November 11, 2008

Back in the 1950s, when Americans knew from recent experience just how important it was to have a dominant manufacturing sector, Ike’s Defense Secretary, “Engine Charlie” Wilson, formerly of General Motors, famously declared, “What’s good for America is good for General Motors, and what’s good for General Motors is good for America.”  Charlie Wilson, whose former company had turned out the TBM Avengers that helped put the Imperial Japanese Navy on the bottom of the Pacific, while his competitor Henry Ford’s plants were busy turning out the B-24 Liberators that helped destroy the industry of the Third Reich, spoke the truth, even though his sentiments were ridiculed by the effete intellectuals of his day.  And Wilson’s sentiments are true today, despite the ridicule of such as National Review editor Rich Lowry, who has gone from chiding House Republicans for being “irresponsible” in voting against the Wall Street bailout to essentially urging the American auto industry to drop dead, along with the many jobs dependent on it and the region of the country whose fate is especially linked to the industry. 

Saying “yes” to loans to Wall Street but “no” to loans to Detroit makes little sense, especially since the loans to Wall Street now total over two trillion dollars, if the actions of the Federal Reserve are included, with AIG alone receiving $150 billion, far more than Detroit is requesting.  And there can be little doubt that the demise of the Big Three would have devastating consequences, both short and long term.  The Center for Automotive Research has estimated that a collapse of GM, Ford, and Chrysler would cost nearly three million jobs.  (The Novemebr 3 issue of Crain’s Cleveland Business reports that in greater Cleveland, where I live, 26,800 people work in the transportation equipment sector, and 100,000 jobs depend on that sector, directly or indirectly).  The government tax loss from such a catastrophe would be over $150 billion over three years.  Then there are the American retirees who receive pension and medical benefits from the Big Three—some 432,000 GM retirees, 300,000 Ford retirees, and 124,900 Chrysler retirees.  Should those companies fail, taxpayers would step in to assume at least some of this liability through the Pension Benefit Guaranty Corporation.  Then there is the long term cost of losing so much manufacturing capacity and expertise, national assets that can be of vital importance, as we found out in World War II when the plants that used to make Chevrolets and Fords were quickly converted to making planes and tanks, using much of the same skilled, patriotic work force.

But won’t foreign car makers simply pick up the slack?  Not likely.  The major reason foreign car makers have plants in the United States is political, to hedge against the possibility of American protectionism.  Once the threat of American protectionism is dead, because the American auto industry is dead, why would foreign car manufactuers keep building plants here, or even keep operating the plants they’ve built?  Last summer, the Wall Street Journal quoted an unnamed Toyota executive as saying, “€œIt’s much, much more profitable to produce cars in Japan and ship them all to the U. S. right now, if it wasn”€™t for the political problems that might cause.”€  Once there is no possibility of “political problems,” what would restrain Toyota from pulling all its production back to Japan, or shifting it to such low wage countries as Mexico?

Nor is the Japanese investment in the US at all comparable to the Big Three’s, even setting aside the nearly million retired Americans who depend on the Big Three for their retirement benefits and health care.  General Motors alone employs more Americans than all the foreign automakers put together, and Ford runs nearly as many assembly lines in the United States as do Toyota, Honda, Nissan, Hyundai, and VW put together.  The Big Three buy 80% of the car parts manufactured in the United States, and their cars average 79% domestic content, compared to 35% domestic content for foreign cars sold here.  And the Big Three employ the vast bulk of their engineers, designers, and managers in the United States, unlike their foreign competitors, which keep most such work in Japan or Germany, which is also where the profits they make from selling cars here wind up.  In fact, the Big Three spend more each year in America on R & D than does the pharmaceutical industry, employing 65,000 skilled workers on research and development in Michigan alone.

But doesn’t Detroit deserve to die, for making such terrible cars?  Not really.  The initial quality surveys conducted by J D Power show that American cars are as good as anything the Japanese and Germans have to offer.  Last year, that survey saw a Ford product get the number one ranking in five different product segments, more than any other company.  And the award for the best plant in terms of overall quality worldwide went to a Ford plant in Michigan.  This year, JD Power rated the Chevrolet Malibu as the best car in the mid-size car category, and the Pontiac Grand Prix as the best car in the large car category.  Even Consumer Reports, long a fierce critic of Detroit (and the publication of an organization that was deemed subversive by the House Un-American Activities Committee) recently admitted that, with the exception of a few truck-based designs, “Ford’s reliability is now on par with good Japanese automakers.”

Despite all this, there is no doubt the GM, Ford, and Chrysler are now in a precarious state, having been hit by rising gas prices and a collapsing credit market at the same time.  But there is good reason to believe that they will be able to pay back the loans they receive and become profitable again, even as Chrysler paid back the loan it received from the federal government in 1979 and became profitable again.  The new UAW contract contains substantial concessions, largely eliminating the labor cost differential between the Big Three and the Japanese, and GM and Ford are poised to introduce new fuel efficient cars such as the Chevrolet Cruze and the Ford Fiesta.  But even if the attempt to save the Big Three ultimately fails, both prudence and patriotism suggest that it is worth trying.

No doubt Lowry’s arguments will find an appreciative audience among those who take delight in denigrating American industry and American workers.  But I have noticed something about Lowry and most of the other vocal critics of the prospect of loans for Detroit.  They don’t live in the industrial Midwest, and they don’t give a damn about those of us who do.  Although David Brooks’ argument that the GOP “cannot continue to insult the sensibilities of the educated class and the entire East and West coasts” is getting a respectful hearing at NR, none of the “conservative movement’s” gurus seems particularly interested in figuring out why McCain lost every state in the industrial Midwest, even though those states are filled with social conservatives of the type who have been voting Republican since Nixon.  All my life, I have seen tax dollars flow out of the industrial Midwest, to pay for water projects so people can live in the desert, agricultural subsidies, the myriad of military installations generations of Southern congressmen succeeded in spreading around the Sunbelt, not to mention the S & L bailout, which was concentrated in the Sunbelt, and now the massive Wall Street bailout, which, not coincidentally, has been especially helpful to the city National Review calls home.  The notion that America can afford all that, but cannot afford a $25-50 billion dollar loan to help preserve the industry vital to the industrial Midwest, is laughable, and a cruel joke to those of us who live here.  But if Republicans want the joke to be on them, they can listen to Lowry, line up to damn the American auto industry, and look forward to losing the Great Lakes states year after year after year.




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