Can Free-Market Reforms Save the Detroit Three?

I hate when I agree with the Washington Post. Fortunately, it doesn’t happen often. Unfortunately, it happened today.

The Post’s lead editorial, “Detroit at the Brink”, bears the subtitle: “The carmakers cannot get out of their crisis unless they first get out of denial.”

Yup. Rather than looking inward, the Detroit Three CEOs flew in to Washington to blame the alleged credit crunch for their financial woes.

It’s completely due to the credit crisis,” GM’s Rick Wagoner said.

Come on. Others may disagree, but it seems to me that their financial crisis stems from producing products that people don’t want to buy at the prices the companies want to demand.

Now, there are factors that drive up the costs of domestically manufactured automobiles. As many have pointed out, the twin villains most responsible are the labor unions and the federal regulators. Between them, the value-busting union contracts and the environmental regulations, like the CAFE standards, and the molly-coddling requirements for seat belts, air bags, Liddy lights, etc., add thousands of dollars to the price of a new car.

But why didn’t the three chummy competitors cite these factors as at least contributing to their current woes? Why pin the blame “completely” on the “credit crisis”?

Perhaps because that would suggest that handing over $25 Billion of the taxpayers’ money is not a viable long-term solution? Perhaps because they’ve decided that kowtowing before union bosses is safer than fighting them? Perhaps because, having decided that sucking on the government teat is a sound business strategy, they didn’t want to offend their overlords?

I honestly don’t know whether good free-market reforms, like repealing excessive regulations and passing right-to-work protections, would help the Detroit Three. Their CEOs seem pretty much beyond redemption as managers to me.

But it would certainly lower consumer costs and help keep better-managed companies in business.

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3 thoughts on “Can Free-Market Reforms Save the Detroit Three?

  1. I go back to yesterday’s testimony from GM head Rick Wagoner that GM wasn’t even looking at bankruptcy. The fact that they are unwilling to look at the one item that would allow them to shed the suffocating union contracts (probably because they would then have to also shed the gold-plated white-collar and platinum executive compensation plans) means that free-market reforms wouldn’t do anything to save them. Of course, it doesn’t mean they shouldn’t be implemented; it would allow their successors to survive.

    As for what caused it, I have to disagree with the “wrong products” line. Up until the cost of oil and subsequently gas and diesel spiked earlier this year (mostly a result of 30 years of domestic production stagnation), GM/Ford/Chrysler WERE producing what the car-buying public wanted. Indeed, Toyota and Nissan jumped with both feet into the full-size pickup/SUV market because that’s where the money was.

    Regarding CAFE, environmental and safety standards, the only one that really adversely affects the Big Three is the recently-revamped CAFE standards that most-adversely affects the trucks built by mostly the Big Three.

    Now that the public suddenly wants, and the government demands, econoboxes that the Big Three cannot possibly make a profit on with their current compensation structure, it’s nigh impossible for the Big Three to survive.

  2. After dancing and roughhousing on the edge of the rooftops for 30 years, Charlie Wallenda blamed his fall on gravity.


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