Big Three Bailout: Not Like Japan's Automakers in the 90s

Here's an audacious question: How is an auto bailout not preferential corporate welfare?

There is no contention that America suffers from an automobile shortage. Honda (HMC) and Toyota (TM) are perfectly capable of increasing production to fill in any gap caused by a GM and Chrysler bankruptcy (I don't mention Ford (F), because it appears to be the healthiest of the Big Three). Meanwhile, Japanese car companies have created thousands of jobs in the South and are schooling Americans in how to run an efficient auto manufacturing operation.

To its credit, the UAW has responded to charges that it is asking American taxpayers to subsidize the Big Three's inefficiency. Its arguments, however, are misleading. For example, the UAW has mentioned state incentives given to Japanese car companies as support for a federal bailout (see Autonews article).

First, states like Alabama provided incentives to Japanese companies because the UAW was opposed to relocating to the deep South, which favors right-to-work laws (code for anti-union laws). The UAW's refusal to support American production in the deep South opened the field to increased competition. The UAW and the Big Three could have requested Southern state incentives, but they failed to do so on reasonable terms. As a result, the UAW's citation of Southern state incentives is designed to take your eye off the real reason for their problems, namely, an unwillingness to be flexible. It's akin to losing a war because you refused to go to the most advantageous territory to fight--and then calling the other side dirty for going where you wouldn't.

Second, speaking of the Japanese, we criticized them for years because they bailed out their banks after their speculative bubble. Indeed, almost every American economics study found that bailing out inefficient companies extended and exacerbated the Japanese recession. Just google "Japan's lost decade" for more. (Here's one particularly relevant link from a google search result.)

Third, the Japanese car companies received only $3 billion since 1992--far below the UAW's request for $25 billion (see penultimate paragraph of this Autonews article). The disparate amounts of incentives requested indicate that subsidies aren't the reason for the Big Three's woes. In addition, while it's easy to forget now, the Japanese took a major risk in coming to the South to open up manufacturing plants.

Just fifteen years ago, no major entity was considering investing billions of dollars in the deep South because of its less-than-cosmopolitan reputation. This reputation required particular fortitude from the Japanese, who decided to open manufacturing operations in places where some residents had never met a Japanese person. Although various Americans continue to refer to Southerners as uneducated and backwards, it is now apparent that these so-called "backward" Southerners have outworked the Midwestern UAW. (It will be interesting to see if Southerners will return the favor and call non-Southern workers lazy and handout-prone). In short, the Japanese should be lauded for taking a risk when the Big Three and UAW refused to consider the South as a viable business destination. Moreover, $3 billion is not what the UAW is demanding, making their reference to the South irrelevant.

The UAW's remaining argument is based on emotion. It talks about the loss of thousands of jobs, implying that without taxpayer money, the Big Three's employees will be in bread lines and bankruptcy courts. By resorting to this argument, the UAW has taken a page out of Naomi Klein's Shock Doctrine. The UAW fails to mention any other option except demanding billions of dollars in taxpayer money. For example, it fails to advocate increasing the length of time and amount of payments given to unemployed workers nationwide. Yet, the $15 to $25 billion requested could be used to extend unemployment benefits for all Americans, and at higher amounts.

Using this method, no industry receives preference, and taxpayer money benefits Americans nationwide. After all, it's not just the auto workers being affected by this recession, but engineers, accountants, and food service workers. Don't these workers have families to support, too? By demanding money only for auto employees so they can continue in an inefficient business, the UAW is essentially admitting it wants preferential treatment over every single American worker who has been laid off and those who will be laid off. Its attitude is unacceptable if you believe that government should consider the welfare of all its people, not just one particular group.

The UAW's selfishness exposes another issue with an auto company bailout--the slippery slope. What will Congress do when other industries come knocking? Will taxpayers be forced to support all affected industries that happen to have highly paid lobbyists? Once Americans understand that Congress probably wouldn't take seriously a bailout request from restaurant waiters and waitresses, they have to ask why their government is focusing on the Big Three to the exclusion of other industries. I don't know about you, but I don't remember learning in civics class that lobbyists were a branch of American government.

The only reason to provide an automobile bailout is because of the Big Three's legacy costs, which may be shifted onto taxpayers anyway through the PBGC. Unfortunately for taxpayers, it seems that all roads lead to pillaging of their wallets.

Comments

[Thadeus Tho...:]

More "expert" poppycock using faulty reasoning and ignoring the fact that Ford and GM were on their to restructuring their businesses over the last 7 years until the grossly overpaid gurus in the financial and banking sectors caused the credit crunch. Don't you realize that dealers as well as the auto makers use loans to maintain inventory just like most other businesses do? Let that dry that up, along with little or no credit for even good potential customers, and the money leaks out of the bottom of the bucket in no time.
Don't start with old Detroit auto companies and the "deep south" crap.
The REAL outrage is the financial sector ( Like AIG, etc) that continues to reward it's hot dog gurus with outrageous bonuses and salaries and no questions asked for $150- $350 - $700 - $800 BILLION. Yes, the "Big
3" could have tried to anticipate the market and get workers to work for less, and yada-yada-yada sooner. But what about the grossly overpaid financial guys at Freddie, Fannie, Lehman Bros. , etc who went bust and got HUNDREDs of BILLIONS with hardly a question and no congressional 3rd degree.
This auto thing is more of a smoke screen to confuse and draw attention away from the greed, stupidity, and irresponsibility of the financial world, and the good old boys in congress who just HAD to help out those buddies! Go back to school. Everything you learned about business and finance was bogus and designed to let run away greed happen like it just did in the financial sector. Derivatives, credit default swaps, what a bunch of rip off BS!

2008 Dec 10 03:08 PM

[Matthew Rafat:]

Thornton: despite all evidence to the contrary, you've somehow interpreted my article as support for the $800 billion banking bailout. In fact, Congress's bailout of the financial companies is what created the slippery slope allowing the Big Three to demand taxpayer money. Sadly, it appears we are following in the footsteps of Japan, which may cause our own "lost decade."

2008 Dec 10 04:02 PM

[Robert Nabloid:]

I think we already lost the decade if you look at historical stock prices.

What else is at stake as a result of this slippery slope is the bigger question.


On Dec 10 04:02 PM Matthew Rafat wrote:

> Thornton: despite all evidence to the contrary, you've somehow interpreted
> my article as support for the $800 billion banking bailout. In fact,
> Congress's bailout of the financial companies is what created the
> slippery slope allowing the Big Three to demand taxpayer money.
> Sadly, it appears we are following in the footsteps of Japan, which
> may cause our own "lost decade."

2008 Dec 10 06:49 PM

[Danny Norwood:]

Your article is dead on. These businesses should not get a bailout with taxpayer funds.

The textile industry in the United States never got a bailout and thousands of workers lost their jobs with no help at all from the federal government. A textile worker is just as important as an auto worker.

2008 Dec 12 07:53 PM

[Kay47:]

I don't believe that the auto companies are DEMANDING anything. It appears to me that they have requested a government (taxpayer) loan, but they aren't Demanding anything. The textile industry, ALONG WITH OTHER CORPORATIONS, have left this country in search of cheap labor, less corporate taxation and government regulations and free trade agreements. The federal government, along with the textile companies, caused the loss of these jobs. I don't know about the rest of you, but I am tired of sending taxpayer dollars overseas to fund a war and then rebuild a country in which we destroyed. Sending billions of dollars to foreign countries in aid (Mexico for example) and then not supporting our own industries in these troubled times is a disgrace. Take a look around you, China owns our debt and practically everything we consume is made in China. If we don't get our country back on track, keep our companies here, provide jobs for our citizens, improve our infrastructure, get congress off their theiving a***s, we are going to be hurting more than we are now. It's all been fun and games for this government until now. Let's see if anything changes.

2008 Dec 19 06:02 PM

[Johnny D:]

Nothing personal, but you should check your facts on the "great working plants" in the non-union south:

Chrysler tied Toyota as the most productive automaker in North America this year, according to the Harbour Report on manufacturing, which measures the amount of work done per employee. Eight of the 10 most productive vehicle assembly plants in North America belong to Chrysler, Ford or GM.

2008 Dec 19 09:03 PM

[Dallas dude:]

Deregulation from the Reagan Legacy is coming to haunt these banks who wanted the brokerage powers. Back in the day, a bank and or insurance company was a sure thing. With the power to create money and acturial charts these were fool proof. However, the fools have prevailed.
Now along comes the Big 3 and the UAW is attacked as a method to play on the envy of the general public. The UAW has gone out of its way in helping and now they are the scapegoat. A pathetic ploy to keep the Washington folks from getting their justice. Detract from the issue and maybe the general public will not notice that these are the same folks in the pockets of the special interest and lobbys. A fools errand at best. Newton's third law came into effect when the GOP took a beating in 06 and now in 08. Just remember how long and how far to the right we were.

2008 Dec 30 11:22 PM