Thursday, November 13, 2008

Learning from a Possible Automotive Industry Bail-Out

Note: I'm moving to a new policy blog site:

As I write this, the "old" automotive industry - GM, Ford, and Chrysler (most notably GM) - dominates the headlines. They are out of money, we are told. They need loans to innovate. Millions of jobs are at stake. Something must be done.

This is not news. I remember the gas lines of the Carter administration. The first car my wife and I bought was a Dodge Omni Miser introduced as part of Lee Iacocca's government-led Chrylser "bail out" and purchased in by us 1981. It had a four-cylinder engine, a heater, a stick shift, and that was about it. No radio of any kind. It was a great car.

Yet over the ensuing decades, little in the "old" automotive industry seemed to change. Rather than improve mileage significantly, a coalition of manufacturers, unions, and image managers kept us focused on immediate gratification. But in the ensuing decades, an entirely different "new automotive industry" emerged funded largely by foreign producers who created factories and jobs primarily in the "right to work" states. While the "old industry" encumbered greater legacy costs from generous benefits, and aging workforce, and products appealing to those who did not consider energy costs, the "new" automotive industry developed a younger, healthier workforce, products often (but not always) focused on greater economy, and more flexible manufacturing methods. The point is not to compare the "old" and "new" but to recognize that there are two distinct automotive industries in our country and that one is doing better than the other.

Far wiser people have made recommendations, but there are several common themes:
  1. The "old" manufacturers seem to have forgotten they are in the transportation business and not just the automobile business. (This case has been made recently by Robert Goodman who in turn cited a 1972 Stewart Udall article in the Atlantic Monthly).
  2. The "old" manufacturers are not making sufficient quantities of the kind of products people need for transportation
  3. The "old manufacturers are not making products that are affordable to the people who need them
  4. The "old" manufacturers are not addressing thorny problems of workforce equity. These range from exorbitant salaries for their senior leaders, generous benefits packages that for decades place few responsibilities on beneficiaries, and inadequate benefits for the many mechanics and service workforce essential for their industry but employed by dealers, garages, and suppliers.
  5. Advocates for the "old" manufacturers are having trouble breaking free of the very bonds with industry, unions, and selfish public expectation that got us into this mess.
There seem to be parallels between my experience with my automobiles and my experience in the health care system. While I waited for gasoline in the 1970s, I watched the "cost-plus" health care financing methods and saw the inequities even then between those who had access and those who did not. After buying my Omni Miser, I saw the first glimpse of accountability through TEFRA and other health care financing changes. And then, like the auto industry, I saw things stall out. I saw an increased focus on profits, I saw more unnecessary complexity, and I saw organizations competing over the wrong issues at the expense of the long term social and economic good.

Perhaps we can learn from the various "bail-out" proposals for our automotive industry? To what extent do we finance the status quo. (Interesting that one of America's larges corporations is asking for federal financing to "innovate." As Thomas Friedman asks "If we give you another $25 billion, will you also do accounting?"

Aren't there parallels?
  1. Do the organizations that deliver, manage and finance care understand that they are in the health care business and that this business is a system of care focused on the individual?
  2. Are these organizations enabling us to experience the degree of health we need?
  3. Are these organizations delivering these services in a way that is affordable?
  4. Is compensation and workforce development aligned with incentives to improve or is it designed primarily to enrichen the few at the top?
We are in the middle of a rich debate. Should GM be allowed to drift into bankruptcy? Should they be allowed simply to get additional funding from us? Should support be tied with strings managed by our federal government? Should we learn from the "new" automotive industry as we examine what went wrong? Should we look at the automotive industry in the context of the broader transportation crises in our country? A country where railroads are crumbling, bus transportation is second-rate, and mass transportation of other types is virtually non-existent?

I believe we need a transportation policy. Without a clear view of transportation as a whole, an infusion of money will not address a problem that has been apparent for decades. Similarly, I believe we need a health care policy that places the plight of our providers in the context of a populace that is increasingly undermedicated, uninsured, and prone to unhealthy life styles.

Neither the automotive crisis nor our health care crises can be solved by money alone. Neither can be improved overnight. But in each case, a clear understanding of purpose, a focus on what we really need, a renewed commitment to affordability, and a recognition of the workforce seem to be good places to start.

As a country, we are now in the "bail out" business. We must focus on the price we must pay, but even more important, we should focus on fixing the fundamentals. This will not be easy.


Blogger oliviaharis said...

The automotive industry is still relatively strong, but American companies have stubbornly stuck to their old ways for far too long. They have become relics of the past. Time to move on.
opinion leader

November 15, 2008 3:48 AM  
Blogger Shep said...

If taxpayer dollars are used to fund the bailout (duh!), then every taxpayer should receive a voucher for a new Big 3 car purchase. To determine the amount of the voucher, compute the size of the bailout ($35-50B) divide by the number of taxpayers, there’s the voucher amount per capita.

Escalades for everyone!!!

The math makes it simple to undrestand that the auto industry, incompentnet as it is, wants you and me to fund their past mistakes and, most likely, their future ones.

Which means the Big 3 gets a free ride (Chrysler’s 2nd one) and taxpayers get zip.

So why bail out companies that have had 30 yrs. to become viable enterprises?? And have failed to deliver changes (like fuel efficient vehicles people want to buy) they now say they need the bailout money to retool to create?

Why bailout companies that pay UAW workers who get 95% of their pay each week even though they do not work?

Somewhere in this mess is a single car company that might survive. Without a bailout.

December 3, 2008 6:32 PM  

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