There has been lots of talk about an auto industry bailout. Apparently GM and Chrysler are both in imminent danger of collapse, while Ford has enough money to last through 2009, and claims that it will be profitable in 2010. Quite a few members of Congress have been floating several plans to bailout the “Big 3” US automakers, including a plan that would have the government take ownership stakes in the 3 companies (which is interesting because the combined market value of the 3 companies is less than the $25 billion that the government wants to inject into the companies) and appoint a “czar” to run them.
Sure, we could bailout these 3 large, iconic American companies. The rationale behind the bailout is that it could save a lot of American jobs. Yet, with the possible exception of Ford, I see little chance that any of the 3 companies will be able to completely turn around in the future. Instead, I see continued plant closings and lay-offs in the US along with continued losses. I think that bailing out GM, Chrysler, and Ford will just prolong the bleeding. The truth is that even if the bailout is a huge success and the companies survive, the Big 3 automakers will still close down all (or nearly all) of their American plants. The proponents of the bailout argue that the bailout is necessary to save American manufacturing jobs, but in the end, this will still result in the job losses that the proponents of the bailout are seeking to avoid. True, if the bailout works these cuts will come over the next 5-10 years, rather than all at once, but nevertheless they will still come. It seems to me that this type of bailout will end up subsidizing companies for cutting American jobs, rather than creating jobs.
For the record I oppose bailouts, but if there has to be a bailout, I have a better idea. Rather than subsidize 3 large automakers who have done nothing but cut American jobs and hemorrhage money for the past decade, we could subsidize 3 profitable automakers who in the past decade have greatly expanded their employment of American workers while earning large profits. I am talking of course about Toyota, Honda and Nissan.
You can argue that these companies are not “American” companies. This is true, these companies are headquartered in Japan, yet they do employ many American workers. Ford is headquartered in America, but I often wonder if there is anything besides that which makes it an American company. For example, I drive a Ford Fusion (which I love). My car was designed by Japanese engineers and built in Mexico with Chinese parts. I don’t really know what makes it an American car. If you buy a new Toyota Camry you will find that it was built in Kentucky. Japanese automakers also increasingly use American made auto parts in their cars. From 2000 to 2006, Japanese automakers’ purchases of American parts increased 53% to over $48 billion. And while the American Big 3 has been racing to close down its plants and produce its cars outside of the US, 63% of Japanese cars purchased in the United States in 2007 were manufactured in America.
Between 2004 and 2006, Toyota, Honda, and Nissan have created 4,715 jobs, increasing their employment of American workers by over 8% to over 63,000 workers, while Ford, Chrysler, and GM’s American workforce was cut by 23,264 jobs—cutting over 12% of their American workforce. [[Note, these figures were really hard to find, and the American Big 3 cut an additional 30,000 employees in 2007, bringing the total down to just over 129,000, however I could not find any statistics for the Japanese Big 3 for 2007.]] In that same time span, Ford, Chrysler, and GM have lost billions of dollars, while Toyota, Honda, and Nissan have made billions of dollars. Simply put, the Japanese Big 3 has produced much better results. The Big 3 Japanese companies clearly have better business models, and they have created thousands of jobs while Detroit’s Big 3 has cut thousands of jobs. Loaning the bailout money to the Japanese companies rather than to the American Big 3 will create necessary jobs which will most likely be filled by the highly skilled workers who will lose their jobs when the American Big 3 collapses.
Also, which Big 3 do you think ahs a better chance of paying back a $25 billion loan, bloody Detroit, or profitable Japan? And, if the government has to take an ownership stake in 3 automakers, I would rather it take ownership stakes in Toyota, Honda, and Nissan than GM, Ford, and Chrysler.
Besides producing technological innovations, Japan’s Big 3 is also the industry leader in producing environmentally friendly cars. The Toyota Prius and the Honda Civic Hybrid are great examples of popular hybrid vehicles which Detroit just cannot produce.
It is not just American automakers who are in “need” of a bailout. European automakers have asked their governments for a $40 billion Euro ($50 billion) bailout. Even China is now in the process of bailing out their automakers. The Japanese automakers are the only automakers in the world that are not in need of a bailout. Why fight against the inevitable? The whole world knows that Japanese car companies can make cars better and more profitable than any other group of automakers on the planet. Rather than extending the miserable lives of failing car companies, we should euthanize them and embrace the success of the Japanese Big 3. When companies can efficiently produce a great product and sell it at an inexpensive price, we all win, regardless of where the companies are headquartered.
Obviously, these companies are so well run that they don’t need a bailout. The auto industry in America is still strong; it just so happens that the strong producers of cars in America happen to be Japanese. So what? America is a Nation of immigrants. Maybe giving Honda, Toyota, and Nissan low interest loans to expand American factories could convince them to immigrate to America and move their headquarters to Detroit.
We should reward innovation and punish sluggishness. Thanks to Honda’s innovations, a Honda factory in East Liberty, Ohio can switch from manufacturing Honda Civics to making Honda CR-V’s in only 5 minutes. However, a Ford SUV factory in Michigan is switching its production from SUV’s to small cars, but because of a lack of innovation at Ford, the factory is shutting down for 13 months to retool, which is costing the company $75 million.
Bailing out Detroit will subsidize bad behavior, similar to giving a juvenile delinquent child a raise in allowance in the hopes that it will somehow change his behavior (if you think that will work, ask my parents). The government should reward good behavior, not bad behavior. Rather than raising the allowance of the bad kid, why not reward the good child? Wouldn’t this be a valuable lesson, not only to the “children” involved, but also to all the other children out there (airlines). “Bailing out” the Japanese Big 3 will lead to the creation of American jobs, increased research, and increased profits for these companies. Bailing out Detroit will only extend the pain and slow bleeding.