The American auto industry is not coming back

GM’s plan to transfer to the United Auto Workers Union the burden of their benefits tab is a bunch of financial shenanigans, for sure, but it’s more than that. It’s false hope for all the deluded boosters of Detroit and its failing auto industry. A whole bunch of room on GM’s balance sheet is great for the company’s executives–but it won’t fix the American auto industry’s fundamental problems–high costs, bad finances, and the worst management cadre in American industry today.

If GM declares bankruptcy, as they should, their assets can be liquidated and sold and that could be used toward compensation for bond holders, and the rest of the needed benefits could be picked up by the normal government agencies. But instead, GM is allowed to fail on its feet, which is being sold as a way to help retirees get benefits. But as usual in corporate communications, the more important reasons for doing something are left out–in this case, the shareholders of GM (largely investment firms) ensure value for their stock holdings, at least for now.

Management at the major auto companies has been very poor for a long time, and something like bankruptcy would probably be a therapeutic shock for GM to get rid of all those old-school managers (rather than the UAW workers that always get blamed and demonized by the media) whose decisions deserve the lion’s share of blame for the company’s problems. Looking for quick profit, these managers have turned GM into a bank with a health care division and an auto subsidiary. They backed one bad or mediocre new car idea after another, from the Oldsmobile Aurora to the Hummer H3. They decided in the 1990s to build their entire companies around heavy, inefficient, dangerous trucks instead of consumer vehicles. Now with the higher price of oil cars like Toyota’s Prius are big sellers, and though trucks remain popular GM extends enormous credit to buyers because they have become so expensive.

Aside from that, the management of the American auto industry are a truly flat-footed, narrow-minded, dim-witted group. This is an archetypal 20th century industry–they really haven’t changed, especially in the executive suite–and I wonder if anyone wants to try to convince me that the future of the car industry isn’t centered in Aichi, Japan.

The idea that some turnaround could happen in America’s car industry due to a shuffling around of debts is laughable. Put aside the failure yet again of our supposedly “free market” economy to function properly–or our failure to let it function–and just look at the state of Michigan.

When I was there at Michigan State in the late 1990s, the minor league baseball team in Lansing was called the Lansing Lugnuts and they played at Oldsmobile Park. After I was there for a few years the Oldsmobile division was completely shut down by GM. The collapse of the auto industry has turned a once-proud state into a place with declining income levels, slow growth and high unemployment. And that’s everywhere–go to the worst places, like the neighborhoods along the highway in the west of Detroit with its gray rows of abandoned, decrepit old houses that line sad old boulevards with only their width to testify to their former grandeur, while the streets sit strangely quiet with few cars and shell-shocked homeless people roll shopping carts over the ashes of the auto empire.

And by the way, even this deal with the UAW involving the setup of “Voluntary Employee Beneficiary Association,” or VEBA, is a temporary fix. As the Economist magazine admits, despite its typical attempt to sell the deal because it benefits the company’s executives:

‘But there is also a potential downside, as the UAW has learnt to its cost. Two earlier VEBAs, set up at Detroit Diesel and Caterpillar, have gone bust.’

This industry is not coming back. Put a fork in it instead of more money.

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