Short-sighted Auto Bailout with No Plan B

Recent reports of healthy profits at General Motors and Chrysler have defenders of the auto bailouts not only crowing, but in some cases demanding apologies from those who opposed the bailouts – especially southern-state senators like Alabama’s Richard Shelby and Tennessee’s Bob Corker.

But those who opposed the bailouts – this writer included – did not do so out of a belief that no post-bailout profits were possible. I suppose there were some who opposed the bailouts solely on the basis of purist free-market ideology. I can’t count myself as one of those because I supported the TARP bailouts just a few months earlier. I don’t like government intervention in markets, but I’m willing to acknowledge there are situations when it is unavoidable.

My problem with the auto bailouts had more to do with Michigan’s long-term economic viability. The state’s economic model depends on high-paying jobs in the big-ticket manufacturing industry, along with generous fringe benefits and lucrative retirement packages.

For units of government, the massive investment auto companies make in facilities and equipment reap a harvest of tax revenue.

The problem? There is plenty of reason to think this model is unsustainable. The Big Three no longer control market share like they did in the early ’70s when much of this structure was put in place. Imports and transplants have captured a healthy share of the market and that development will never be reversed.

And a recent piece in Scientific American raises the question of whether we’ve reached something called “peak car” – a point at which the changing realities of life will simply dictate that people don’t need cars as much as they used to.

Much of the trend away from car-ownership may be the result of the left’s own successes in other areas. For years, the left has tried to find ways to get more people living in urban areas, using mass transit or riding bikes as a more practical and environmentally friendly way to get around. The left has also lamented that America doesn’t raise gas taxes to the obscene levels that Europe does.

Most people will admit, when pressed, that Michigan is too dependent on the auto industry. They know it would be in the state’s best interest to diversify its economy. That’s because they realize, however reluctantly, how dangerous it is to put all the state’s economic eggs in such a precarious basket. But when faced with the reality of what can happen when this singular industry mismanages itself to the brink of extinction, Michigan wasn’t prepared to turn the corner. We had no plan for what to do, so we begged and cajoled until the federal government enabled the continuation of our co-dependence at a likely taxpayer loss of at least $24 billion.

While the short-term improvement of GM’s and Chrysler’s fortunes is welcome news, there is every reason to believe they – and we – will be back there again, and soon. The UAW is already demanding the reversal of the concessions it made during the 2009 government-run bankruptcy. The Big Three’s labor costs are still higher than those of the transplants.

And as Scientific American suggests, the changing nature of life raises the question of whether people will ever buy as many cars as they did during the industry’s glory years.

What became clear in 2008 was that we had no Plan B, and that all we could do was panic and beg Washington to enable the continuation of our status quo. Do Michigan’s leaders really think they dodged that bullet forever?

Actually, I’m a little afraid of the answer to that question.

(Dan Calabrese is editor-in-chief of the Michigan-based syndicate North Star Writers Group, and the author of the Royal Oak Series of spiritual thrillers, which are available at www.dancalabresebooks.com. Originally posted on The Michigan View.)