Holman Jenkins On Detroit's Federally-Mandated Failure

Holman Jenkins wrote an interesting piece in Wednesday's Wall Street Journal. In it, he contended that Washington's latest sop to the auto industry, in the form of $25B in loans, isn't the start of Federal intervention in the industry. It's more like nearing the end.

Among the more salient points Jenkins makes are,

"The talk is of synergies and cost-cutting, of tapping new lodes of cash to ride out the storm. Don't believe it. These negotiations are about one thing: creating a political last stand of American auto making that a Democratic Congress and president won't be able to resist bailing out.

All parties to the Chrysler talks have adopted Election Day as a deadline, the better to trap both presidential campaigns into committing to support a deal. But it also slipped out that iconic Ford had been GM's first choice of partner -- a prospect that could yet be resurrected now that superinvestor Kirk Kerkorian has withdrawn his vote of confidence in Ford's survival.

Congress has already agreed to provide the Big Three with $25 billion in loans to help with a shift to green cars -- likely to become plain survival cash in the event. And Congress's very nature requires throwing good money after bad, specifically financing a GM-Chrysler merger if Michigan Sen. Carl Levin has his way. Don't be surprised if President-elect Obama is dropping hints in two weeks that this also would be a good use of the $125 billion Washington just injected into J.P. Morgan, Citigroup and friends. The government could even end up owning a car company directly before it's over, as the U.K. government once owned British Leyland.

Banking in fact illustrates what might be called the GM Effect, for both industries have been around long enough to have accrued an almost incalculable baggage of government intervention, which explains why more intervention is demanded today.

Why don't the auto makers limit themselves to paying competitive wages and benefits in line with what workers could earn elsewhere? Because, in the 1930s, Congress passed the Wagner Act with the nearly explicit purpose of imposing a labor monopoly on Detroit to keep wages at higher-than-competitive levels.

Why doesn't Detroit rationalize its musty brand lineups and dealer networks? Because, in the 1950s, legislatures across the country imposed franchising laws, including the federal "dealer day-in-court clause," to make such rationalization prohibitively expensive.

Why don't the auto giants do as Whirlpool and other manufacturers have done, and move their production to cheaper offshore locales? Because, in the 1970s, Congress enacted fuel economy rules to penalize homegrown auto makers if they don't build the lion's share of their cars in high-wage, UAW-staffed domestic factories.

No, Detroit's troubles don't arise because its executives are morons. Look today at the desirable, fuel-efficient cars that GM and Ford sell in large numbers in Europe. Does anybody imagine the U.S. public derives any benefit from keeping these cars out of our country? Yet they are kept out to preserve the amour propre of the regulators who enforce our emissions and safety standards, however trivially different from Europe's standards.

Cerberus, stars in its eyes, perhaps didn't quite understand all this about the auto industry when it bought Chrysler thinking it would be free to make business-like decisions. Now it does.

Any rescue mounted today in Washington won't be so much a "rescue" as a final admission that the industry can no longer bear its regulatory burdens without direct subsidies. Any life supports GM, Ford and Chrysler are hooked up to now, for that reason, will have to be permanent."

Throughout my 3+ years of writing this blog, I have spared no sympathy for the US auto makers. My judgment has been that they've been incompetent.

Now, Jenkins offers a different view. And, to be truthful, I give him credit for making the points he has made.

Somehow, though, I don't think that means management is blameless. Rather, I view them as having decided to become willing accomplices, rather than vigorously fight and expose what was slowly done to them, law by law.

If anything, this demonstrates why real executive talent, rather than more of the usual bean-counting variety, e.g., Rick Wagoner, was required to give shareholders any chance at all of not being wiped out in bankruptcy, or, frozen into permanent government partnership.

In our mixed economy, sooner or later, every large employer has to either fend off Washington and/or unions, or proactively trudge to Washington and maneuver to set its own terms of competition before Congress and competitors, unions, or somebody else does it for them.

I just think the auto executives didn't work sufficiently hard to make it clear under what sort of restrictive regulatory burdens they have been forced to labor. If they had, either a governmental solution would have developed earlier, before so much shareholder value was destroyed, or perhaps they could have received dispensation from many of those ill-considered laws that so affected their ability to profitably operate in the US for these past decades.