By Warren Brown
Saturday, December 20, 2008
The $17.4 billion bailout loan approved for the automobile industry will accelerate a restructuring that has been in progress for nearly 15 years.
The result will be a smaller General Motors and Ford in America, a bigger and more robust GM and Ford overseas, and barring the birth of a truly international labor union, a United Auto Workers that is a union in name only.
There will be no independent Chrysler. That company is bereft of a full product line. It is bleeding cash and top executives. Chrysler is likely to use the loan to soften its inevitable fall into bankruptcy or to speed its acquisition by a larger entity.
It all means that the restructure-or-perish talk heard in recent months on Capitol Hill and repeated yesterday by President Bush is bunk. It's drama put on by politicians trying to make themselves look responsible. It is mouthy justification for helping the car companies continue doing what they have been doing all along -- downsizing and, in the process, hastening the effective demise of the UAW.
Domestic car companies have been trimming their U.S. market presence for nearly two decades. They've also been integrating more thoroughly into the global automotive business -- combining North American and overseas operations for product development and design, streamlining procurement, and using simultaneous, computer-assisted product engineering and development to deliver truly world-class automobiles.
That means the hot European Ford Focus sold in Russia and London eventually will be sold here. It means an end to cheapskate anomalies, such as otherwise likable cars being equipped with state-of-the-art disc brakes up front and marginally acceptable drum brakes in the rear. GM and Ford already have started making such changes, largely because U.S. consumers have been demanding that the two companies give them the same quality and type of cars they sell overseas.
The world has changed.
Think of it this way: In terms of cars, the United States once was the moral equivalent of a three-company town -- General Motors, Ford and Chrysler. They had a lock on new-vehicle sales, pretty close to a 100 percent share of market. For the longest time, GM divisions such as Buick operated as separate engineering and marketing fiefdoms, duplicating at great cost and waste things being done at GM's Chevrolet, Pontiac, GMC and Cadillac divisions.
A wide-open U.S. market changed that picture. Foreign automotive rivals took advantage of that open market and changed it for good, in much the manner that Wal-Mart has changed the department store dynamic in the United States.
The manufacturing and retail infrastructure built to sustain a nearly 100 percent domestic automobile market share became unsupportable. U.S. car companies began shutting down plants. Where there once were 50,000 domestic car dealerships, there are now barely 20,000. UAW employment rolls, reaching above 800,000 in their 1960s heyday, are now nearly half that much. And, despite claims to the contrary in White House and Capitol Hill bailout chatter, the UAW repeatedly has taken pay and benefits cuts to help the companies stay in business.
Continuously falling domestic market share did something else: It awakened a sleeping product development and design giant.
GM and Ford, before the credit freeze knocked the bottom out of the U.S. car market, were regaining leadership in product design and innovation. The Cadillac CTS, Chevrolet Malibu sedan and new Ford Flex are examples. Ditto GM's much-copied OnStar mobile emergency communications system.
Chrysler was finding its way, improving manufacturing efficiencies. But Chrysler's problem -- not shared by GM and Ford -- was products, namely, not enough small, snazzy cars. Unlike GM and Ford, Chrysler has a negligible overseas operation, which means that it does not have the same kind of thick product portfolio held by its U.S. rivals.
Today's GM and Ford are not yesterday's corporate horrors. Both are committed to improving product quality and fuel efficiency. Both have a good chance to survive and thrive. Both are positioned to take advantage of the shift in retail focus from a mature North American market to potentially exploitable markets in Asia, Eastern Europe and South America. Those regions are coming under pressure to open up to U.S. exports and to countenance the presence of U.S.-owned manufacturing facilities, just as the United States has long been open to them.
It thus makes sense for the United States to prop up its automobile industry as much as possible, at least until a better consumer credit environment revives sales here and abroad. That way, the multibillion dollar bridge loan approved for the industry yesterday likely will lead to more jobs.
But it won't necessarily lead to better pay.
The UAW's failure to organize foreign rivals in America has undermined the value of the union's employment agreements with Detroit. As long as workers at nonunion companies receive lower pay than their counterparts at UAW-represented rivals, the union will be under pressure to make concessions at the bargaining table.
The federal bailout loan agreement greatly increases that pressure. The money will help the companies, which long ago began an aggressive restructuring of their operations. But its terms of agreement mean that the UAW will have to live with less, which means that nonunion workers will be asked to live with the same thing.
In that way, the automotive bailout loan is a lot like that money that helped the banks, but left many homeowners struggling under the weight of mortgages they cannot afford.