Former Massachusetts Governor Mitt Romney, whose father once headed the now defunct American Motors Corporation, argues that the Detroit Big Three must be allowed to fail:
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
In order to fix the Big Three, Romney argues, several things must be done:
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.
As a practical matter, neither of those things can be accomplished without political interference unless the companies go through the bankruptcy system, which is exactly what Romney believes must be done. As I suggested yesterday, Romney said that the government’s role should be limited to guaranteeing DIP financing should that be necessary. Beyond that, though, this is something that only time can fix.
Romney is right, of course, but Ron Chusid wonders what the political consequences might be for him:
The question is whether Romney can ever win in Michigan with an op-ed title like this which can be quoted? I’m not saying he is wrong on this. He actually does make several good points (although I wonder if the auto companies would survive at all in bankruptcy considering today’s extremely tight credit market). I just wonder how this will be received in Michigan.
An interesting question, and it’s true that taking a position like this might cost Romney votes, but there’s something to be said about a politician whose willing to take a position regardless of the political consequences that might result from it.
Ummm, well, maybe not so brave.
Here’s what Romney said in Michigan in January:
Mr. Romney, a former governor of Massachusetts whose father was president of American Motors in the 1950s and ’60s, insisted that the auto industry can be revived and blamed Congress and Mr. McCain for ignoring Michigan’s problems.
“The question is, where is Washington?” Mr. Romney said, speaking to a gaggle of reporters across from a General Motors transmission plant near Ypsilanti, where 200 layoffs were announced this week. “Where does it stop? Is there a point at which someone says ‘enough’? Or are we going to allow the entire domestic automotive manufacturing industry to disappear?”
Mr. Romney criticized the energy bill signed into law last month by President Bush that requires cars and trucks sold in the United States to achieve a fleet average of 35 miles per gallon by 2020. Substantial majorities in both parties in both houses of Congress approved the measure. Mr. McCain voted for it.
Mr. Romney said he opposed the new mileage standard, describing it as an anvil tossed to Detroit by a government that did not understand the auto industry or care about its workers. “As president, I will not rest as Detroit gets to see layoff after layoff after layoff,” he said.
Mr. Romney proposed increased government spending for research on advanced fuels and vehicles, aid to automakers to deal with the costs of health care and pensions for retirees, and tax cuts for most taxpayers to help them buy new cars.
What a difference a campaign makes.
Heh.
Romney is overstating benefits by two fold. The folks at the Auto Alliance told bloggers that $1,000 of each GM car sold goes towards those benefits and they have by far the largest lineup of different brands.
I mean, are these folks honestly telling us that benefits costs aren’t wrapped into the cost of a car? That’s nonsense, and until we actually see what the costs are for other car companies, there’s no basis for comparison. It’s all speculative.
The simple fact of the matter is that Toyota just makes better cars and has better management. And that’s not the fault of labor unions. All they do is build the cars, they don’t design them and create the ad campaigns to sell them.
Justin,
Auto Alliance is a shill for the automakers, I tend to doubt their numbers