The elephant — and the donkey — in the room (Part 1)
As taxpayers are forced to pay $50 billion to bail out the massive corporate failure that is GM, it is crucial that America’s reporters and analysts accurately break down the series of events that brought us here. Unfortunately, the recent GM retrospectives in top newspapers evade the elephant in the room — which in this case is joined by a donkey. The biggest player in the GM breakdown (and in the broader failure of the US auto industry) is the United States government, following both Republican and Democrat policies. The stories all focus on the failed policies of GM’s management — but conveniently omit how the government was instrumental in forcing these policies on them.
Consider this passage from a New York Times story,
The company did have vast numbers of loyal buyers, but G.M. lost them through a series of strategic and cultural missteps starting in the 1960s.
It bungled efforts in the 1980s to cut costs by sharing the underpinnings of its cars across different brands, blurring their distinctiveness.
G.M. gave in to union demands in 1990 and created a program that paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives.
Or this from a Wall Street Journal story:
In the 1970s, trouble started. Japanese auto makers were gaining market share with well-made small cars, helped by two spikes in oil prices.
GM’s strategy of offering a multiplicity of brands started to fray. To cut costs, GM began stocking its makes with nearly identical cars. That blurred the differences between brands and made it hard for consumers to tell a Chevy from a Pontiac or a Buick.
From these passages, one gets the impression that the cause of GM’s problems was that stupid GM executives simply made stupid decisions, year after year. This kind of narrative is convenient for anyone philosophically disposed to believe that the fundamental cause of major economic problems (such as the utter failure of the domestic auto industry — and yes, that includes Ford, which is on extreme debt-support) is bad businesses, rather than government intervention that rewards bad business practices and prevents good ones. It is certainly convenient for Barack Obama, whose policies require that business is the problem, and government is the “reluctant” but necessary solution: “we got here not because our workers didn’t do a great job trying to build a great product. It was because management decisions betrayed workers.”
In fact, none of GM’s management decisions can be understood without understanding two fundamental truths. 1) GM’s success, like all businesses, was/is determined by whether it can make a profit — whether it can sell its products for more than it costs to produce them. 2) Through union laws and fuel economy laws (CAFE), government policy forced American automakers to pay higher costs for every vehicle produced — placing them at a crippling disadvantage.
And yet the Wall Street Journal story does not even mention the unions or CAFE. The New York Times story does worse; it dismisses the regulations without evidence, and treats the union concessions as voluntary.
Over the years, G.M. executives became practiced at the art of explaining their problems, attributing blame to everyone but themselves.
That list included the United Automobile Workers, for demanding health care coverage and pensions (even though G.M. agreed to provide them); government regulators, for imposing rules that G.M. said hampered its competitiveness.
It is ridiculous to say that G.M. “agreed” to provide the legendarily luxurious “health care coverage and pensions”; under the Wagner Act, they cannot fire striking workers. Therefore, the unions repeatedly threatened ruinous strikes to extort health and benefits plans that would lead to long-run disaster — and now the long run has come (and contra Keynes, we’re all not dead).
Fortunately, there is a great source of consistently outstanding reporting and commentary on the auto industry…which I will blog about tomorrow.