The Auto Industry in Trouble – Again

About a month ago, while we are all focused on the $700 billion Wall Street Bailout, Congress gave the Big Three automakers a $25 billon bailout.  Now, they are back for more, saying that they won’t have enough money to last the rest of the year.

I’ve read multiple articles and saw some interviews on TV this morning where experts and analysts are saying that without more money from the Federal Government, the automakers will fail.  The governor of Michigan even said that 3 to 4 million people will lose their jobs if the Big Three go bankrupt.

I agree that the US auto industry is vital to our economic health.  The problem though is not going to be fixed by giving them more money to burn.  This brings me to the question:  What really is the problem anyway?

There are two main reasons for the US automakers to constantly be in trouble:  the United Auto Workers union and unfair laws that give foreign car makers an advantage.

First, the UAW needs to recognize the changes in the way the world operates today.  When the union was first formed, it was to protect the auto workers from unfair manipulation by the automakers.  Today, they do not have the sympathy from the public because most of us do not get health packages and pensions equal to what the auto workers get.  Auto workers should have to help fund their insurance and retirement, just like most workers.  They need to realize that their demands will not be met at all if their employers are out of business.

Second, there are laws in that exist that give the US automakers an unfair handicap.  Government regulations require that a certain percentage of cars are made in the US if they are a domestic company.  Since Toyota and others are foreign companies, they can assemble a smaller percentage of profitable cars in the US.  They can use US factories to boost efficiency and make their business stronger.  

The US automakers have to assemble almost all of their cars in the US, whether they make business sense or not.  While the US companies make money on their trucks and large vehicles, they lose money on nearly every compact car produced domestically.  If they could shift some production to non-union plants or to Mexico, it would help the Big Three make their businesses more efficient.  These regulations were meant to help protect US jobs, but are crippling the automakers.  There won’t be any jobs to protect if they drive the companies out of business.

Another reason for the auto bailout is supposed to help the industry shift to producing more fuel efficient cars.  Do you know that our cars were more efficient in 1998 than they are today?  What happened over the last ten years?  The auto industry can make more efficient cars if they want.  Nothing will assure us that the bailout money will lead to more efficient vehicles.

Rather than throwing more money at the Big Three automakers, we should be looking at outdated government rules and regulations that are handcuffing the companies.  In order to really fix the problem, we need to tackle more than “slumping auto sales.”  If Congress and the Treasury look at more than just balance sheets, we can solve the crisis the automakers are facing once and for all.

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