U.S. Car Makers, Victims of Megalomania

Too big, too gas-hungry, too technically outmoded. The American automobile industry believed that despite its shortcomings, they wouldn’t be allowed to go under but now the chickens have come home to roost. The megalomania isn’t restricted just to management, however. The once mighty United Auto Workers Union suffers from it as well.

Managers and workers of the Big Three must have been shaken to the very core. They were so convinced their government would come through with a bailout package to keep them from insolvency.

Now the Senate has destroyed that hope. If GM, Chrysler and perhaps even Ford go down, they would drag their suppliers down with them, thereby dealing their European as well as Asian competition a body blow. The struggle to get billions in bailout funds has proven one thing: Size alone won’t save anyone from ruin and union power could be the last nail in the coffin.

For far too long, U.S. manufacturers depended on their customers to keep buying their shoddy, gas-guzzling products. They lost customers through their own dawdling and complacency. GM, Chrysler and Ford management didn’t wake up until it was too late, but it takes many years to develop new models. There’s no quick shift to an up-to-date product portfolio.

For that reason, it was most important to recognize the warning signs early and then to take appropriate action. But for too long, conventional wisdom in the auto branch dictated that the government would never allow them to fail.

The reality is exactly the opposite. Despite the fact that the automobile industry is the only one left in the United States in which products are actually being built, the government is letting them fail. One way or another, they realized that pumping in $14 billion would not be enough. The manufacturers would burn through that in no time and then be back for more in short order. The government would have no option but to keep doling out money; once the manufacturers were hooked, they would find it impossible to do without handouts. Market observers calculate it would take about $125 billion to stabilize the industry from losses suffered due to weak sales and the credit crunch.

At the same time, squabbles for a share of the pie broke out: the United Auto Workers Union, which had become powerful when economic times were good, now suffers from the same delusions of grandeur that affect management. Although taxpayers stood ready to provide bailout money to the troubled industry, the UAW refused to accept a curtailment of pay and benefits down to the level of foreign manufacturers operating in the United States. Total compensation at GM currently runs around $69 an hour as compared with just $48 an hour for Toyota.

The union was unwilling to accept that. The government was right in refusing to step in: you can’t ask Americans to choose a victim if everyone isn’t willing to share the sacrifices. Of course, the factory workers aren’t solely to blame for the situation, but you can’t get money without making cutbacks somewhere. The UAW is sticking to an old, failed dogma: better to stay powerful than to save jobs. There would certainly have been some job losses if the government bailout resulted in large-scale industry reorganization, but this way, far more jobs will be lost.

The UAW wasn’t forced to its knees, but it is a Pyrrhic victory.