Detroit Deserves 40 Billion Bucks

For the wanton destruction of their business by the government.

In a time when a Presidential campaign can burn through half a billion dollars, it's easy to overlook relatively small stuff.  Not only that, there's an unending line of individuals, companies, and pols' relatives with their hands out for government largess with all manner of arguments as to why they should have their hand in your pocket.

There are times it seems that everybody wants to get his snout in the public trough.  It's not often, though, that a supplicant argues that the taxpayer's money is theirs by right.  Reuters brings us news of just such a case:

Automakers deserve as much as $50 billion in government-backed loans so that they can build more fuel-efficient cars, according to a top General Motors executive, the New York Times reported. [emphasis added]

Indeed, the New York Times had this to say:

G.M.'s vice chairman, Robert A. Lutz, said the car companies need money to retool their plants but probably cannot raise enough capital on their own because of the tight credit markets. He said the automakers have already made considerable progress in transforming themselves and that the government should help them proceed faster.

The truly astounding thing is that the Big Three are right.  They really do have a legitimate claim on the taxpayers' money.

The Case Against It

We'd be the last to suggest that GM and friends deserve a loan on their merits or on their business acumen; they've made multiple bone-headed business blunders over the years.  We've pointed out how they gave up opportunities to let people who rent cars try out their vehicles at no cost to them; we ride in more foreign-made rental cars now than ever before.  We've also found their one-on-one marketing efforts to be pathetic.

It's hard to understand how we've changed from a world in which General Motors by itself sold the majority of American cars to today's situation in which all American car companies combined don't reach that level.  This took place over the course of decades!  Any company can have a bad few years with lousy leadership; all Detroit has been lousy for several lifetimes.

Considering their performance, the surprise isn't that they've slid so far, it's that they haven't slid farther: after all, they're still in business, for the time being at least.

As patriotism is the last refuge of the scoundrel, so government subsidy is the last refuge of an incompetently-run business.  Bearing in mind the sordid history of "corporate welfare", rightly held in utter contempt by the left and not nearly as derided by the right as it ought to be, we're not wild about auto companies getting any further into bed with government.

Back when they couldn't beat Japanese car companies on price or quality, the Big Three asked the government to make it illegal for Japanese car companies to send so many cars here.  We've explained how our negotiators lost that one.  When the agreement expired, Toyota wanted it extended; GM wanted it ended.

As customers, we'd prefer that the union-saturated Detroit manufacturers went out of business entirely.  The high costs the United Auto Workers impose on the Big Three let Japanese and Chinese car companies charge higher prices than they otherwise could.

They complain about their labor costs, but who pays in the end?  We do - it's all built into the prices they charge us.  When the UAW asks for more money, every penny comes out of our pockets.

We've explained how the New York Times broke their union to stay in business.  The issue wasn't just work rules and overmanning, they had problems with employee theft.  Unionized order entry clerks were pulling invoices out of the piles of computer input cards and splitting the proceeds with favored advertisers; when they handed over the card, the advertiser paid half the amount punched into the card.  Anyone familiar with the UAW knows that the Big Three have the same problem; God only knows to what extent.

Most non-union workers now understand that unionized firms either shrink, go offshore, or go out of business; that's why most workers no longer choose to be in unions.  Unions want to get rid of secret ballots in union elections so that their "organizers" can put pressure on individual workers to sign up, one pledge card at a time; such thuggery is the only remaining way they can get new dues-paying members.

Unfortunately, even without giving this unfair advantage to unions, Detroit doesn't seem to be able to muster the gumption to break their union chains once and for all.  If an organism can't defeat a parasite, the only way to get rid of the parasite is for the organism to die.

As the collapse of Eastern Airlines taught the airline unions a quarter-century ago that there was only so far you can push a company, it may be necessary for at least one of the Big Three to actually die - shut down, fail, go into liquidation, cease to be - for the facts of life to be made sufficiently clear to the others.  My Japanese friends told me years ago that they'd never have helped Chrysler when it got a government hand-out in the 80s - without a bankruptcy, you can't be sure the businesses are really in trouble.  After a death in the family, the survivors act much more reasonable.

If the American car companies were run by ethical, decent people hampered only by militant unions, we'd have more sympathy, but they aren't.  It's standard operating procedure for unions to accuse Evil Management of venality and corruption, but in this case the truth is probably worse than even the unions dare to state.

Federal Circuit case 02-1184, -1185 tells how Alan Waner sued Ford for infringing his patent on a plastic liner which kept fenders from rusting out.  One of the judges wrote:

The facts as set forth in the majority opinion do not reflect well on the Ford Motor Company.  Mr. Waner offered to sell them his idea for fender liners; they were interested; they then told him they were not interested, and proceeded to take his idea and place its embodiment on their vehicles.

The case was heard in a Detroit courtroom; Ford used its "home court advantage" to avoid paying Mr. Waner for his invention despite the judge's disgust with them.  The Big Three are not nice people to do business with - not as vendors, not as customers.  Suppliers work hard to sell to Toyota or Honda, but as Mr. Nick Scheele, President of Ford, pointed out in a 2002 email that went to all employees, the Big Three have become customers of "last resort."

The giant American car manufacturers are an illustration of the Confucian Cycle - at their peak they were larger than many countries.  As Confucius pointed out millennia ago, the only sure cure for a dysfunctional bureaucracy is the utter destruction of the organization that feeds it.  A leader of genius can "teach the elephant to dance" and save an organization that's lost its way, but it's usually simpler to let organizations go bankrupt so that new firms can grow up in their places.

The Big Three are large, 100-year-old bureaucracies.  They mistreat suppliers, they rob inventors under the protection of our "justice" system, but it's not because their employees are evil; they're normal human beings who are enmeshed in bureaucratic rules and procedures just like all the government employees you know and love.  Letting the companies go under would be in keeping with the capitalist principle of "creative destruction" whereby companies who lose sight of their customer's interests are discarded, because going bankrupt is a lot easier than fixing a bureaucracy.

No, the Big Three don't deserve government help because they're efficient, effective organizations.  They aren't.  Their unionized employees don't deserve a bail-out either; thanks to the union leadership they have chosen to elect, collectively they're greedy grabbers who want to force you and me to pay $50 per hour for tightening left nuts as cars come down the assembly line.  A plague on both their houses.

Why, then, do we say Detroit deserves $40 billion?

The Greater Threat

America was shocked when OJ Simpson was acquitted of murdering his wife.  Most Americans were convinced by the evidence presented on TV that Mr. Simpson had, in fact, committed the dual murder; a later civil court in effect declared the same thing, finding him civilly liable for the deaths of his wife and her lover.  What could have persuaded the jury to free a man who, according to all reasonable evidence, was a cold-blooded killer?

There's a simple reason.  Freeing a killer into the community is a threat to peace-loving members of that community; most killers kill again.  Mr. Simpson, however, killed only his wife and her lover; he did not represent a terribly large threat to innocent bystanders.

As long as nobody else marries him and is then unfaithful, the world is probably pretty safe from his predations.  In fact, nobody else has seen fit to marry him, nor has there been any intimation of more bloodshed.  Even so, why did the jury turn him loose?

The jurors saw a far greater threat before them, a threat to each and every one of them, a mortal threat to every member of the community.  In the person of the odious perjurer Mark Fuhrman, they saw a police department that had arrogated to itself the authority to decide who was and who wasn't guilty and to manufacture evidence as needed to reach the desired outcome.  In other words, the jury found that the LAPD had framed a guilty man.

Any police department which is comfortable with framing people, guilty or not, is vastly more dangerous than any individual murderer no matter how fearsome.  Even the most bloodthirsty mass murderer can kill at most a few dozen.  A corrupt police department operating under color of law can destroy the lives of countless thousands.

The jury decided to send a highly public message to the police - don't do that.  Mr. Simpson, guilty though he be, was lucky enough to benefit from the even greater guilt of someone else.

The automakers of Detroit are in just such a position.  True, they have damaged their own businesses through incompetence and greed, but that does not give government the right to gratuitously finish them off.

The Power to Destroy

We've previously explained the difference between communism and fascism.  Under communism, government owns everything.  Under fascism, businesses are nominally owned by private individuals, but government tells the businesses what they can and can't do.

Our government is becoming more and more fascistic in myriad ways both large and small.  We're all familiar with draconian zoning regulations which go so far as to take away a man's house when he didn't pay a fine for parking his own car in his own driveway.

In a less dramatic incident, my relatives bought a house lot for retirement.  After they'd paid land taxes for some years, zoning regulations changed to increase "set back," or the minimum distance from the road to the house.  Their land suddenly became unbuildable.  They'd been robbed by the government - their land was now worthless - but no compensation was forthcoming.

When the EPA tells a farmer he can't farm his own land because it's home to an endangered mouse, he's been subject to what lawyers call a "taking," which is when government takes something valuable from you but doesn't pay you.  This has become standard practice even though the Constitution forbids it.

Ecological types don't want government to have to pay compensation for takings because if people knew the costs the environmental movement imposes on us, they'd vote against them.  Similarly, people who want this or that building put on the "historical register" so the owner can't change it would rather steal from the property owner by regulatory fiat than pay to buy up his right to change the facade, or buy the building outright themselves and do with it as they will.

Automobile manufacturing is subject to uncounted numbers of regulations, many of which conflict with each other.  For example, they're under immense pressure to improve fuel economy.  When GM wanted to switch from round headlights to square lights to lower hoods a fraction, which would cut wind resistance and improve fuel economy, they had to get separate approvals in all 50 states.

What did that round of paperwork cost?  Who really paid for it?

We've explained how government regulations which mandate air bags save maybe 400 lives per year at a cost of at least $5 million per life saved because of the immense cost of putting $2,000 air bags in 10 million cars per year.

These and a multiplicity similar regulations impose tremendous costs on Detroit.  Despite the dire straits the American car companies are in, and the simplicity of administrative solutions, the government refuses to remove its foot from their throats.

No, quite the contrary; at the behest of environmental activists, Democratic congressmen and regulators intend to require them to completely change their business model, their manufacturing practices, and their entire operation, all at their own expense.

Letting the bureaucracy bankrupt the Big Three by enforcing all these new regulations would be utterly unjust; that would be as unfair a taking as not letting my relatives build a home on the land they'd bought for that purpose.

No, if we won't insist that our government change the regulations to let Detroit survive at low cost, we'll have to pay to let them survive at high cost.  It's only right.

The Bottom Line

If we bail out the Big Three, though, we ought to remember that when we last bailed out Chrysler, the unions took a hefty pay cut and Lee Iacocca cut his pay to $1 per year until all the loans were paid back.  If GM and friends are serious about getting our money, we'd like to see them cut everybody's pay and slash the pay of the top 4 or 5 layers of management to $1 per year until we get all our money back.

If they aren't willing to do that, if the workers aren't willing to put their own personal skin in the game as the Mazda employees did years ago, why should we give them one thin dime? The bailout ought to go as recompense for the "taking" of their business by egregious regulation, not as a sop to further subsidize predatory players, whether union or executive.

Either way, the threat posed by an intrusive government is by far a greater threat than any one private company, no matter how large and incompetent, can ever hope to pose.

If you don't like the quality, designs, or technology of a General Motors car, you are free to buy a Toyota.  If you don't like dealing with the EPA or IRS, what can you do?  The only way out is to move your business offshore, as so many companies have done; but as Americans, we'd rather they didn't.

Force government to pay for the harm it does; maybe it'll do less harm.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Bureaucracy.
Reader Comments
"Presidential campaign can burn through half a trillion dollars"

Did you mean half a BILLION dollars?

I don't think that the Presidential campaigns, in total for all primary and general runs, added up to $500 billion. That seems far too high a number.
September 8, 2008 10:44 AM
There is a salient point being made here about Government causing Detroit a lot of harm. But I cannot support your conclusion.

Your conclusion is that "Force government to pay for the harm it does; maybe it'll do less harm."

But when has that ever worked? The government is fine stealing whatever money it needs to continue "paying for its harm" over and over again.

Is that not what every social policy has netted since the Great Society? The government raises regulations, takes more tax money to pay for the management of those regulations and then has to (later) bail out those who are regulated.

But nothing ends or changes. Making them pay only gives them more control.

I believe it was Scragged who once said government was about who says and who pays. And those two things determine the control.

Good article. Bad conclusion.
September 8, 2008 11:17 AM
Scragged seems to have missed some of the details of the incestuous relationship between Detroit and the federal government over the past few years assuming that the NYT got the story right:

A Chicken in Every Garage
As Washington scrambles for a policy to make fuel cheaper, they might consider the tale of how four-wheel-drive gas hogs became Detroit's best sellers.

The Times is correct in that a business' first instinct when faced with competition is to ask the government to outlaw the competition, but that doesn't work in the long term, as we see here.
September 12, 2008 12:55 PM
I think you are overly generous to the UAW. Forbes points out on page 27 of their Aug 11 issue,

"GM also needs workers who are motivated-by carrot and stick-to actually show up and work. Here's a shocker: The average daily employee absentee rate in a United Auto Workers plant often exceeds 10%. Compare this with the 2% to 3% absentee rates at Honda, Nissan, and toyota plants in the [nonunion] South."

GM may deserve a bailout, but the UAW doesn't.
September 14, 2008 9:55 PM
Well, we the people came through:

Detroit Got Its Bailout
The government bears some responsibility for ensuring that the bedraggled Detroit automakers put $25 billion in subsidized loans to good use.
October 6, 2008 2:22 PM
No, it's more like this...

THEY, the government, came through. We, the people, had nothing to do with it.

Which is par for the course now. Our glorious saviors in Congress decide who needs our money, get on TV to convince us that their opinions are worth more, draft hurried legislation to hide the facts and steal and spend to their heart's content.

In all of this, the only more disgusting fact is that there is no other better country to move to. For the time being, at least. (Maybe a market demand will create one?) Sign me up.
October 6, 2008 2:32 PM
The NYT has gotten on board, no surprise there:

More Money for Detroit
Pumping billions more taxpayer dollars into Detroit's automakers makes sense even though the companies may go
October 31, 2008 11:52 AM
Julia is right, the NYT is on board, but they're doing another of their left-wing things about bashing management without saying anything about the silly work rules and other union-imposed handicaps that hurt Detroit so bad. The article says:

The money should also come with limits on executive pay and golden parachutes. The top executives of the car companies should be required to step down; taxpayer money should not be used to underwrite proven managerial incompetence.

They are right about limiting management pay, but what about worker pay? And work rules that make it so difficult to run a car plant efficiently?
October 31, 2008 11:55 AM
Newsweek seems to agree:

But then that's no surprise. They'd like the government to cover everyone.

I hate the fact that, as a nation, we aren't willing to allow markets to fail like this. So what if Detroit goes bankrupt? So what if 2 million jobs are lost? (which is highly inflated) Markets can't learn their lessons in the long run if they are never allowed to fail.
November 3, 2008 9:53 AM
Newsweek AGAIN tackles this issue:

Gross says that he's a fan of creative destruction, but... not. Which is it?
November 14, 2008 2:01 PM
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