This is hard to read for the majority of readers who are probably affected by the automotive-industry problems that have consumed mass-media attention for weeks. Congressional medicine always tastes bad, but is it better than the fatal disease for which it is intended? I argue that the “bailout” medicine is not good for reasons not addressed by the media.
The first issue is totally ignored by the media and all branches of government, and that is the fact that there is no constitutional authority for Congress to “give” federal money, whether tax revenues or Treasury guarantees, for any private firm’s solvency (individual or collective). Article 1, Section 8 of the Constitution clearly specifies 17 powers delegated to Congress, and nowhere is a power granted or implied to transfer money from one constituency to another. And nowhere is it stated that Congress can prevent corporate bankruptcies.
Read the Constitution. Regardless of what socialists who legislate from the judicial branch of government say, the ability to bail out companies (or the entire industry) is not within the powers of Congress, regardless of the blather about the General Welfare clause. To do what Congress is considering requires a Constitutional change. That said, it is within the power of the Executive branch to transfer money to the private sector, and that is why Majority Leader Reid said, “It is up to the Bush team to act” – a typical politician passing the buck. Auto-union and Big-Three leadership caterwauling aside, the U.S. corrupt political process may attempt to circumvent the highest law of our land.
A second issue deals with the fact that money will not save the automotive sector, which has a systemic problem due to embedded non-competitive practices. Union contracts create an artificially high compensation rate so that non-union manufacturers enjoy hourly wage including benefits that is about 41% less than the domestic industry ($44 vs. $73 per hour – the average hourly labor cost for all American industry is $25.36.)
Foreign automakers build factories in right-to-work states so they are not coerced into this non-competitive practice. The way around this fatal flaw is to force renegotiation of union contracts, and the only way to allow this is for individual automobile companies to declare bankruptcy and pursue reorganizing and restructuring of business methods. Any other approach to financial correction of each individual business’ problems will not allow the companies, individually or together, to correct this systemic flaw.
Recall that bankruptcy does not close industry doors, does not discharge employees, does not remove or freeze production assets. It is the legal process that allows (competent) management to shed features that brought ruin to their individual enterprises. The matter of management ability, much less willingness, to achieve corrections is a separate and unresolved problem. Existing leaders of the domestic automotive companies are the people who connived with union bosses to create this mess. Any financial aid to firms in this sector must be accompanied by an insistence on transformation of management.
The politicians and media overlook this critical matter of how the basic financial problem of each domestic auto manufacturer must be addressed. It is sure in my mind that the union bosses, who have lavished money on the politicians, did so to create this problem, a raison d’être that assures federal protection. The domestic auto industry can only survive if this union millstone is removed.
A third factor now overlooked by the public and industry is mandatory for long-term correction of the domestic auto-industry problems. This is to revisit the principles that Japanese industry learned after World War II as their entire industrial landscape was rebuilding after total devastation. Recall that Dr. W. Edwards Deming was enlisted by Japan to aid the rebuilding process and is summarily known to teach “quality assurance.” His philosophy made Deming a national icon in Asia, but he is largely forgotten in America. The founder and past President of Toyota, Shoichiro Toyoda, offered this explanation of the principle: “Make products of continually improving quality and everything else – increasing market share, cost reductions and growing profits – will follow.”
U.S. industry practices of meeting quarterly profit projections, buying from the lowest-cost suppliers instead of working with these sources to improve performance and profitability and shedding the arrogant attitude exemplified by “what’s good for General Motors is good for America” are lessons that must be restudied and reapplied. Indeed, government is complicitous in creating problems, such as unfunded mandates of CAFE standards and regulatory infringements on private business, but the industry has a long history of good work and producing transportation for the world.
There is no illness within the U.S. domestic automobile industry that cannot be cured. Government is not part of the solution other than to back away and allow industry to heal itself. IH
Allow Auto Industry to Heal Itself
January 8, 2009