Auto Bailout Smoke and Mirrors
Mickey Kaus, a moderate Democrat, explains how the proposed auto bailout contains little leverage for the proposed “auto czar” to really cut the excessive labor costs that threaten the automakers’ survival, and how it is unlikely that the government will “get its money back,” contrary to what the bailout’s (mostly Democratic) supporters claim.
We earlier noted that auto workers at American-owned plants are paid $70 an hour in compensation, while workers at the U.S. factories owned by foreign car markers get paid less than $50 an hour. The U.S.-owned automakers will not be competitive until that disparity is reduced, but that is unlikely to happen, because any auto czar will be accountable to the Obama Administration and Congress, which are dominated by liberals supported by the United Auto Workers union. State dealer franchise laws in states like New Jersey, which fleece automakers to perpetuate underperforming auto dealerships, also need to be preempted by federal law to reduce the U.S. automakers’ costs.
Nobel Prize-winning economist Gary Becker explains why bankruptcy would be better for American consumers and taxpayers than a bailout, since filing for bankruptcy would allow the automakers to cut their inflated labor costs.
Failure to cut labor costs will make any bailout an exercise in futility, as the British government found when it foolishly spent billions of dollars in the 1970s in an abortive effort to bail out the failing British car industry. (Today, Europe’s largest auto plant is in England, but it’s owned by the Japanese automaker Nissan. So even if American automakers were to not only go bankrupt (like the airlines, which keep operating even in bankruptcy), but also stop producing cars, the cars still might be produced in the U.S. by a foreign car company).
In the Wall Street Journal, Holman Jenkins argues that even a multibillion dollar bailout will simply be wasted, without turning around the auto makers’ fortunes, if federal CAFE (fuel-economy) regulations are not repealed or reformed. He notes that a gas tax would be a less economically burdensome and more effective way of increasing cars’ gas mileage than CAFE standards, and would place American automakers at less of a disadvantage relative to their foreign competitors.
Manhattan financial analyst Eric T. Singer argues that the bailout and the proposed “Car Czar” will harm the auto industry by giving political priorities like “union jobs and green initiatives” priority over producing affordable cars motorists actually want, resulting in the auto industry limping along on “life support,” at a tab of billions of dollars a year in taxpayer subsidies.