Sunday, November 23, 2008

The Long Goodbye - Why America's Automotive Industry is Failing

It sounds glaringly obvious - but if there is a single reason why the American car industry is in such dire straits it is that they did not produce cars that consumers wanted to buy.

The current downturn in sales due to the weak economy is a real time factor but it has no bearing on what led the American's auto industry to the state it is in today. Car makers worldwide are adjusting to the slowdown in sales by cutting back production and laying off workers - but the once Big 3 are teetering on the edge of becoming nonentities. For them the current market is only a spot along a long road that led them to where they are today.

So why didn't the U.S. auto industry wake up in the 70's or the 80's, when Japan came into the market with fuel efficient dependable, affordable cars - and begin building American alternatives?

The originators of many American businesses (including the car industry), were inventors, engineers and technologists - people good at designing, building and improving things, but at some point the management of many American businesses (including car manufacturers) was taken over by by people who were good at selling things.

So while Toyota was designing, building (and selling) Prius Hybrids and Corollas that were reliable, and economical to own and drive - American auto manufacturers were using stupid ads to convince people that what they really wanted to buy was a Hummer H2 that gets 10 mpg and is among the worst for fit, finish, and reliability of any vehicle on the market.

Short-sighted companies scrimp on research and development and prefer to squeeze whatever profits they can off of outmoded designs rather than reducing CEO and other management salaries, shareholder dividends and overall number of managers - and increasing spending to hire, train, and retain - skilled workers, inventors, scientists, engineers and technologists.

We are good at selling - we need to get better at is designing, building and improving.

One thing I'm not buying is that unions are at fault for the current condition of the U.S. automotive industry. I don't know how many times I've heard the lie that auto workers make $70 Per Hour lately. It just ain't so. That figure comes from auto industry management, and others with a vested interest in keeping wages for the working class as low as possible.

The average GM worker makes $28 per hour, entry level workers can make as little as $14 Per Hour. The $70, sometimes $73 is cited, is a made-up number arrived at by taking all costs - including medical for all employees (including retirees) and then dividing by the number of hours worked. It's a lie for a variety of reasons - not the least of which is that the unions agreed to take over retiree health care costs some time ago. If we wanted to discuss wages we could talk about CEO's of non-profitable companies like Ford and GM who are making on the order of 22 to 24 million a year which works out to about $10,000 per hour.

Our government hasn't been helping matters.

Congress and the Bush administration, and as I've written before - the Reagan administration before them (in the deconstruction of the CAFE standards the Carter administration put in place) has been almost unbelievably backwards in using government intervention in the free market system for the good of citizens.

Buying a Hummer in January of 2003 gave a business owner in the top income bracket a $33,000 tax savings. This tax loophole applied not only to Hummers, but to any SUV that weighed more than 6,000 pounds. There are many Reasons the SUV Loophole was Bad but one of the most glaring current reasons it was a bad idea is that it contributed to the fact that we may be about to see the end of the American car industry as we know it.

The SUV tax loophole is an example of government intervention at it's worst in that it gave auto industry management an incentive to keep building cars that people would not be buying absent the tax break.

I feel compassion for American auto industry workers - this mess isn't their fault - it's an example of a "long emergency" that we should have seen coming over 30 years ago, and if necessary used government intervention to prevent the management of the American car industry from creating the mess they (and we) have allowed ourselves to get into.

It's not too late. With a liberal government in place and American ingenuity we have a chance to undo at least partially some of the negative government intervention of the last few decades, look to the future and improve our educational system to produce the best and the brightest, provide a government for the people (not .1% of the people) ...or in 4 years we can throw the bums out.