AJC.com > Opinion > Woman to Woman
Should the government bail out automakers, too?
Shaunti Feldhahn, a right-leaning columnist, writes the commentary this week and Andrea Cornell Sarvady, a left-leaning columnist, responds.
Rebuttal
As we slide into the holiday season, several industries have their hands out like a bunch of Salvation Army bell ringers. Like many, I’m disinclined to toss coins into the auto industry pot. Why throw good money after bad decisions?
Here’s why: an additional loan right now could save the industry and its millions of jobs until 2010, and that timing is key. If we only think in the short-term, helping Detroit seems like a waste of money. Yet think of 2010, and you’ll see something else: opportunity.
According to Chris Isidore at CNNMoney.com, “billions of dollars in annual savings won in the 2007 labor agreement with the United Auto Workers union kick in that year, including shifting the responsibility for retirees’ health care costs to union-controlled trust funds.” Moreover, 2010 is the year most experts predict that the plug-in hybrid technology will be ready for market. Do we really want to let GM, Chrysler and Ford collapse right when they can be part of this vanguard? In addition, Gen. Wesley Clark, former supreme allied commander of NATO, points out that, like the improvements in armored fighting vehicles in Iraq, future automotive innovations will have crucial military applications. It’s essential to our national security, he explains, that a “vibrant car industry” remains in the USA.
Don’t get me wrong — right now Detroit is like an annoying relative I’m seldom pleased to hear from, in dire need of rehab. Yet I’m not ready to kick the Big Three out of the family just yet, with so many factors to consider. Sure, part of me would rather see them go bankrupt than hit up Uncle Sam for a loan, but the likelihood of the Big Three rising from those ashes is slim. Meanwhile, the government—that would be you and me — will wind up with retirees’ pension and health care obligations anyway.
There’s clearly no perfect solution here, but perilous times call for taking the long view and finding opportunities in chaos. Through a contingency-laden loan, we buy Detroit two more years, one last opportunity to join the technological and environmental leaders in this industry. If Motown manages to succeed after an extreme makeover, we all benefit. And if not? Then let it be just another Circuit City.
Commentary
By Shaunti Feldhahn
About five seconds after the $700-billion financial bailout passed, politicians asked about saving automakers, too. And then there were the “underwater” mortgage-holders. And really, would it be fair to let Circuit City die?
The “where-does-it-stop” roulette is complicated when it comes to our important domestic auto industry — but not that complicated. For years, the Big Three automakers have known this day would come. For years, they rushed shoddy-quality cars to dealerships, trading away brand value for immediate cash. They eventually resolved quality problems but repeated the same pattern of grasping the quick-cash fix with SUV gas guzzlers and trading off development of increasingly popular hybrids. They also entered into insanely pricey labor contracts loaded with “future” costs (like pensions) that would have to be paid eventually. Well, the day of reckoning is now here, and the U.S. taxpayer is in a pickle.
I realize the ripple effect a Big Three failure would cause further pain for our economy — and would personally hurt many close friends in my husband’s hometown near Flint. However, I’m appalled that the Democratic leadership and President-elect Obama are even considering extending the financial-sector bailout to carmakers. It would be one thing to try to help the industry retool, manage a painful process of drastic expense reduction, and become competitive: that would be reasonable, if still anti-free market. But most current proposals would simply bail out automakers dying due to inability to meet demand, as well as excess capacity and unsustainable expenses.
In 2005, for example, GM produced three times the cars as Toyota in North America — but had five times the number of production workers. GM had 77 plants (all unionized) to Toyota’s 12 — only three of which were unionized. And unionization makes a huge cost difference. Once benefits, pensions and such are factored in, GM’s average hourly labor cost is an eye-popping $73 versus Toyota’s $48.
As Dr. Russ Roberts, professor of economics at George Mason University put it in an interview, “Historically, many companies are driven by bad decisions. If GM dies it will be painful, but it may die anyway and with a bailout, it will die with my money. Let the resources and energy and creativity flow into companies that can actually do something with them.”