U.S. Auto Industry Crashes; Taxpayers Serve as Airbag
Paulson's big bailout has distracted us from yet another that is possibly even less deserved.
My late father and I had frequent and sometimes heated discussions about the state of the auto industry during the late 1960s and early 1970s.
I was the smart alec at the dinner table and in the passenger seat on the way home from high school who came down on the side of “exploited, alienated” labor.
Dad, while intensely loyal to American-made goods — he had difficulty convincing himself that buying a used Toyota would not harm U.S. industry — warned that gold-plated labor agreements and management arrogance would ultimately bankrupt the Big Three (General Motors, Ford, and Chrysler). He decried the UAW’s greed and management’s capitulation, warning that they were all too shortsighted to recognize that they had created the conditions that would lead to the industry’s demise — and that when it came, the joke would be on them.
I remember saying at one point, “Well, if I’m the worker, and I can get overpaid while I work, and make it to retirement with a nice pension while the company suffers or even goes out of business, who was the joke really on?”
Forgive me. I was only sixteen.
There’s no forgiving the Big Three and the UAW. With the exception of a brief period during the late 1970s and early 1980s, they have rarely shown a level of maturity beyond that of a 16-year-old.
By the late 1970s, Detroit was in serious trouble. Ford lost $1 billion one year, a prince’s ransom at the time. GM suffered similarly. Chrysler went to the government and got $675 million in loan guarantees, or about $2 billion in today’s dollars. As you’ll see shortly, today’s taxpayers should be so lucky.
Facing real adversity, the companies and the union took some short-lived stabs at growing up. Ford’s proactive employee involvement program generated serious cost savings. The company even started doing what had previously been nearly impossible — firing line employees for stealing, with the union backing them up instead of defending the indefensible. Similar efforts bore some fruit at GM and Chrysler. But the improvements did not go nearly far enough or last long enough.
Then in the early 1980s, Detroit asked Ronald Reagan for, and got relief from, “unfair” competition from foreign imports. A 1985 Heritage Foundation study noted that “the [resulting] quotas were imposed in response to pleas by the U.S. auto industry that it needed time to grow strong enough to compete with the imports on the free market.” In reality, they enabled the industry and the union to avoid making the difficult decisions necessary for long-term viability.
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Tom Blumer owns a training and development company based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.
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35 Comments
1. John:Scathing… But true!
Oct 2, 2008 - 10:30 am 2. saleboter:It hurts when I have to pay more taxes so my GM employed neighbor can continue to live much better than I.
REVERSE COMMUNISM?
Oct 2, 2008 - 11:19 am 3. Jarhead:I worked three summers at a GM plant in the 80’s. It’s all true. The management was a joke. The union ran the place - poorly.
Oct 2, 2008 - 12:18 pm 4. Joe Buzz:Yes, it is a sad state when folks cant borrow money to purchase an over priced American made car so our govt bails out the bank and the auto maker.
Oct 2, 2008 - 12:34 pm 5. Marc Boyd:I am close to needing another car, van or truck. For me, this is a good time to be buying.
The Dealers will be willing to, well, deal. My current van is worthless, and if I can swing a deal with my insurance Co, I may keep it. I will remove the back seats and use it as a covered “truck” to move construction supplies, sheetrock and plywood.
I started getting into cash a while back. I paid off loans, with a little extra principle each payment. Everything I have, I own 100%, even land and house.
Taxes, Utilities, and insurance are my only fixed obligations. Gas, Food and other don’t amount to much.
If you are still working, plan for the future now, if you haven’t started already.
Marc
Oct 2, 2008 - 1:23 pm 6. Smittythewrench:I have worked on Toyota’s since 1980. ASE L1 Master tech. My last car purchase was a 2001 SVT Cobra. It is as good or better than any of the 3 Toyotas I bought over the years. Sad to see Detroit go down just as they get it right. The new Toyotas are expensive to fix. Example. Window switch for SVT Cobra $19.00 For Highlander 658.00 Water pump for Tundra over a grand, for a F-150 about 250.00 Quality gap is gone. Japs abandoned RWD sporty car market, Ford builds GT-40, Shelby Cobra. Just my opinion but the domestic cars are compeditive with oh so Pious Toyota.
Oct 2, 2008 - 1:34 pm 7. BizzyBlog » Latest Pajamas Media Post (’U.S. Auto Industry Crashes; Taxpayers Serve as Airbag’) Is Up.:[...] It’s here. [...]
Oct 2, 2008 - 1:44 pm 8. kabud:autoindustry can become a vehicle that may pull our economy out of deep:
they got to start converting cars to methanol flex, it will create a momentum,will push chemical industry into methanol production and if funded at only a fraction of BAILOUT PACKAGE :
will make USA totally independent from imports of foreign oil in 1 year, so we will save 700 bilions of what we pay for oil import
simple as that
Oct 2, 2008 - 2:08 pm 9. Lynn:I’m with you Smittythewrench. We couldn’t afford anything but American made and I can’t complain. An old Plymouth Fury from my father-in-law (loved that car, it drove like a dream) a Plymouth van, a Dodge and a Ford F-150 and they all served us well. I never figured it was the unions that hurt the American car industry but thought it was the company heads not putting out smaller more gas efficient cars back in the seventies when the middle east put a strangle hold on us. Quality did play an issue for a while and I can’t figure that out because Americans can put out some good product. There’s nothing like good old American ingenuity and I think its ok for the workers to make a good living. I never heard of a auto worker living in a mansion.
Oct 2, 2008 - 3:50 pm 10. Bill N:Because of my terrible experience with the big three U.S. automakers I have vowed to never again buy an American made car. I have been cheated, lied to, and abused beyond tolerance by 7 dealerships and the factory. Therefore it’s not just one bad apple, it’s the whole barrel.
Two examples: I bought a 1983 diesel. It came with two factory defects, a bad oil gauge and a leaking fuel injector pump. When on the test drive I saw that the oil gauge pegged out high and asked for it to be fixed, the dealer’s mechanic said that diesels ran at higher pressure and that the factory had put in a gasoline model oil gauge which would read high. Not true, I replaced the gauge at my own expense and the new one worked fine.
The injector pump would leak slowly. If I let the car sit for 3 days enough fuel would leak out so the car wouldn’t start. This happened 5 times. I towed it in to 5 different dealerships. They all told me the same story: Bad fuel - not covered under warranty. I was sold a “diesel tune-up” for $300 (1983 dollars) a pop. The pump finally failed completely while on vacation and I sat in a dealership from 7:30 AM to 4:15 PM while they rebuilt the old pump. Warranty repair doesn’t rate a new unit. The problem went away (i.e., it was NOT bad fuel). The rebuilt unit lasted one year, just enough to let the warranty expire and I had to pay $800 for a new one.
Example 2: My mother bought a gasoline car the next year. 6 months later the transmission failed, refusing to shift out of high after a stop. She took it to the dealer and explained the problem. The dealer saw a frail 70-year old woman and says “Car stalls, eh? You need a $70 (1984 $) tune up.” She told him it was the transmission, he told her it was the timing, she told him that if the car needed a tune up after only 6 months that should be covered under the warranty and he told her that the problem was due to, get this, bad fuel and not covered. Do you sense a conspiracy here? She told him where to stick his bad fuel and went home and called her lawyer. Fortunately, the lawyer was on a case and couldn’t take her’s for another week. Two days later she gets a recall notice from the factory for, you guessed it, a faulty transmission doo-dad. Tell me the dealer didn’t know a recall was coming out in two, count ‘em, 2 days.
I have since bought two Nissans. I do not know how Nissan handles warranties. I never had to ask for repairs. Ask me again to buy American. Fat chance! Do you still wonder why the big three are on the brink? Let them fail. Good riddance!!
Oct 2, 2008 - 6:36 pm 11. Kevin O'Brien:Smitty —
The problem is that reputation is a trailing indicator. Look at Bill N’s comment — he was soured on American cars 25 years ago, and he’s still sour on ‘em. A lot of people who went to Toyota, Subaru or Honda in the 1970s and 1980s are not coming back. In their minds, the much better cars made today (across the board) still bear the burden of the crapboxes of yore.
It’s a lot easier to keep a repeat customer than it is swing one from a competitor, especially for a product most people only replace, now, every seven years (that alone is proof of improved quality. Can you imagine a 1974 car of any marque lasting seven years?). A major problem the US makers have is that the dealers are independent and the manufacturers have no control over them.
I had a holed radiator in my Corvette and was stuck in Oshkosh, Wisconsin, about 1,400 miles from home. The Chevy dealer tried to tell me that I needed two $3000 cylinder heads. There was no oil/coolant crossover and when I asked about compression he hadn’t checked it. (So how would he know heads were bad?) I sold the car two years and 40,000 more miles later. Still with the same heads. I’ll never deal with that Chevrolet dealer again — and neither should anybody else. But his approach is sadly typical of the breed. And Chevy can’t do anything about it, under Federal anti-trust law. McDonald’s has more control of its burger flippers than GM has of the soi-disant Mr Goodwrenches out there.
Oct 2, 2008 - 7:23 pm 12. Jarhead:“The problem is that reputation is a trailing indicator” - Exactly!
It takes patience and foresight to build and maintain a reputation. The Big 3 and their unions and their dealers have neither of these qualities.
Oct 3, 2008 - 5:42 am 13. uburoi:I just bought the second of my two Kia Optimas I currently own, great cars both. I looked at American cars, and, quite frankly, they could not compete in the price range, waranty, quality, and value. I have a mid-sized sedan with all the options for less than it would have cost me for a badly designed Cobalt. Further, I get excellent service from our local Kia dealer; I mean excellent (the honor their waranty and then some).
Oct 3, 2008 - 6:29 am 14. Smittythewrench:Kevin is correct. The lagging indicator is deeply entrenched in the auto industry. Perfect example is the term “tune up”. Most of today’s vehicles will go over 100K on the original plugs. There hasn’t been adjustments on engines for a decade. Tune what? Yet “experts” recommend annual tuneups. Denso Irridium plugs used on most Toyotas since 2001 look brand new at 100K when I change them.
Most independent repair facilities will use a much inferior Bosch or Autolite plug when doing a “tuneup” on a Toyota, actually making the car less efficent over the long haul.
Study the owners manual. It is not just for filling out deposit slips anymore.
Oct 3, 2008 - 6:50 am 15. Al Brown:American technology is the best in the world in so many areas. Except in industries that are dominated by unions. I worked for one once as an intern with great people, both union and salaried, but the politics seemed incredibly dumb.
I’ve rented a number of American cars recently and have been pleasantly surprised with the quality. But it will take a lot to get me out of my Toyota.
I wish the companies the best. Its not easy with the government inflating the dollar and wrecking fuel prices. Or being kneecapped for decades by unions. Its tough to run a business when you’re not allowed to run it.
Should the gov be lending them $25 billion? heck no. I really only think that got by because of a huge ballot that makes 25 billion seem small.
25 billion is more than the market cap of all three automakers!! What is wrong with Congress? Are you convinced yet that we need electoral reform?
Oct 4, 2008 - 2:23 am 16. duncantwn:4 years ago the EU adopted crash tests to protect belted passengers - while our congress mandates unbelted passengers - difference 1000 pds per vehicle - 4 miles per gallon. There are many other regulations which make our cars less efficient and our energy systems less efficient all which come from the same congress which mandated foriegn oil, no new refineries and no increased electric generation.
So when you hear that companies are sending jobs overseas just look to our congress which prevents the type of business that built this country.
Oct 4, 2008 - 6:20 am 17. John:I’ve been defending him for 8 years but the last 30 days have changed my mind: Bush is the worst.
This guy spends money, creates enormous bureaucracies (Homeland Security) and inaugurates new social welfare entitlements (prescription drugs) like frigging Karl Marx on crack.
The most far left-wing democrat in washington wouldn’t even dare to dream of sloshing money around like this guy.
I’ve given up on Republicans, I’m going back to voting Libertarian only. At least I know my vote won’t be misconstrued as saying I approve of the RINOs.
Oct 4, 2008 - 9:01 am 18. Pajamas Media » Bailout Saga Proves that Elites Don’t Care What We Think:[...] U.S. Auto Industry Crashes; Taxpayers Serve as Airbagby Tom Blumer [...]
Oct 4, 2008 - 9:07 am 19. BizzyBlog » Observation of the Day: On the Big 3 Bailout:[...] my Pajamas Media column (”U.S. Auto Industry Crashes; Taxpayers Serve as Airbag”), courtesy of “Al [...]
Oct 4, 2008 - 2:18 pm 20. Bailout Saga Proves that Elites Don’t Care What We Think Bailout Crime Corrupt Politicians | USA TERM LIMITS:[...] rest of the nation, is making noises about getting his own $7 billion bailout. The auto industry is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of [...]
Oct 4, 2008 - 7:04 pm 21. snblitz:It is not just the old days.
I bought a 2005 Chevy 3/4 ton truck. It came with 3 factory defects.
One I fixed myself. One I am living with. One I am still trying to get GM to fix.
It is too bad the “japanese” automakers do not make a 3/4 ton.
Oct 5, 2008 - 11:41 am 22. Bailout Saga Proves that Elites Don’t Care What We Think « Thoughts Of A Conservative Christian:[...] the nation, is making noises about getting [9] his own $7 billion bailout. The auto industry [10] is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of [...]
Oct 5, 2008 - 12:39 pm 23. BizzyBlog » Bailout Saga Proves That Elites Don’t Care What We Think:[...] rest of the nation, is making noises about getting his own $7 billion bailout. The auto industry is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of [...]
Oct 6, 2008 - 7:29 am 24. BizzyBlog » Meanwhile, in Detroit …..:[...] This column was first posted at Pajamas Media on [...]
Oct 9, 2008 - 11:39 pm 25. Pajamas Media » The Governator Wants Your Tax Dollars:[...] struggling lenders. Now others are chasing after the taxpayer dollar. Beleaguered U.S. automakers got in on the deal also. As the Las Vegas Review-Journal noted in an Oct. 12 editorial, “[n]ary a soul [...]
Oct 17, 2008 - 1:22 am 26. Pajamas Media » Now We’re Bailing Out the Auto Companies? Who’s Next?:[...] their lobbying muscle and campaign contributions to work and got the politicians in Washington to approve a $25 billion “loan” from taxpayers. Now the auto companies are looking to stick their [...]
Nov 3, 2008 - 12:27 pm 27. Richard Scott:Amazing that so many Americans have bought into the urban myth that imports (in the same price range) are superior. Bull. I have owned Mitsubishi, Toyota, and now Ford truck. The auto trans blew in the Toyota and the Mits rings went south so it smoked like a mosquito truck. My Ford has been rock solid. But the propaganda continues.
Nov 7, 2008 - 1:32 pm 28. Ellen Mason:Yes, we built some sloppy stuff in the 80’s, but since about ‘95 quality is way up. Furthermore, if Toyota is so “superior” why is Ford and Gm kicking their butts in NASCAR? Enough of the self loathing America bashing crap.
Reading through the comments - let’s take a minute here - this isn’t about what car you buy, its about car companies responsibilities to the consumer. If you were not alive in the 1970s and didn’t sit in the gas lines, I can understand, however, the business case of the Big 3 have been “what not to do” in Business Text books for 20 years. “Status Quo” is irresponsible in a capitalistic society. It is irresponsible to stockholders and employees. If you are going to be on top you have to be innovative, environmentally conscious and provide real benefit to the end consumer. This isn’t a new concept the message has been out there for 20 years, were you listening?
The issue here is poorly run companies, why should I as a tax payer pay for that? Bottom line if a company can not see writing on the wall for several years and make changes then it shouldn’t survive.
If you want to buy American - there are two new manufacturers in California that are energy efficient, innovative and focused on the consumer needs/desires. Apteria and Tesla Motors. Just because there is a brand name recognition doesn’t mean products are quality sometimes it is just marketing and packaging.
I must state the best car I have had in the past 30 years is my Honda Hybrid I bought 2 years ago. I have quality, comfort, a lower carbon footprint and continued investment value of the vehicle.
If the Japanese car companies Toyota and Honda were not changing then they wouldn’t be global leaders in car manufacturing. Did you know Toyota has a hydrogen car out and is investing in the infrustructure of Japan to make sure fuel stations have hydrogen.
US car manufacturers could have easily been on the forefront of change they were included in the innovative change for hydrogen cars first introduced in 1995 and using their political power to change our national infrustucture to accomodate the change in fuel types.
Nov 8, 2008 - 10:51 am 29. M. Schuller:Who should help the drowning U.S. auto industry? In light of the history of the past century, the answer is obvious: the MAJOR OIL CORPERATIONS. God knows they’ve got the money, and they owe the auto companies big time. Let Congress call in the auto companies and Big Oil, and have them work out a deal—guaranteed loans, whatever. Congress can put its official approval on the deal. It’s the only fair solution.
Nov 17, 2008 - 5:37 am 30. Softail Rider:Bill N….OMG! 1983 and 1984 are your reference points?
Get a clue…that was 25 years ago! We now put disc brakes on the REAR of the vehicle too!
and Harley Davidsons leaked like a sieve in those AMF days….try and find one leaking now. Get a major clue and welcome to the 2000’s! Would you like us to upgrade your BetaMax to DVD?
Nov 17, 2008 - 5:45 am 31. Softail Rider:“Who should help the drowning U.S. auto industry? In light of the history of the past century, the answer is obvious: the MAJOR OIL CORPERATIONS. God knows they’ve got the money, and they owe the auto companies big time. Let Congress call in the auto companies and Big Oil, and have them work out a deal—guaranteed loans, whatever. Congress can put its official approval on the deal. It’s the only fair solution.”
and kiss any “alternate fuel” research goodbye!
Nov 17, 2008 - 5:48 am 32. jerry:Honda and Toyota dont have the uaw to deal with why should the big 3 im 16 and i watch my future slip away every day obama and some other idiot gets up and says they dont deserve it, or im going to make the Unions stronger… really if i was the big 3 i would build every single car in another country forget you people…no where should you get payed 100,000$ for screwing in a bolt when a robot can do it for you…
Nov 18, 2008 - 1:51 pm 33. jerry:so heres to you idiots who say yeah , toyota is the one for me…well gues how much business they make for the people in the u.s compared to the 75% from the big 3 …go ahead drive that car…but when they go under and ur company did ads for them…or sold products to them in any way, or their employers buaght from you…your screwed…go luck though…b/c when you looks for a way to get a job out side of the country thats the definition of a 3rd world country
Nov 18, 2008 - 1:56 pm 34. S. Howard:I remember after a hard days flight on an USAF aircraft out of Greece, going down to the brass and copper market where they made some of the best hammered pots and wood bins that as we bargained with the Greek merchant at the Arcopolus beggars market - we discussed with the merchant who made the best cars in the world. I smartly picked Mercedes Benz and after some converstaion the world wise Greek merchant said of course not it is “you Americans”. Then looking around the streets I started to notice the thousands of rebuilt American cars mixed in with an assortment of European, Russian, Italian and who kows what else. Since that time I have truly come to believe that we do make the world’s best cars. Look at every Chevy Caprice - late 80s models - where are they going? - to Saudia arabia were they are rebuilt in sweat shops and proudly run for many thousands of tough miles in the austere desert climate. Yes my Buick La Sabre is an example of a great American car - 176,000 miles one owner and purring - yea I change the oil every 3000 miles!! So yes we have to keep this great and grand business of ours going since after all we did invint it I think or is that being changed in our history books - as it is very close to in my estimation risinfg again making the best in the world - just look at the new Ford lineup of great innovations - the rest of these countries don’t have the magnificant engineering genius for fabricating a new lines like Ford does - something about America that distills in its work force innovation, design brillance, the best ides. How about Saturn - wow I don’t know much but looks sharp and sleek! yea we have given these foreign companies a great advantage by rebuilding their economies after WW11 and also pushing for globilization like Ford in Brazil where they start at a zero based cost line as far as pensions and some other benefits -but time is turning and again it is beginning to look like maufacturing costs in America are going to be competitive again with shipping, security, fule cost etc. and world labor prices going up possibly offsetting some of the carried cver costs of a business in America - - so yes to the bailout of our workers and our retirees - they did and are doing there share and no to the multinatuional corps who send there reps to the meeting giving a dismal forcast so that can quitly shut down our own American jobs and milk the foreign low cost and unregulated work forces of other countries - get smart Americans it is about multinnational corps who have no identity with a country or countries. So the final case we might make as the worlds greatest vehicles innovators and producers historically should be in my humble estimation is hell yes - yes we should fight to protect our own American jobs just as hard as our bought out politicians and multinational corps fought to get rid of theme to foreign interests. If you are an American vote for bailout of American and its jobs and way of life yes freedom - if you are multinational vote for the jobs and the technology to go somewhere esle. To me it is as simple as that! Me - I am and American and I vote yes for the US worker, the US job, his or her American made product and the need to keep a national strategic industrial base in this country running as someday we might have to again call on the greates workers in the world to roll tanks and trucks and humvees and jeeps and what ever else off these same production lines to fight and protect our freedom. I like made in America and stand by my 1998 Buick LaSabre a few dents and a few hailstone marks but purring at 175,000 plus original owner miles - one of the best made cars made in the world of course someday destined for a foreign country to be rebuilt in some sweatshop I am sure!!!!
Nov 24, 2008 - 5:22 pm 35. BizzyBlog » Things I’d Like To Post About Today ….. (122808, Morning):[...] Thomas Sowell has a great column (actually, that’s a redundant statement) at IBDeditorials.com — “Postponing Reality At Detroit’s Big Three.” The mindset of the whole bunch of them reminds me of a certain 16 year-old. [...]
Dec 28, 2008 - 5:40 am