Wright from Washington City
December 11, 2008


Brother, can you spare a few billion?



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The impending bailout of the Big Three auto companies will be a disaster for Americans in more ways than one.

First, the creation of even more fiat money than the 800-plus billions of dollars earmarked to succor the big banks will add to the pressure for a complete currency collapse and runaway, Weimar-style price inflation. Even if we manage to avoid that, a crippling increase in inflation, such as we experienced in the 1970s, is unavoidable.

But just as horrifying is what will happen to the car market. If the bailout is structured as the state's taking a share of ownership in GM et al. (overt fascism, here we come!), Washington will have all the excuse it needs to intervene wholesale in the auto market, on a scale not seen before.

The car companies will undoubtedly get their money. The congresscreatures are solemnly reassuring us that this will be a "loan," and that — just as with the bank bailouts — the "taxpayers" (meaning the state) will eventually make a profit on the deal. That sets the stage for further interference when the carmakers continue to lose money. Which they will, big time.

The last time this happened, in 1979, the Central Government bailed out Chrysler with loan guarantees, while pressuring Chrysler's creditors to accept as repayment about 30 cents on the dollar. It was a de facto bankruptcy, even though it didn't go through the courts. The regime also imposed heavy tariffs on foreign imports of light trucks and what would later become known as SUVs, and, in the early 1980s, leaned on Japanese car companies to "voluntarily" restrict their imports.

As a result of that hamhanded interference, Chrysler's share of the market rose — but at the expense of GM and Ford products, not the Japanese. The prices for Japanese products went up, and people kept buying them. Meanwhile, Honda and Toyota and later Nissan built factories on U.S. soil — but not in the Detroit region. Instead, they chose "greenfield" sites, mostly in the South, and defied the United Auto Workers' attempts to impose union contracts, with their onerous benefits, work rules, and other drags on profitability. And they prospered.

The reason they prospered was simple. Detroit cars in the late '70s and '80s were a vast wasteland of badly designed, shoddily made, ill-handling, and poorly rust-proofed disposable machines. It was the time of the Chrysler K-Car, an embarrassing contraption that blew head-gaskets as if they were going out of style, and whose transmission began to slowly self-destruct the moment you drove it off the lot. Ford's attempt to compete in the compact market, embodied in the Pinto, gave new meaning to the term "tin can," and to top it off had the annoying habit of bursting into flames when rammed from the rear.

Then there was the Cadillac Cimarron, a Chevy Cavalier (remember those?) festooned with "luxury" accoutrements that couldn't hide its cheapo underpinnings. The 1990 Chrysler Imperial was a K-Car that had been stretched and given the false-luxury treatment — lots of chrome-plated plastic, pleated and tufted upholstery, soft suspension, and and ridiculous little powered flaps to hide the headlights. It looked unnaturally narrow (because it was), rattled like a maraca, and drove like a drunken donkey, wallowing in the corners and crashing to its bump-stops at every pothole. It was horrible.

Since then, Big Three cars have improved quite a bit as a result, no doubt, of competition. However, they still lag behind the Japanese and European models in quality, durability, and driveability. In part that's because Detroit has concentrated on building truck-type vehicles such as pickups and SUVs; and because, until recently, those sold well and had higher profit margins than cars. But the foreigners can build pickups and SUVs, too, and in any case, four-buck-a-gallon gas brought an abrupt end to that party.

So now Ford, General Motors, and Chrysler are up against it. They are burdened with labor contracts that add as much as $1,900 in retirement obligations to the cost of building each car. GM's retirement obligations are close to $50 billion — about twice its market capitalization.

I don't know about you, but I can't see another bailout magically returning them to profitability, especially in a shrinking economy. And they're adamant that they're not going to go the bankruptcy route, which would give them the chance to redo their union contracts.

So here's what I think may happen. The Big Three continue to circle the drain. Sooner or later, they come back to Congress with their tin cups again. At some point, the drumbeat begins: the foreign companies have an "unfair advantage" in their lack of crippling labor contracts. And that is preventing the "taxpayers" from realizing the profit on their "investment." The "playing field" will have to be "leveled."

The Democrat-controlled Congress and the liberal Obama regime move to protect the UAW's gravy train: imposing tariffs, "voluntary" measures, etc. Perhaps they also impose some kind of redistribution tax, to make the foreign companies (or rather, their customers) pay the freight for the Big Three's retirees.

On top of that, the AFL-CIO's current campaign to end secret ballots in union-certification elections bears fruit in new labor laws. Unions rush to take advantage of their new power to intimidate workers into signing up. Toyota is forced to sign a contract with the UAW. Or it closes its U.S. factories and, along with Honda and Nissan, instead chooses to pay onerous tariffs and duties on the cars it imports into a shrunken market. The Big Three immediately raise their prices.

Not to be outdone, the Greenies and Safety Nazis succeed in imposing yet more requirements for fuel efficiency and "safety" equipment, raising costs — which are enthusiastically passed on to the buyers — and lowering performance, which the domestic automakers have little interest in enhancing, now that they are operating in a protected market.

And so, as we return to the hideous double-digit inflation days of the late Nixon, Ford, and Carter eras, we'll get to enjoy a Carter-era car market, too — paying through the nose for badly built, badly designed, and slow domestic vehicles, or paying even more for decent imported ones. I can hardly wait.

December 11, 2008

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