Downsizing in the auto industry

Bob Herbert:

If we were interested in making the best possible decisions with regard to the U.S. auto industry, someone like Rich Breen would be seen as the face of the industry, not the chief executives of General Motors, Ford and Chrysler.

Mr. Breen is a 55-year-old member of the Teamsters union, a car hauler who delivers new vehicles for the Big Three automakers. He lives in Clinton Township, a suburb of Detroit, and he is horrified by the steady erosion of the American standard of living that he sees each day as he makes his rounds.

“I see the tool and die industry dying in the light industrial areas,” he told me in an interview just before Thanksgiving. “I see the clientele decreasing in the local barbershops, the hardware stores and the restaurants. That’s all happening from the first phase of the downsizing in the auto industry, the cutbacks and layoffs that have already occurred. It’s not from the current crisis.

“The community around me is deteriorating before my eyes. I hear people saying if G.M., Ford or Chrysler shuts down it wouldn’t affect them. They have no idea. It would have a domino effect that we’ve never had before in the United States.

“The bottom would fall out and the ripple effects would go all over the country.”

The bottom is already falling out. The question for Congress and the incoming Obama administration is whether to risk allowing the industry to collapse completely. The number of people working for the Big Three automakers has already been cut drastically, perhaps in half since 2000, and more cuts are to come, even with a government rescue effort.

The United Automobile Workers agreed to extraordinary contract concessions in negotiations that took place in 2005 and 2007. Not only will there be no raises for the four-year life of the most recent contract, but the starting pay for new hires at the Big Three has been cut by 50 percent — to $14 to $16 an hour. Benefits have also been slashed.

“Ripple effect” is too mild a term for the impact that a bankruptcy among the Big Three would have on other manufacturers, suppliers, dealers, insurance companies and thousands of businesses that at first glance would not seem to be related to the auto industry. The industry supports, in one way or another, one in every 10 jobs in the nation.

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What Breen is missing is the expansion of the auto industry in states like Texas, Alabama and North Carolina where non UAW shops are producing cars sold by foreign companies like Toyota, BMW and Honda. The gives backs of the UAW have not been enough to compensate for the featherbedding that is still embedded in the contracts as well as the cost of pensions and health care for people who retired before the age of 65.

Another problem for this industry is the Democrat anti energy policy. By strangling the production of energy, particularly oil and gas, the Democrats have driven up the cost of operation of the products sold by these companies to a level that has made it difficult to sell there cars and trucks.

There was a time when I bought Honda products because I did not want to mess with the shoddy quality of the US manufacturers. I think the US companies have made great strides on that front, It is one of the benefits of competitive pressure.

The best way to save the auto industry is to spur sales instead of giving subsidies. That means making sure financing is available to dealers and to purchasers. They should also consider making interest payments on car loans deductible again. It also means the Democrats need to stop the strangling of energy production. I know they want to drive up the cost of operation to make so called green alternatives more attractive, but in doing so they are killing the business and many of the jobs it generates.