Wednesday, October 22, 2008

A Condensed History of the Collapse of the Domestic Auto Industry

Pretty short as I see it. My Grandson, just returned from the MiddleEast opined that he had accumulated some money in service of his country and was considering investing in the depressed stock maket. He said he saw so many small Ford cars overseas that he thought Ford shares might be a good buy. I pointed out that Ford stock was trading at a near no value, $2 a share. One well known investor has just taken a $600 million bath in selling a portion of his shares and will maybe take a bigger bath if Ford can't overcome the obstacles created by their own incompetent management, a formerly very hostile union and stupid governmental regulations.

Here is some examples: In the 1930's, Congress passed the Wagner Act with the nearly explicit purpose of imposing a labor monopoly on Detroit to keep union wages at higher-than-competitive rates.

Why doesn't Detroit rationalize its musty brand lineups and dealer networks? Because, in the 1950's. legislatures across the country imposed franchising laws, including the federal "dealer day-in-court clause," to make such rationalizing prohibitively expensive.Why don't auto giants do as others have, move their production to cheaper offshore locations? Because, in the 1970's, Congress enacted fuel economy rules to penalize homegrown auto makers if they don't build the lions share of their vehicles in high wage, UAW-staffed domesticated factories.

Some say that those running auto factories out of Detroit are morons, old and senile. Probably not. It's the legal encrustations that accumulate along the way. Look today at the desirable fuel efficient cars that Ford and GM sell in large numbers in Europe. Does anyone imagine the U.S. public derives any benefit from keeping these cars out of the U.S.? Yet they are kept out to preserve the "amour propre" of the regulators who enforce our emissions and safety standard, however trivially different from Europe's standards.

Any business would be hard pressed to survive if obliged to make consistently maladaptive choices. Any rescue today from D.C. wouldn't be as much a rescue as the final admission that the industry can no longer bear its regulatory burdens without direct subsidies and the continuation of the life supporting systems hooked up now with the federal government".

This article is taken mostly from today's WSJ. I disagree only in that I know the federal government can reduce some stringent regulations as described above. Also that auto makers management were pressured by strong UAW into granting concessions that were almost like lifetime guarantees that they would always have high paying jobs. When the market required less production from Detroit, thousands of workers were turned out roam while drawing their full salaries and benefits until they reached retirement age or were called back to work.

Volumes could be written about the financial mess in much of automotive connected Michigan. The answers should be clear and the blame shared by the feds, weak management, and powerful unions. Not to mention failing to prepare for weaker economies.

People saw it coming.

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