Thursday, November 27, 2008

Auto Industry Revival Recipe

  1. pass, and enforce, a right to work law for the state of Michigan
  2. bankruptcy for GM that frees the next owner of GM assets from union contract and retiree obligations
  3. lobby federal government to bailout pensions and health care of former GM employees

Many before me have already explained how the Big 3 do not have the right products, and charge too much for the products they have. Falling gas prices should help the product line problem -- when it comes to large passenger vehicles, the Big 3 have good products.

(1) and (2) will permanently lower productions costs by about 10 percent. Permanently lower costs mean permanently lower prices for consumers. Consumers will by more and auto workers will work more, especially in the short run as the stock of American vehicles equilibrates to a higher ratio with foreign vehicles.

In summary, union related costs have depressed the american auto industry employment for years. The sooner those costs can be eliminated or passed on to taxpayers, the sooner will be the American auto industry revival. If you make quality parts for GM, a GM bankruptcy is the best thing that can happen to revive your business. A GM bailout, on the other hand, will prolong this period of languid American auto production and only delay the revival of GM products -- and thereby your products -- in the marketplace.

2 comments:

Oggie said...

Another problem is the opportunity cost of the capital used to bail out these firms. I am almost certain that market would allocate that capital far more efficiently than the government is getting ready to do. Thus, the the net effect of this bailout is likely to be lower employment and welfare cost instead of a welfare gain.

Jack said...

"...pass, and enforce, a right to work law for the state of Michigan..."

Would you expand on this for me a little please? I think you're saying to get rid of the unions/legacy costs in order to be able to compete globally, but first make a law so the union can't re-establish itself?

But how would you reconcile that with the principle of .... keeping the government out of private business and let unions and company owners come to any agreement they want. (I'm sure there's a phrase for that principle, but I don't know what it's called).