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November 19, 2008

Mitt Romney...Don't Bail Out The Automakers

I know all about Mitt's conservative heresies and they prevented me from fully supporting him in the primaries (though I leaned towards him at the time) but he makes a rather good case for not throwing taxpayer money at a failed domestic auto industry.

He argues that bailing out the 'Big' 3 with cash will only delay their death, not prevent it. To save US automakers, you have to let them die and rebuild from the ashes (sorry, it's in the NY Times).

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

...But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

It's actually fairly basic business and conservative stuff but we don't hear much of it these days so it sounds pretty shocking, especially on the Op-ed page of the Times. Hopefully lots of bloggers will link it, otherwise no one will see it and it is worth the read.

You can disagree with his call for the federal government to invest in basic research but if you are going to spend money on the problem, that's probably the better way to do it. And of course the idea that the UAW is going to change it's stripes any time soon is rather unlikely, though bankruptcy proceedings are about the best shot anyone has of getting it done.

For more on the failed Detroit business model ("Sure we lose money on every car but we make it up in volume!) check out this post from The Corner.


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posted by DrewM. at 01:22 PM

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