Dan

Calabrese

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July 31, 2008

Another Big 3 Federal Bailout? Michigan Hits the Automotive Crack Pipe Again

Wyoming, MICHIGAN – When you subsidize something, you get more of it. Especially when you subsidize economic insanity.

Since Michigan is dependent upon economic insanity like a crack addict needs his next fix – and looks every bit as much the worse for wear – it is sadly no surprise that the state’s entire 17-member congressional delegation, Republicans and Democrats alike, are developing a plan to secure $27 billion in federal aid for the Big Three domestic automakers.

General Motors, Ford and Chrysler are teetering on the brink of extinction. Michigan, which bet it all on these three companies long ago, is like the battered wife who can’t leave her husband because she hasn’t had a job in years, and in between beatings he gives her grocery money.

To live here is to share, however unwillingly, in the Alice in Wonderland dream world the Big Three have called home for generations. The underpinnings of this world were laid long ago, early in a different century, when Henry Ford arrogantly declared that consumers could have their cars in any color they wanted, “as long as it was basic black.”

I know. It’s not funny. But you had to be there, and you have to be here. The automotive world speaks it own language, clings to its own perceptions and operates – above all else – on the presumption that it is too big to fail. The 1979 federal bailout of Chrysler made a young Democratic congressman from Pleasant Ridge a hero, and soon Michigan’s governor. It set a precedent – when there is no other way, Uncle Sam will come to the rescue – that today is spurring Michigan’s Capitol Hill delegation to the only action they know.

Federal dollars to save the Big Three. It is the Michigan way. A teacher once told me he would give a bum money even if he knew the bum would spend it on whiskey, because maybe the whiskey would keep him alive through the night, and maybe tomorrow he would kick the habit.

Michigan is eyeing that brown paper bag and preparing to take another swig.

The tragic tale of Michigan and the Big Three is a story in which every player seeks to avoid both conflict and consequences by committing to give every other player everything imaginable. Unions reign in Michigan, particularly the United Auto Workers. Michigan laws empower unions, and with three automakers all headquartered here, the UAW has its bargaining strategy down to a science. Each time a contract is up for re-negotiation, the UAW chooses one of the three companies as its “strike target,” knowing full well that the strike target company will give it most of what it wants, and the other two will use the first company’s deal as a framework for their own.

This is how Michigan autoworkers found themselves earning as much as $40 an hour, retiring in their mid-50s and walking away with health insurance for life. Almost everyone in Michigan knows a guy who seems awfully young to be “retired,” but there he is, his house nearly paid off and his health care covered. Might as well train to run a marathon, Gary. Hell, you’re young enough, and you’ve got the time.

Communities clamor for jobs like this. Michigan is a high-tax state, but in a high-tax-but-maybe-we’ll-make-an-exception-if-you-know-what-we-mean sort of way. Invest millions in jobs, structures and capital equipment, and Michigan communities will battle each other with tax abatements and other incentives. With facilities dutifully subsidized, the Big Three built them.

But 12-year tax abatements have a way of running out right around the time the market loses interest in the gas-guzzling monsters they build in these new plants – and the once-serenaded companies are left to idle plants, pay the full property tax and offer generous buyouts to the employees who came, worked a few years and motored away on the boats they purchased in the meantime.

Right-to-work laws to stifle union influence are out of the question here. Even when Republicans controlled the governorship and the legislature throughout most of the 1990s, this was never seriously attempted. The people who held the nominal power understood who holds the real power.

The Big Three are not Michigan’s only domestic auto companies. The state is filled with suppliers who have also fallen on hard times. The Big Three’s legacy health care costs and overhead make cost-control a fantasy, but the one place you can control what you spend is in purchasing. Suppliers are lucky if they can do better than break even on any Big Three contract. And since Big Three purchasing chiefs reward price rather than quality or innovation, products remain mediocre, and consumers balk unless given unsustainable incentives like 0 percent financing or employee pricing.

High gas prices have made all this worse. The Big Three give lip service to fuel-efficiency but live off their famous pickups, minivans and SUVs. But gas prices didn’t cause any of these problems. They simply made it less plausible for the buying public to keep subsidizing the latest round of economic dementia.

This is what Michigan’s representatives in Congress now hope to preserve. It is perverse and irrational. It has turned Michigan into an economic tragic-comedy. At least when we give aid to developing nations, we expect some sort of market economic reforms as a condition. Not so for the domestic automotive industry, where we look to do again what we did 30 years ago – but this time we’ll be propping up three failing companies instead of just one.

If GM, Ford and Chrysler were to go out of business – perhaps because the representatives of 49 other states prefer to stage an intervention rather than once again subsidize insanity – it might be the best thing that ever happened to Michigan. There are other industries, even some who will give you grocery money without beating you first. If Michigan needs to spend some transition time in the Battered States’ Shelter, it couldn’t possibly emerge any worse off than it is right now.

© 2008 North Star Writers Group. May not be republished without permission.

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