With construction down, manufacturing is one significant engine we need to drive the American economy. The auto industry is the largest American manufacturing industry, providing 10% of US jobs, directly or indirectly.
There are three key questions to ask concerning federal assistance to the auto industry:
1) Would the US economy be irreparably injured if we allow Ford, Chrysler and General Motors to file for bankruptcy?
2) Why does the auto industry need subsidies?
3) Does automobile manufacturing in the United States have a future, or will providing money be throwing good money after bad?
Concerning the first question, there is little doubt that bankruptcies in the auto industry will severely and irreparably harm the US economy. The Center for Automotive Research predicts that up to three million jobs nationwide would be lost if the Big Three stops all production next year. The impact on Michigan’s, Ohio’s, Indiana’s and other states, cities, towns, state government, housing values, and public institutions (including their public university systems) would suffer grievous harm.
Automobile dealers around the country, parts suppliers, insurance companies, banks and other lenders, as well as their employees, would also suffer severe hardship, increased unemployment and increased bankruptcies. The spillover effect will close countless restaurants, hotels, dry cleaners and other businesses who rely on the auto industry for their business.
The US auto industry needs help for three reasons. Most importantly, the US auto industry is at a competitive disadvantage because we don’t have national health insurance. Each GM, Ford and Chrysler vehicle includes approximately $1,500 worth of health insurance. US-made Toyotas and Hondas have about $200 worth of health insurance in each vehicle, while cars made in Europe, Canada and Japan include no health insurance costs to the manufacturer.
The entire auto industry is in decline because of the deepening recession. In addition, the oil price spike of the past year caused a significant decrease in sales by US and foreign auto manufacturers.
In order to level the playing field, I propose that GM, Ford and Chrysler receive an immediate payment of $1,500 per vehicle for health insurance from the federal government for vehicles sold in 2007 and 2008, or a total of about $20 billion. This would be a bridge loan, or a bridge investment, until we develop a national health insurance system that would allow all of our manufacturers to compete fairly in the global marketplace.
Many editorial writers have said that GM, Ford and Chrysler don’t produce good cars and that we should let them go bankrupt. This is completely false. According to Consumer Reports magazine, the independent product testing organization, all three American auto manufacturers have improved so much that they are producing cars with more reliability than Mercedes-Benz. Consumer Reports stated recently (April, 2008), “in recent testing, vehicles, such as the Buick Enclave, Cadillac CTS, Chevrolet Malibu and Silverado, GMC Acadia and Sierra, and Saturn Outlook rank among the best in their categories ... Ford has climbed to fifth place in reliability standings. In our latest survey, 93% of Ford models had average or better reliability, up from 63% last year.”
There is a long lag time of five to ten years concerning the consumer perception of the quality of vehicles. The reputed unreliability of American cars is a stubborn myth that should have died many years ago.
US government investments in Ford, Chrysler and GM should come with strings attached. I propose that each recipient of a government cash infusion add several US government-appointed members of their boards of directors. Each of these corporations should have environmental members on their boards. In addition each American auto company should have a proponent of “made in the USA” products on its board of directors.
GM plans to build the new Chevy Camaro in Canada. If the US government provides funding to GM, one condition should be that the new Camaro be made in the United States. I am not proposing that GM move production of Canadian cars to the United States, just to build new models here. I haven’t seen any proposals from Canada to help out of the Big Three.
The Big Three needs to make more fuel-efficient vehicles, more hybrid vehicles and more electric vehicles. With the proper strings attached, a large federal investment in GM, Ford and Chrysler will pay large dividends to all Americans, with cleaner air and less dependence on foreign oil.
Joel Joseph is chairman of the Made in the USA Foundation, a non-profit organization dedicated to promoting American-made products. Email joeldjoseph@gmail.com.
From The Progressive Populist, December 15, 2008
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