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What’s Wrong with American Automakers: The Real Story
Our Buy American Mention of the Week!
by Roger Simmermaker
April 25, 2007

The good news is that there are clear and identifiable reasons for the big-time struggles at the "Big Three" automakers. The bad news is that unless the American people and their elected representatives realize it and do something about it, every American, regardless of whether they are directly linked to the U.S. auto industry or not, will pay a significant price.

But before I get to the heart of the article and explain why America's health care needs to pull into the service bay for a check up because its killing our domestic automakers, I want to state where I stand on what defines a "domestic" automaker.

First, I do not subscribe to the popular belief that there is even a "Big Three" anymore. The term "Big Three" traditionally was invented to describe the three American automakers General Motors, Ford, and Chrysler.

Chrysler, however, can no longer be classified as "American" since it is no longer American-owned. Chrysler became a U.S. subsidiary of a German company when it agreed to supposedly "merge" with Germany's Daimler-Benz in 1998. The newly formed DaimlerChrysler was never a "merger of equals" as was claimed by then CEO, Jurgen Schrempp, and everyone should have realized that there can never be two separate corporate headquarters for the same corporation.

When two companies "merge," one will ultimately become a subsidiary of the other.

According to a November 24, 2003, Business Week article, Schrempp let a "tasty morsel" slip when he was interviewed by the Financial Times in an October 30, 2000, story. Then CEO Jurgen Schrempp told the London newspaper, "If I had gone and said Chrysler would be a division, everybody on their side would have said: There is no way we'll do a deal," so "we had to go a roundabout way for psychological reasons."

Decisions determining Chrysler's fate are not made in Detroit, they're made in Stuttgart, Germany. So even though most of the (Chrysler) workers are in the U.S., Chrysler is not a stand-alone, independent American company.

And I don't care about whatever hogwash was conceived when NAFTA was ratified determining that cars could be classified as "American" only if 75 percent of their parts content was derived from domestic sources.

Ownership equals control, and control equals independence. Unless a company is owned and controlled by American investors, owners, and stockholders, it isn't American. Chrysler isn't an independent American company under German ownership and control any more than our people could have been an independent American nation under British rule and control prior to the Declaration of Independence.

Perhaps a September 23, 2006, Wall Street Journal article summed up independent-thinking Americans' feelings best when discussing the new "Dr. Z" commercials. "Patriotic Americans aren't happy that Detroit had to team up with foreigners to remain competitive, and they certainly don't want it thrown in their faces on TV."

There's a big difference between one company (a non-American one--Chrysler) that wants to team up with a Chinese company to import cars to the U.S. from China and another company (an American one--General Motors) that says they can't see importing cars from China for the foreseeable future.

We don't have the "Big Three" anymore. We have the "Big Two." Fortunately, the "Big Two" (Ford and General Motors), when compared to any other auto company, employ the most Americans, have the most U.S. factories in America, invest the most money in America, get more of their parts from America, and pay more taxes to the U.S. Treasury than Toyota or anyone else ever dreamed.

I did, however, leave out one important issue in the above paragraph that returns me to the root of what the title of this article is all about. Health care.

But contrary to the title of this article, health care is more about what's wrong at the American automakers than what's wrong with the American automakers.

General Motors, for instance, spent $5.4 billion last year in health care for Americans that Toyota didn't have to worry about since Japan has a nationalized health care system and America doesn't. I'm not calling for an American nationalized health care system, but when the rules for all competitors aren't the same for all players in any competitive activity, those who merely watch the players aren't justified in shouting down the losers simply because the only reason they're losing is because they're getting stuck with burdens from which their competition is exempt.

And as much as free market advocates dismiss protectionism, since it would supposedly unfairly subsidize domestic producers, they never mention that free trade, as well as our broken health care system, is subsidizing foreign producers. Any time you exempt the cost burdens of one producer that another producer in the same industry must pay, that constitutes a subsidy. So it's easy to see that we are subsidizing Japanese imports and Japanese companies, as well as any other foreign company and their imports whose home country is exempt from any kind of production cost burden from which American companies are not exempt.

General Motors is the biggest single private purchaser of health care in America. The $5.4 billion in health care costs they paid last year was $5.4 billion that the American people (or the U.S. government) didn't have to pay. If GM fails, someone else is going to have to pick up those costs. We will all pay since you can't continue to take several billions of dollars out of the national economy without affecting everybody in it. So if you're not in favor of America inevitably accepting a nationalized health care system, you'd better be in favor of the survival of Ford and General Motors.

General Motors and Ford also pay the price of an American health care that is broken. GM CEO, Rick Wagoner, knows his company spends more on health care for employees and retirees than on steel for cars and trucks. The cost of health care in America is rising at double-digit rates annually and now costs GM over $1,500 for every vehicle they sell.

And GM gets a horrible return on its health care investment in America. According to a February 9, 2005, Wall Street Journal article, errors in America's health care system are frequent. Studies show that adults making doctor or hospital visits get what experts define as the best available treatment only 50 percent of the time. As the Wall Street Journal article put it, GM and Ford have to deal with both "pockets of excellence" and "wastelands of inefficiency." These are phrases that foreign car lovers use to describe Ford and GM when these phrases would more accurately describe what Ford and GM have to deal with compared to Japanese automakers.

That's why the CEOs of the "Big Three" automakers were so determined to meet with George W. Bush (who finally agreed to meet with them after ignoring them twice) to discuss the sick state of health care in this country. An inefficient, wasteful health care system forces GM and Ford to do more with less.

George W. Bush knows that the United States spends 15 percent of its entire national output on health care while Japan only spends 8 percent. George W. Bush knows that America needs a system that offers better health care at a lower cost. And he knows American companies Ford and GM (and yes, even German-owned Chrysler) don't compete on a level playing field. But he also knows that even though he talks about how American companies can compete with anybody if they have a level playing field, he's never even going to try to do anything to make the playing field level.

But just try to imagine a nation where General Motors, Ford, and Toyota could all start from scratch and where none are saddled with billions more in pension and health care obligations than the other. Well, you don't have to imagine, because that example already exists in China. And what is happening? In China, General Motors is the number one seller of cars. Volkswagen is second, but Ford is way ahead of Toyota.

The biggest reason Toyota is more successful in America than GM and Ford is because they don't have big health care and pension millstones around their necks. Sure, you can say it's because Toyota is building cars more Americans like (even though GM and Ford have the number 1 and number 2 market share, respectively, in the U.S.), but the reason they can make snazzier dashboards and the like is because they have more cash to play with. And they have more cash to play with because they don't have to deal with America's sick health care system.

Managing director John Hoffecker of AlixPartners LLP says that his firm's research shows that GM and Ford were both nearly as profitable as Toyota as recently as 2004 if you exclude health care costs.

If you build cars in America for 100 years like GM and Ford have, you are going to have to deal with high health care and pension costs. GM and Ford helped create the system we are so foolishly whittling away today that shielded their workers from these costs. The fact that Toyota employs younger workers is not a corporate virtue. They were able to start from scratch in America in 1987 with their first factory, absent any health care or pension costs for many years to come. And according to the AFL-CIO, Toyota has received $371 million is subsidies from the state of Kentucky alone where they assemble the Camry.

Yes, GM and Ford are dealing with flat sales here in the U.S. while Toyota is surging. But few talk about how Toyota is experiencing flat sales in their home market, too. And it's rarely mentioned that protectionist Japan doesn't allow GM and Ford to have an equal chance to penetrate their market like we allow Japanese companies to penetrate ours.

Eventually, however, it will become evident to all Americans that the real problems are being laid out right here in this article. For Toyota now employs workers at its Georgetown, Kentucky, plant who have reached 20 years with the company. They, too, will soon have to deal with America's health care problem as they prepare for bigger health care bills for their aging American workers, although they employ far fewer American workers than does GM or Ford.

China will eventually become the new Japan, and everyone will wonder why Japanese car companies can't compete with Chinese ones. Those who are shouting down American companies for not being competitive enough with Japanese companies now (if they are honest with themselves) will be shouting down Japanese companies for not being competitive enough with Chinese companies.

But eventually we'll all finally realize that we shouldn't have been spewing our venom at Ford and GM for all their struggles for so many years. Maybe we'll finally realize that they were bearing the weight of an honorable burden on their shoulders so we wouldn't have to carry that burden on our own shoulders.

Maybe also by then we'll realize that we should have protected American producers that were required to absorb the high cost of health care from foreign producers that didn't have to absorb those same costs.

Protectionism for American producers doesn't mean subsidizing them, it means protecting them against unfair subsidies granted to foreign producers. It means eliminating subsidies for any nation or producer. Just like in a poker game, if you want to sit at the table and share in the pot, you have to ante-up equally just like everyone else. The pot in this case is the lucrative U.S. market, and if foreign companies want access to it, they need to bear the burdens of the American system equally with American companies.


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