Washington Post columnist Robert Samuelson recalls that in 1950, when
GM signed a five-year contract with the UAW, Fortune magazine
celebrated this as the "Treaty of Detroit." Under "pattern bargaining,"
Ford and Chrysler struck similar bargains, thereby eliminating
competition in labor costs. In 1950, the Big Three's share of America's
domestic auto market was about 95 percent, Japan's and Germany's
war-smashed economies were feeble, and the VW Beetle was a barely
discernible harbinger of a huge threat. The Big Three and the UAW
probably did not doubt the immortality of their oligopoly.
Six decades later, a "rescue" without bankruptcy will make those four
entities wards of government. Doing so would make the five entities
(including Washington) collaborators in unfair competition with
America's thriving automobile industry that employs 113,000 Americans
making vehicles containing many American-made components, but with
foreign, mostly Japanese, nameplates. As Detroit continues to shrink,
many American jobs "lost" will be regained in this industry, and its
American suppliers, as Americans continue to buy cars. (Disclosure:
Mrs. Will, who drives a GM product, is a public relations consultant
for the Japan Automobile Manufacturers Association.)
The Economist reports that as recently as 2005, Americans bought more
cars than did China, India, Russia and Brazil, combined. This year
those four will buy more than Americans buy, but that is, potentially,
good news for Detroit. In America's saturated market, there is almost
one car for every person of driving age; in China there are three for
every 100, and fewer than that in India. The Economist reports that in
the next 40 years, the world's automobile fleet will surge from 700
million to 3 billion. After being restructured through bankruptcy, the
Detroit Two, or One, might flourish. Let's find out. The ruinous
alternative is to squander, in a doomed attempt to "save jobs," more
scores of billions of scarce capital that will then be unavailable for
job-creating investments in rising industries.
