Who Killed the Automobile Industry?
The death of the American automobile industry began in 1954 with the Phillips Petroleum v. Wisconsin (347 U.S. 672) decision of the United States Supreme Court. In that momentous decision, the Court ruled that natural gas producers that sold natural gas into interstate pipelines fell within the definition of "natural gas companies” in the 1938 Natural Gas Act and, as such, were subject to price regulation by the Federal Power Commission.
Energy economists understood immediately what the long term impact of the decision would be. Because natural gas was plentiful and clean-burning, it was often referred to as the "Cadillac” of hydrocarbon fuels. And if gas was to be regulated at an artificially low price, without regard to its true economic value, it would have a devastating impact on competing fuels such as coal and petroleum, depressing the price of those commodities, as well.
In the years that followed, coal producers reduced production due to power plant conversions to low cost natural gas, and the search for new oil and gas reserves went into sharp decline.
Oil and gas industry analysts warned of a future energy crisis if gas prices were not deregulated. In the years between 1954 and 1973, when OPEC embargoed just 6% of U.S. imports, oil and gas executives wore a path to Capitol Hill, attempting to convince the Congress of what would happen if it failed to deregulate natural gas prices. Democrats in Congress, always with an eye toward the next election and catering to what they mistakenly felt was in the best interests of consumers... cheap energy prices... blocked any action.
The amount of testimony delivered before Congress, describing the path to a future energy crisis, would fill several boxcars. But it all fell on deaf ears... except in Detroit. The major automobile manufacturers understood what the oil executives were saying and quickly decided that the days of the "gas-guzzler” were numbered. They began thinking in terms of producing smaller, more fuel-efficient automobiles.
One of the first such cars to reach the market was the Chevrolet Corvair, produced between 1959 and 1969, with annual sales of approximately 200,000 vehicles. It was preceded in the market, fleetingly, by the Nash Rambler, 1950-1956, and joined by the Studebaker Lark, 1959-1966.
Unfortunately, a young man named Ralph Nader, a self-appointed consumer advocate with no real evidence to support his allegations, decided that the Corvair was not as safe on the highway as the larger gas-guzzling sedans and station wagons. In 1965, Nader published a book on the Corvair, titled Unsafe at Any Speed. The Corvair’s days were numbered and small fuel-efficient American-made cars began to disappear from the highways.
However, American tastes in automobiles had experienced a major shift, away from the heavy "gas-guzzlers” to smaller, less expensive, and fuel-efficient cars, and that demand was soon filled by millions of high-quality imports, such as Volkswagens, Toyotas, and Hondas.
The first major American industry to suffer was the steel industry. Today, the former leader of the industry, U.S. Steel, produces only slightly more steel than it did a hundred years ago. And what was once the second largest U.S. steel maker, Bethlehem Steel, filed for bankruptcy in 2001. With the killing off of the U.S. small car manufacturing sector, whose market share was filled by small fuel-efficient imports, the once-great steel industry was reduced to a shadow of its former self and Nader had his first victim... the U.S. Steel industry.
The first signs of real economic trouble in the automobile industry came in 1979 when the Chrysler Corporation was granted a $1.5 billion bailout package by the federal government. However, that sign of economic weakness in the industry meant nothing to leaders of the United Autoworkers Union (UAW) who were engaged in a decades-long assault on the profitability of the Big Three... or what was left of the U.S. automobile industry.
Facing growing imports of foreign cars and a steady loss in market share, the auto makers were easy targets for union blackmail. UAW officials developed a bargaining scheme in which they targeted just one of the Big Three auto makers, threatening to strike that automaker if their demands on wages, benefits, and work rules were not met. The selected auto maker, fearful of loss of market share and other economic consequences if they were the only one of the Big Three idled by an extended work stoppage, usually capitulated. And once that agreement was reached the rest of the industry necessarily fell into line.
The excesses of UAW greed are visible everywhere. According to a November 14, 2008 report by George Reisman of the American Conservative Union, without the UAW, GM’s Oklahoma City plant would not be required to pay 2,300 workers full salary and benefits for doing nothing, and GM would not be losing $1,200 for each car sold, instead of, like Toyota, gaining $2,000 per vehicle.
Reisman charges that, without the UAW, GM would not be losing billions of dollars each year and its bonds would not be rated as "junk,” GM would not have healthcare costs that increase the cost of each vehicle produced by $1,600, and without the UAW, GM would not have bloated pension obligations which, if entered on their balance sheets, would leave the company with a negative net worth of $16 billion.
This is an industry where the average Big Three auto worker is paid more than $72 per hour in wages and benefits ($150,000 per year, compared to $48 per hour, or $100,000, for a Toyota worker), and where union-negotiated work rules such as "job banks,” a cute little euphemism for paying large numbers of employees not to work, are commonplace.
Taken together, the economic mischief created by Ralph Nader’s attack on small, fuel-efficient American-made cars, along with the decades-long attack on automobile industry profitability by the United Auto Workers... all accomplished with the active complicity of Democrats in Congress and the White House... has devastated two of America’s greatest industries.
Now, as the auto industry threatens to follow the steel industry into man-made obsolescence and congressional Democrats demand that the Obama Administration expend tens of billions of tax dollars to prop up the terminally ill industry... all of which would soon be drained off by greedy auto workers and union leaders... we hear of no efforts whatsoever by the industry and the UAW to save themselves. Until the UAW voluntarily agrees to massive give-backs in wages and benefits, the American taxpayer should simply sit on the sidelines. Unionized auto workers must be made to understand that the farther we push the economic pendulum in one direction, the more it hurts when it swings back and hits us square in the face. |
