The Detroit Big Three (GM, Ford and Chrysler) were in Washington again this week asking for an additional $34 billion. That’s over and above the $25 billion that Congress appropriated just a few months ago.
What makes our elected officials think that this will be the last auto subsidy? Well, it will be, until the next one.
Have the U.S. automakers dramatically changed their business models and more importantly, their cost structures? No.
Given that, what makes (supposedly) well-educated Congressman/women and Senators believe that the Big Three will be able to operate profitably and compete with Toyota and Honda in the coming years? Does the legislative branch really believe throwing cash at GM, a company that lost over $20 billion this year alone, will magically turn the automaker around? God only knows.
Did this “problem” just begin in 2008, as General Motors suggests? No. It began nearly 60 years ago when the Big Three held a 95 percent share of the U.S. domestic auto market. No doubt, they thought their oligopoly would last forever. That’s when the Big Three began pattern bargaining, thus eliminating competition in labor costs.
Those arguing against bankruptcy suggest millions of jobs will be lost. Nonsense. Chapter 11 allows companies to continue operating while they reorganize. I’m not suggesting that any of the Big Three liquidate. Will some jobs be lost? Yes, in the short term. At the same time, it’s quite probable that jobs will be created by foreign automakers with plants located in the U.S.
What should be done? In my opinion, Congress should ignore further multi-billion dollar funding requests from the Big Three. Let them enter Chapter 11 Bankruptcy and emerge–if they can–as companies that can truly compete with foreign automakers already thriving in the U.S. Sometimes, the patient must swallow a bitter pill to get better.
This will not be an easy task. The automakers must, repeat must, completely revamp every contract. And yes, that includes the labor contracts with the UAW. If the Big Three are unable or unwilling to reposition their labor costs closer to those paid by Toyota and Honda, they are doomed and deserve to fail.
