I don’t typically write about current events in this blog, but right now I’m following the situation with the “Big Three” American automakers with especially keen interest. As it happens, I’m working on a book that opens with an entire chapter (written months before this financial crisis erupted) talking about GM as a case study of the lamentable failure to anticipate foreseeable trends.
I decided to invite a guest blogger to comment.
In an editorial entitled “Let Detroit Go Bankrupt” in this morning’s New York Times, ex-presidential contender and ex-Massachusetts Gov. Mitt Romney writes, “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.”
Citing his dad’s experiences in the 50’s as an auto chief exec (George Romney saved American Motors from the brink of collapse, and then went on to become governor of Michigan), he goes on to offer several points of prescription for how to fix the ailing industry.
After reading Romney’s piece, I emailed my You Call the Shots coauthor Cameron Johnson, currently in London shooting a TV show, to invite his take on it. Aside from being an incredibly astute businessman, Cameron is also a fourth-generation Ford dealer, and knows this scene from the inside out. Here’s his reply:
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I think Romney’s very smart, and I also disagree with the bailout — but for different reasons.
The focus of any help needs to center around increasing sales. No matter how much money the automakers get, if it doesn’t increase sales, then Romney is right: it is just delaying the inevitable. So Romney is correct — but for the wrong reasons.
There are two reasons for lack of sales: 1) Financing is hard to get. This is what has pushed them over the edge right now. And 2) American automakers will never be able to compete as long as they are still paying absurd legacy costs and dealing with unions and health care.
I don’t agree with Romney on the idea of bankruptcy, because if they went into bankruptcy they would never come out. If GM filed bankruptcy, no one would drop $40,000 on a vehicle not knowing what might happen with service, warranty, and so forth.
Here’s what I would propose: first, tax breaks to encourage Americans to buy American. A $2,500 tax credit for anyone buying an American auto would be cheaper than $25 billion in direct taxpayer cash to the automakers — and more important, it would sell cars.
This would also give the Big Three a fair chance to compete with Toyota. Some would disagree with me here, but in fact, Toyota has competitive advantages because they aren’t treated the same way American automakers are. Sure, they have plants here in the U.S. and use American workers, but have no legacy costs, etc. and their profits go back to Japan.
The second thing I’d propose would be to add a tariff to imported vehicles, much as Japan does to us.
It’s pointless for our tax dollars to go to the automakers if Americans still don’t buy American. And it’s pointless for them to file bankruptcy. This isn’t about politics, it’s about business. Selling cars helps get the economy moving again. It starts moving credit again, generates tax revenue (and not just on the cars themselves: fuel tax is a huge revenue source for every state), and it saves jobs.
Freeing up credit and selling cars needs to be the focus — so let’s make it easier to sell cars. That will save the automakers and the taxpayers. — C.J.
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What do you think?