Auto Industry Must Reform

The U.S. auto industry is broken. That is the first point we must accept. But, why? Three primary reasons: mismanagement, lack of innovation and the unions pressure on management. This has made them effectively not competitive in the global market. Because of labor union demands for wage and benefits, the cost of labor to a U.S. automaker is 60% higher than that for a foreign automaker with a plant in the U.S. In a strictly free market environment, this would lead the companies to cease operating. However, for years, the U.S. government has subsidized the U.S. automakers (and effectively the labor unions) to avoid job losses in the nation's largest remaining component of the manufacturing industry.

It has become clear that there is mostly bi-partisan support for another loan to the U.S. auto industry, with minority dissent. The reasons, which are valid, for this are to avoid job losses at the automakers and to avoid systematic short-term business slow down in the supporting markets, principally parts suppliers.

However, status quo and more subsidies do not equate to a long-term solution. Any such loan must include conditions for reform and protections for taxpayers.

According to an article on Politico (http://www.politico.com/news/stories/1108/15511.html), President-elect Obama wants a point person "to oversee reforms in the ailing auto industry" and "who would have the authority" to push for reforms that would help create "an economically viable auto industry." That would be a good first condition for any additional loan. But that cannot be done with most of the Democrats residing in the back pockets of the labor unions. The president-elect has said that he wants to decrease the impact of lobbyists on government policy and legislation. Does that include the auto industry labor unions? Separately, Obama's chief of staff, Rahm Emanuel, has so much as said they won't be making any deal like the one floated to approve the Colombian free trade agreement in exchange for support for the automaker loan. Why is that? Democrats have opposed this free trade agreement simply because it is opposed by unions.

If the President-elect truly intends to create reform in the U.S. auto industry through an additional stimulus package, neither oil lobbyists nor labor unions should be pulling the strings on government policy or legislation like they have in the past. For these companies to succeed in the long run and continue to create jobs, they must respond to the market without government intervention and re-invest profit in innovation (instead of labor representatives' salaries) in order to put a competitive product on the market.