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Commentary: Let the Auto Industry Drive or Stall

The fact that after over 30 years of consistent mismanagement and decline, there is still any discussion on whether or not we should allow the now significantly smaller “Big Three” automakers to fail is clear evidence that Washington has lost all common sense.

Why, when after more than three decades of continuous restructuring, GM, Ford, and Chrysler have not been able to change their culture, high-cost basis and ill-conceived strategies, does anyone honestly believe yet another break would change anything? Are they going to be better off next year, or the year after that, or even five years from now?
Just because their situation has become even more precarious, it doesn’t mean that they
will be more successful going forward;  more likely the opposite.

The best thing that could happen for the auto industry is for the Big Three to file for bankruptcy protection. As a former turnaround professional, I am convinced that the tools afforded by the bankruptcy courts would allow these companies to restructure dramatically, thus allowing them to renegotiate and drastically lower most of their liabilities. Management would be overhauled, pensions renegotiated, union agreements tabled and made more
flexible. Everything that these three companies have attempted to do for years, and could never achieve, would now be possible.

So, why in the world is the Big 3 appealing to Congress?

Because under bankruptcy protection, management becomes accountable to the court, many of their perks and benefits would be curtailed, and they could, heaven forbid, even lose their jobs.

The auto industry, its unions and allies are therefore quick to point out that they, too, are “too big to fail” (have we heard that before?), that the American economy would not recover from the job losses and the economic impact of failures that would have far-reaching implications.

Senate Bill Sec. 402 seeks to “(C) preserve and promote the jobs of 355,000 workers in the United States directly employed by the auto industry and an additional 4,500,000 workers in the United States employed in related industries; and (D) safeguards the ability of the domestic automobile industry to provide retirement health care benefits for 1,000,000 retirees and their spouses and dependents.”

Auto sales are forecast to decline from 16.1 million in 2007 to 14.9 million in 2008. 2009 can be expected to be much worse. Spending on capital goods such as cars and trucks will be affected long-term as a result of excessive consumer debt, tighter credit terms, higher unemployment, and a serious recession (or depression).

If car sales decline dramatically, manufacturing capacity has to be reduced to match demand. This means that the less productive plants would be shut down, employees laid off, and that the supply chain would have to adjust accordingly. This is basic economics.

In light of the fact that throwing good money after bad almost never works out, the U.S. taxpayers should not bail out GM, Ford, and Chrysler. A common-sense alternative would be to save our tax dollars and allow the most efficient manufacturers to gain market share and hire more workers. Ultimately the U.S. market will post sales of 12 to 15 million cars annually. If it takes one, two, or three million fewer workers to produce the cars U.S.
consumers can afford to buy, so be it.


A farmer with one modern wheat combine can do the job of a thousand 18th century farm hands. That is a lot of unemployed farm workers, yet nobody demands to return to those good old days. Productivity and efficiency do result in job losses and dislocation, but eventually progress creates new jobs and additional wealth.

Whether a Honda, GM, Toyota, Ford, Hyundai, or VW, currently each and every car still requires one engine and four wheels. Each manufacturer uses basically the same domestic and overseas suppliers, and each has dealers selling its cars (most dealers represent a broad spectrum of brands and will sell whatever car the market wants). The argument that GM closing its doors would result in the loss of 2 million jobs or more is ludicrous as the competitors that pick up the slack will hire workers and buy more from their suppliers. While that may not be good for Detroit, it may be good for the Carolinas or Tennessee.

Business shifting from certain players in the industry to others is called competition.  Capitalism and competition are the forces that have made the U.S. the most successful economy for many decades. Granted, it is a harsh reality, but it works, and so far no other system has come even close to creating as much wealth for most of its agents.

The choice is clear: Either the Obama administration can continue on the path ofnationalizing entire segments of our economy and run them into the ground. Or it can let poorly managed companies fail, thereby making it easy for successful businesses and new entrepreneurs to buy the assets of these organizations. Step back and let the markets work their magic instead of blaming the market for ills that were created by special interests and poorly designed regulations.

To schedule an interview, please contact Kevin McVicker with Shirley & Banister Public Affairs at (703) 739-5920 or kmcvicker@sbpublicaffairs.com