Detroit is the New Battleground. 
Nancy Pelosi's well-known and dreamy claim that she can rescue the formally Big Three with a bailout package in the 11oth lame duck session is quickly becoming a surrogate war for all the other disputes in the financial crisis. My correspondent Jim McTague, Barron's,
writes the sharp question: If your 401k is down 30%, why do you have to give more money to rescue the UAW's pensions? Is there a consequence of failure to sell your product? Does it mean something that GM is manufacturing tawdry, grotesque Tahoes and Caddies with gasoline prices like the vig? What about the fact that Detroit's union-dictated labor costs per hour are more than fifty percent higher than Toyota? Then again, the 110th lame duck is a peculiar and cramped field to fight this battle because the Republicans in the Senate still retain a filibuster threat. We can guess that the Bush administration does not want this fight because the President George W. Bush tried to horse trade with President-elect Barack Obama on Monday -- "You get Detroit, I get CAFTA" -- and it didn't work. Today, Mr. Obama is back with a bold statement asking for $50 billion for Detroit, no barter, and adding the wonderful twist that a board of governors, or commissars, will take over the executive resposibilities of the heretofore public companies. No mention of a Ministry of Autos. Meanwhile, Republican leader Mitch McConnell, after surviving a test in Kentucky, is not vulnerable to dreams by Mrs. Pelosi or bully pulpit wish lists from the president-elect. The filibuster is a real weapon, and it works smoothly. Kicking this down the road, a favorite Clinton epoch expression, is a no harm outcome for the GOP. What is wrong in the Motown at Thanksgiving will still be wrong in Motown on Lincoln's birthday, when Mrs. Pelosi will have nearly two dozen extra votes and Harry Reid will have at least 57 votes to squelch a filibuster and can easily count on Maine's two RINO senators, Olympia Snowe and Susan Collins, and the always timid George Voinovich of Ohio and Arlen Specter of Pennsylvania. On the other hand, since Mitch McConnell and John Boehner (who will survive the leadership vote next week in the GOP House) know that the 111th Congress is out of their control, the Republicans can make the best deal right now. The tireless Rasputin Barney Frank, (right, in a hearing October 21), holding public hearings next Wednesday 19, is not going to make it easy for the Republicans to
accept this defeat when it is certain to come in the 111th: TARP bailout money for Democratic union bosses to pass back to Democratic candidates for the 112th fight. Conservative Democrat Jim Cooper of Tennessee recognizes that the Republicans may want to deal in November, and not in February, and he mentions "tough love" in speaking about the bailout of the UAW in order to give some Republicans some cover. Also, the Democrats are using Detroit bailout fears in ads running in Georgia against Saxby Chambliss, who faces a second round for his seat, and in Minnesota against Norm Coleman, who is scratching to survive shenanigans from the Al Franken ops in Minnesota. Will the Republicans blink? Likely. Will we pay for the UAW and their job banks and health benefits that we mortals can never get and the maintenance of those salary structures and lordly fiefdoms at GM, Ford, Chrysler and their tormented serfs like Volvo? Likely. The Motown sound for Christmas. We give, they get, Detroit still does not make the cars the world takes. Does this mean we all have to buy those steroid injected Navigators and Suburbans? Or do just the Democrats have to drive Fords? Does GM replace its logo with DEM and Ford with Frank?
6 PM Update: See update: Gaming the GOP, on the Mentioned in Dispatches section.
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Paul Craig Roberts maintains that for Ricardo's notion of Comparative Advantage to hold, factors of production cannot be internationally mobile, which they were not in his day but very much are today. If he is right, that goes far toward explaining why deer today graze in downtown Detroit.
SAVE GM, FOR WHAT? A CAR TO DRIVE US TO THE POOR HOUSE.
There was a time -- 30 or so years ago -- when American cars sold for an average of $3,000 to $4,000. And American car manufacturers were among the biggest, most profitable companies in the world .
Then Japanese imports came in and ruined the party. They started selling better cars for less and, guess what, they got better gas mileage as well. The American car manufactures cried 'foul' and went wee, wee, wee all the way to Washington. For their incompetence, they got protective tariffs. What did the Japanese car manufacturers do in response? Well, because the number of imports were restricted, the Japanese loaded up each car w/every high end feature available. This raised the price of Japanese cars significantly, but they were still better values than American cars. What did the Big Three do? They raised the price of their cars, even though they weren't any better than before. These ridiculously higher priced cars sold anyway, because there wasn't any competition. Very shortly, thereafter, the average price of American cars was about $10,000.
Oh yeah, protective tariffs also allowed the Big Three to do something else. They gave all their executives gigantic raises and bonuses.
GM is the company that bought out the commuter trains between San Diego and Los Angeles (and rails in other cities, as well), so that it could sell buses -- even though it was known in the 1930s that pollution from cars contributed significantly to the smog in LA. In a decades old lawsuit which proved this, the plaintiff won $1.
GM is the company that fought seats belts for years and years. When it couldn't lobby seat belts away, it made them uncomfortable to use -- hoping car owners would complain to Congress and get them eliminated. What did the Japanese car manufacturers do? They made seat belts easy to use.
When the Japanese car manufacturers kept making cars with better and better gas mileage to comply with American gas mileage standards, what did the Big Three do? They lobbied (and got) trucks to be taken off gas mileage standards. Then they got SUVs to be declared trucks, so these passenger cars wouldn't have to meet other passenger cars standards.
It goes on and on. The Big Three invented Planned Obsolescence which insured that car parts would go bad every fewl years so you would have to either pay dearly for new parts -- or buy a new car. The only thing the Big Three didn't plan was that they, themselves, would become obsolete.
Mike - Thanks for the lesson. I don’t doubt every bit of it is true. This points out once again that every time Congress gets involved as a facilitator of bad economic practices, it ends up back firing.
So Big Brother, under Barry O, Dingy Harry, and Nazi Pelosi are going to take over manufacturing cars? Can anyone say 'Yugo?'
When no one wants to buy these clunkers, the next step will be to force us to, by making other option prohibitively expensive.
It's amazing to me how fast we are barrelling down the road to full-blown Marxist-Leninist socialism, and Barry isn't even inaugurated yet. Can someone wake me from this bad dream?
I am not sure the muddle class which is not union will be so forgiving come 2010. The investment banks shed jobs that are not coming back and big business will gut mid level management or their benefits before confronting the unions. The electorate will not be appreciative of the hope and change if jobs have not returned by the summer of 2010.
peter:
Haven't you ever seen the movie "Tucker". That should explain everything insofar as Detroit's mentality. I don't know what JB has against bigger vehicles, but may be he fits in the smaller ones better than I do. If you saw me get in and out of my Jetta, you'd understand. It's like being hatched. I'd love to get a bigger vehicle, I just don't like spending the gelt. My current ride is paid for and when the weather is over 30, I try ride my motorcycle. Smile.
If antitrust laws had been enforced in the 1950s against Detroit's clubby, gentlemanly divided markets market, we might still have a car industry.
Instead of bailouts, we might better spend public funds on protecting competition and having effective, predictable, commercial law and regulation to protect the Schmpeter process of "Creative Destruction."
Here's my idea for the Big 3:
---GM and Chrysler to Chapter 7;
---allow Ford to acquire many of the assets with reduced Antitrust scrutiny; and
---spin the remaining assets off to form one or more boutique producers (military vehicles, commercail vehicles, etc.)