Home folks think I’m big in Detroit City

From the letters that I write they think I’m fine

But by day I make the cars

By night I make the bars

If only they could read between the lines . . .

 

For decades, Detroit has been America’s whipping boy.  It’s not as if the Big Three automakers haven’t given us plenty of reasons to dislike them.  Few people who ever drove a Chrysler K-car are likely to rank that experience among their happiest.  In the mid-70’s, driven in large part by the rise of computer-aided design and government-mandated increases in fuel economy, industry executives drew what seemed a rational line between engineering and actual production.  The result was products that worked well on paper, but not on pavement.  (One of the things that helped make Saturn successful was a return to a better relationship between engineering and production.)

The industry has been notoriously slow to react to increases in gas prices, but those who fault the Big Three for building “boats” in the 70’s and GM and Ford for concentrating on trucks and SUVs over the past decade seem never to notice that the companies were responding to demand.  In fact, if the Big Three had made their decisions in the opening years of the 21st century entirely on the basis of demand, they would have decreased production of small and mid-sized cars dramatically.  Instead, they offered massive incentives—rebates, low- and no-interest loans, 60- and 72-month financing—to keep demand for these models up.

Of course, if they hadn’t, Congress would not be debating a plan to offer up to $50 billion in loan guarantees to the Big Three.  And when gasoline hit four dollars per gallon and truck and SUV sales plummeted by 30-plus percent, GM and Ford would not have been positioned to switch production over to the smaller, more fuel-efficient models to help cushion the blow.  Rather than just closing the Janesville, Wisconsin, plant (which manufactured SUVs and light trucks), GM might already have shut its doors for good.

Here in Rockford, there are other reasons to dislike the Big Three.  Like most large, publicly traded multinational corporations based in the United States, the Big Three not only supported but lobbied for NAFTA and permanent most-favored-nation status for China.  Both allowed the auto companies to increase profits by outsourcing the manufacturing of parts, at the expense of small manufacturers in the Midwest who had previously supplied the Big Three.  The result has been the gutting of American manufacturing, which dropped in 2008 to below ten percent of the U.S. economy.

Rather than beginning a process of restructuring and reinvestment, Ford and GM have continued to pay dividends and to focus on propping up stock prices.  Like too many publicly traded companies, their “long view” has been restricted to the next 90 days—one year, at the outside.

Had they given more thought to the future, had they been more concerned about the small manufacturers who acted as their supply chain for the better part of the last century, the Big Three could have flexed their muscle in Washington to replace declining tariffs with a border-adjusted value-added tax, as every other industrialized country has over the past 35 years.  A VAT would have helped level the playing field for all American manufacturing and could have been used to reduce corporate income taxes, one of the greatest disadvantages that the Big Three have in competing against Asian and European automakers.

Some of the Big Three’s failure to act can be attributed to the typical shortsightedness of our economic elite; much of it can be attributed to greed and the desire for big profits today, rather than continued profits over the long haul.

So why should Congress even consider extending loan guarantees to the Big Three?  Put simply, the alternative is likely to be much worse.  And here, I’m not talking primarily about the economic effects—as many as three million jobs lost, once the ripples have played out; $150 billion in lost tax revenue; $30 billion or more in pension guarantees that taxpayers would have to cover through the federal Pension Benefit Guaranty Corporation.  I’m speaking of the social costs—the near-complete destruction of Michigan and Ohio, and the reduction of Wisconsin and possibly Illinois to the current conditions of Michigan and Ohio.

Bobby Bare’s autoworker “dreamed about the cotton fields and home.”  In the end, he left Detroit City behind and returned to his family.  But those who are already being displaced in Michigan and Ohio have no home elsewhere to return to.  This is where their families have lived and died for generations.

If the Big Three go under, the United States may see the biggest internal migration of the white working class since the days of the Dust Bowl.  That is, unless President Obama helps them to stay where they are by offering a New New Deal that will make FDR look like a piker—and, in the process, weds them for the next several generations to the Democratic Party.

In either case, $50 billion in loan guarantees might well be the less expensive option.