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The Big Three may perish through people's lack of knowledge
Our Buy American Mention of the Week!
by Roger Simmermaker
December 11, 2008

Never before has their been such a large national debate over an issue so critical to the American economy accompanied by such large misconceptions of what the true facts really are as there has been over whether or not to extend a bridge loan to the Big Three.

Senator Christopher Dodd (D-CT) claims Detroit's wounds "are largely self-inflicted." Senator Bill Nelson (D-FL) says American automakers have had their "heads in the sand" for too long (ever heard of the Chevrolet Volt, senator?). Then there's what Irwin Stelzer of The Weekly Standard calls the "Drop Dead Detroit" crowd, led by Senator Richard Shelby (R-AL), who think we shouldn't be fiddling with the free market. Senator Shelby doesn't mention, of course, that his state has already distorted and fiddled with the so-called "free market" by funding foreign-owned Mercedes, Toyota, Hyundai, and Honda to the tune of nearly a billion dollars in taxpayer money to lure those brands' factories to his state.

But before delving into the mass of misconceptions in both the media and in the minds of too may Americans (a recent CNN poll showed six in 10 Americans were against a bailout for American automakers), let me list a few facts that have been missing from the present day debate.

1. The American Big Three have 105 plants in the U.S. The foreign big three (Toyota, Honda and Nissan) have 24.

2. American-owned car companies get a significantly higher percentage of their parts from domestic sources compared to foreign-owned car companies.

3. America exports more motor vehicles and parts than the aerospace, medical equipment, and communications industries.

4. The U.S. auto industry provides health care for 2 million Americans and benefits for 775,000 retirees and surviving spouses.

5. The U.S. auto industry spent $12 billion in research and development last year alone, second only to the semiconductor industry.

6. The Big Three typically invest $10 billion in domestic plants and equipment every year, and bought $156 billion in parts and services from domestic suppliers last year.

Now let's deal with the myths and misconceptions. First is the ridiculous refrain that American companies don't build cars people want to buy. Can someone tell me how General Motors can have the leading (that's "number one") market share in America and in the world by building stuff nobody wants?

Admittedly, GM has exchanged the world market share leadership position with Toyota a few times in the last few years (GM is number one as of this writing), but even if GM were to solidly take the number two spot in sales, how is it that this constitutes a "failed business model?" Since when is the only successful business model in any industry the one that happens to be the leader of that industry?

Coca-Cola commanded the number one market share for non-alcoholic beverages for years before being unseated by Pepsi. Since Coke is now number two, does that mean they have a failed business model and aren't making beverages people want to drink? Hardly.

GM makes more cars that get over 30 mpg than any other automaker, so let's finally throw the myth that American automakers don't make fuel efficient cars in the garbage where it belongs. The most fuel efficient small truck is the Ford Ranger. The lowest cost car to buy and operate is a Chevy Aveo. The Ford Focus' mileage equals that of the Toyota Corolla, and the Chevrolet Malibu gets better gas mileage than the Honda Accord.

Both the Chevrolet Malibu and the Ford Fusion have won J.D. Power & Associates highest-quality awards in recent years. Consumer Reports recently reported "Ford's reliability is now on par with good Japanese automakers," so why is the Camry still the best selling car in its class? Well, it certainly isn't because of fuel economy and quality considerations. Maybe it's that lack of knowledge thing I've been talking about.

The Chevrolet Malibu registered the biggest sales gain (35.4 percent) in November 2008 compared to November 2007 than any other automobile according to TreeHugger.com. This obviously green-leaning website also reported the biggest loser in November was the Toyota Prius, recording a sales drop of 48.3 percent. Such trends beg the question as to whether GM's business model is really a failed one.

Sure, GM's overall sales fell 41 percent in November (Ford was down 30 percent, Honda was down 32 percent and Toyota was down 34 percent), but what is happening in the industry now points to something other than a failed business model for domestic automakers. According to J.D. Power & Associates "...starting in June, there has been a gradual move back to larger vehicles." And in August, 20 percent of SUV owners retuned to their Explorers, Highlanders and Pilots.

The point in all this is what I have previously stated in past articles. The Big Three have been doing little more than following supply and demand. We Americans bought 10 percent more gasoline in the first six months of 2006 than we did in the first six months of 2000 even though gas prices rose 75 percent during that period. And even as gas prices rose into the $2.00 per gallon range in 2005, polls taken around that time showed that Americans remained undeterred when it came to buying bigger and badder SUVs.

No one could have predicted gas prices would go as high as they did, just like no one knew at what price point people would start trading their SUVs for subcompacts. But for Americans to insinuate that Detroit should have sacrificed their high-profit cash cows (big trucks and SUVs) when that's what Americans were buying to instead focus on less-profitable, smaller cars is hypocritical at best.

Should Ford have taken its focus off the profitable F-150 pickup (the best selling truck for 30 years) just in case gas prices spiked so the company could avoid being vilified for selling so may of them? Should they have voluntarily stepped aside to let the Toyota Tundra take the number one market share in trucks, as they were aggressively trying to get a bigger piece of the same pie?

The culprit in this crisis is the U.S. Congress, many of whose members couldn't resist the opportunity for populist grandstanding by belittling the Big Three in recent Washington hearings. Had congress obeyed their constitutional obligation to regulate trade with foreign nations, they would not have allowed South Korea to export 700,000 vehicles to our country last year while we were only allowed to export 5,000 vehicles to their country. We tolerate unfair trade on an even larger scale with Japan, and then we have the gall to chastise American automakers for not being "competitive enough" and accuse them of having "failed business models."

I agree that the Big Three CEOs should not have arrived in Washington using corporate jets, but this is a diversion from the real problem. Their fleet of corporate jets is not the problem, and neither are their salaries. The U.S. Congress, which is hardly a model for financial responsibility and thriftiness, is the problem.

Considering that the health care and retiree payments made by the Big Three means that their cost of producing a car is $1,500.00 more per car than cars built by foreign automakers, the American automakers have done quite well holding on to the market share they have since they have been forced to do more with less for decades.

If you and I both went into business making widgets or any other product of you choose, and you had $1,500.00 more per widget to make a better widget, your company would eventually drive down my company's market share or put me out of business. These are the precise possibilities facing the Big Three today, and it should come at no surprise. Such an eventual reality could have been easily predicted.

The much referred-to "cost structure" is a big part of the reason the Big Three aren't as competitive as their foreign rivals. Japanese companies, for instance, don't have to worry about footing the bill for their employees' health care in their own country, or funding their retirement. The Japanese government spreads that cost to Japan's taxpayers, and unless we want our government to follow the same model, we better be rooting for American automakers to survive so they can pay for their employees' health care and pensions so we taxpayers don't have to.

It's amazing to me how anyone would deride the Big Three for being at such a competitive disadvantage given that it is mainly because they have been bearing the weight of such honorable burdens (health care and retirement) for decades that their foreign competitors haven't had to worry about. It's even more amazing people are calling for their outright failure at a time in American history when individual and national economic instability are at their highest point.

It's up to a well-educated citizenry to tell their legislators that their remarks regarding American automakers are off track. But if not enough of the Americans fully understand why Detroit is in their current situation and how they got there, then we won't be able to provide the right voice to get congress on track.

If the Big Three fail to get adequate funding to survive, it will likely be because congress was ignorant of the facts surrounding the auto industry, and "We, the People" were too ignorant of the facts as well to stop a devastating catastrophe from occurring.

Will the current $15-$17 billion bridge loan be enough for Detroit to survive the current economic downturn? Not in my opinion. If not, does that mean we should deny funding now and refuse more funding in the future? Not in my opinion.

Americans (even the senators with foreign automakers in their districts who will always be against American automakers no matter what) don't deserve to experience an economic catastrophe that a Big Three failure would bring. So let's educate ourselves with the true facts so we can in turn educate our congress with the same facts and keep America and her companies rolling. America doesn't need another declaration of interdependence courtesy of another iconic industry gone by the wayside.

Roger Simmermaker is the author of How Americans Can Buy American: The Power of Consumer Patriotism. He also writes "Buy American Mention of the Week" articles for his website www.howtobuyamerican.com and is a member of the Machinists Union and National Writers Union. Roger has been a frequent guest on Fox News, CNN and MSNBC, has been quoted in the USA Today, Wall Street Journal and US News & World Report among many other publications, and is now a weekly contributor to WorldNetDaily.


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