The Dozen Auto Companies that Aren’t Going Bankrupt

The “Big Three”–which really should be called the “Broke Three”–have made their pitch for $34 billion in government aid.  What’s a few (billion) bucks among friends?

Instead of handing over wads of cash to private companies, wouldn’t it make more sense to simply nationalize the firms?  Heck, could the government have done a worse job of running them?

Actually, it isn’t impossible for an American auto company to make money.  As the Wall Street Journal points out:

These are the 12 “foreign,” or so-called transplant, producers making cars across America’s South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

The international car makers aren’t cheering for Detroit’s collapse. Their own production would be hit if such large suppliers as the automotive interior maker Lear were to go down with a GM or Chrysler. They fear, as well, a protectionist backlash. But by the same token, a government lifeline for Detroit punishes these other companies and their American employees for making better business decisions.

The root of this other industry’s success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.

Consider labor costs. Take-home wages at the U.S. car makers average $28.42 an hour, according to the Center for Automotive Research. That’s on par with $26 at Toyota, $24 at Honda and $21 at Hyundai. But include benefits, and the picture changes. Hourly labor costs are $44.20 on average for the non-Detroit producers, in line with most manufacturing jobs, but are $73.21 for Detroit.

This $29 cost gap reflects the way Big Three management and unions have conspired to make themselves uncompetitive — increasingly so as their market share has collapsed (see the nearby chart). Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one.

By some accounts the federal government–president, Congress, Treasury Department, and Federal Reserve–have lent/spent more than seven trillion dollars in bail-outs.  Surely it’s time to say no.  And the obvious place to start is with ill-managed companies that would be better served by a bankruptcy filing than a federal hand-out.