Congress and the disingenuous blame game

Posted by: David Welch on November 19, 2008

Defending Detroit on anything these days is about as popular as justifying the big post-bailout party at AIG. But let me take a stab at some of the disingenuous finger pointing that has gone on in Congressional hearings over a Detroit bailout during the past two days. In his opening comments for the Senate hearings on Tuesday, Connecticut Democrat Christopher Dodd said that many of Detroit’s wounds are self-inflicted. He went on to blame them for ushering in the gas-guzzling suv era.

I’ll agree that many of the problems facing the Big Three are a direct result of management gaffes and union intransigence. But getting American’s hooked on oil? Hang on a second, Mr. Dodd. When Corporate Average Fuel Economy regulations came to pass in the ‘70s, we had two different standards, one of car and one for trucks. The truck standard was much lower, since small businesses, contractors, farmers and the like need pickups. Those pickups need to be powerful to haul and tow heavy stuff. So they were allowed bigger engines and hence, lower fuel economy mandates.

It wasn’t long after that Detroit realized it could meet the American yen for roomy cars with V-8 engines by simply putting them on a truck frame and calling it an suv. By the way, Americans have always loved big cars. Whether it was a ‘60s Cadillac with huge pointy tailfins or the big V-8 station wagons of the ‘70s and ‘80s, bigger has always been better. Gas has mostly been cheap. And then, the only regulatory barrier that could stop America’s love affair with size was crafted with a giant loophole. Going back decades, British political cartoon have lampooned America’s huge cars.

Detroit exploited the loophole to make money, which free market capitalists are schooled to do. They are taught that, by the way, in the land of capitalism that Congress and the President must protect. Americans snapped suvs up in huge numbers because they like what they have always liked, big cars. This went on for nearly 20 years with no Presidential administration or Congress stopping it. Why would they? It would be hugely unpopular with the electorate. Have I mentioned yet that Americans love big cars?

That doesn’t absolve General Motors, Ford and Chrysler from relying far too much on gas guzzlers for their profit haul. Nor can they be excused for disinvesting in smaller vehicles. I mean, Honda and Toyota can say they were into fuel economy before fuel economy was cool. Now that it is, they have the cars and the brand image to sell them, and the better cost base to make money on them.

But I have to throw a yellow flag when someone in government says that it’s all Detroit’s fault. They were, at best, tacitly on the sidelines while America got far down the tracks with poor fuel economy and outsize energy consumption. If Congress doesn’t think bailing out Detroit is a wise investment because the money will be lost, that’s one debate. But saying ‘no’ as a punitive measure against the guys—allegedly the only guys—who created our dependence on foreign oil? That’s government passing the buck and skirting the blame.

Reader Comments

Stephen Sears

November 19, 2008 5:52 PM

Congress cannot bring themselves to admit that Americans chose, on their free will, to buy SUVs, pickups, etc. IN DROVES. Has Congress acknowledged that the F-150 was the best-selling vehicle FOR AN ENTIRE GENERATION? Of course not. This inconvenient fact shatters much of Congress' flawed and slanted argument that it's "all Detroit's fault." Not to say that the Detroit 3's Management and labor unions are blameless - they're not and deserve much of their current predicament. But it's really telling when Congressmen like Dodd purposefully omit key facts in order to make their case.

Jonathan

November 19, 2008 10:34 PM

If they were making vast amounts of money hand over fist, where is all that capital now to retool to smaller, efficient cars?

Sathish Chari

November 19, 2008 10:40 PM

I am quite apalled and disgusted by all the ignorance in this country, especially our so called representatives. We are all to blame for the current economic condition in this country. As long as you've been breathing and existing in this country for the last ten years, you're to blame. Being a consumer, in every sector of business, every one of us has his/her own share of fault. Whether you bought that SUV to drive your family around to making your weekly shopping spree at WalMart's or simply tapping into those freebie mortgages, we have all contributed to the mess we are in. I think its time to stop complaining and find solutions to the current mess including the automobile industry. By refusing to accept each of our responsibilities, we are just adding to the problem. We have to aid the banks, the car companies and all the other victims of this mess...we simply can't turn a blind eye and think this will all go away. The alternative is pretty grim. But what do I know....I am just another participating taxpayer that eventually will have to contribute my share to solving this problem.

Paul (Vw)

November 19, 2008 11:12 PM

This is primarily a mess that Detroit made. If you make a mess and then come to Washington with your hand out, one shouldn't complain if the congressional prima donnas put on a show.

Before getting on the bailout bandwagon, maybe one should read what the guy who won the Michigan presidential primary in 2008 has to say (he makes a compelling argument):

http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=1&em

WH

November 20, 2008 12:11 AM

Chrysler received assistance decades ago but they are back again - this time accompanied by GM and Ford. Instead of retooling to produce efficient vehicles over the last 35 years since the oil crises of the early seventies, the big three focused on producing over the last two decades the most innefecient fleet of vehicles in the world. They spent a fortune lobbying our government to waive CAFE standards to be able to do this. No less at fault are the short sighted and status driven consumers that bought them. Corporate executives and owners of dealerships made millions while these bus sized vehicles posed a threat on the highway to anyone who would dare purchase a smaller and more efficient auto. The NHTSA actually discouraging the smaller vehicles, calling them unsafe.
It is rediculous that the automakers should be bailed out now. These companies are not viable. They simply don't have the product. Let them go bankrupt and reorganize if this isn't true.

brian

November 20, 2008 12:13 AM

David, I agree with your point. BUT Senator Dodd does not make the whole congress. Ultimately, the fault is with the management/board at the big 3 who for some reasons or others, did not have the foresights.

I do wonder if detroit had their hands in crafting that "giant loophole"?

hkaplan

November 20, 2008 12:14 AM

The very same american car manufacturers were making cars for European consumption with better mileage per gallon. Why did they not make these cars for U. S. consumption? Instead they told us they couldn't reach gas mileage consumption until 2020.

Jerome

November 20, 2008 12:16 AM

Whoa, wait a minute! Dodd may not have been completely accurate, but he WAS on the right track in pointing the finger, including calling them short-sighted and unimaginative.

You know what my mom's car is now? A new Toyota Solara, runs like a dream. You know what it was before? A Chysler Concorde. She loved that look and had to buy it... and later regretted it big time. The damn thing could have cost her life on the freeway from expensive "sensor" trouble which locks the steering wheel and shuts off the car. Don't get me started on American made cars. I finally got 90% of my family into Toyota brand cars including my dad who has worked on cars all his life, bought American cars, and couldn't believe the trouble free experience he now has with his Toyota Camry. We sent a man to the moon, and you think we can't make a car last more than 5 years? No, they MADE them to tear up to keep the lucrative dealer repair and parts industries going. American Auto Industry: SHORT SIGHTED, greedy, disingenuous.

scott

November 20, 2008 12:21 AM

It is always amazing the hipocrasy our elected officials will take in order too skirt a real problem.Lets point fingers and investigate when their is 3,000,000 jobs on the line, while we prop up an industry that produces nothing (wall street). Our housing incdustry is tanked so now we will kill our auto industry. Thanks W, Thanks elected officials keep up the fantastic work. Ill try to keep my family fed

Herb

November 20, 2008 12:31 AM

Nice thing about blame is that it takes away from the real efforts to fix things. I'd rather fix things. For the record, my wife and I began weaning ourselves from Detroit when the Arabs hit us with an embargo in the mid to late 70's and American cars had too much muscle. There were no real options then other than foreign made autos and ironically it has only just recently began to change. Hated giving up the muscle car but like that SUV it was time. As for those bailouts, and much as I hate saying this, but they (all of them) need to tuff this out like I've done for the past few decades.

Dennis Kennedy

November 20, 2008 12:31 AM

There is an allergy to real solution for foreign oil dependency problem. Instead of mandating CAFE standards, just ensure minimum, inflation adjusted price for gasoline/diesel through federal taxes.
In a democracy, if the voters want junk, they will get it. American people are getting the congressmen/presidents they deserve. You have to show you deserve better instead of complaining about what you get.

dig

November 20, 2008 12:35 AM

and wasn't there a government tax rebate for businesses that purchased and SUV (whether they needed it or not?)

David Welch

November 20, 2008 8:13 AM

David Welch here. I'm the magazine's Detroit Bureau Chief and writer of this post. As usual, there are some terrific comments here. Thanks to all for writing in. I welcome more reader reaction.

To those who disagree with my argument, let me point out that I agree Detroit's automakers are to blame for relying too heavily on gas guzzlers for profits and not making necessary changes to ensure that smaller vehicles could turn a profit. The comanies do not get absolution here.

But the point still stands that Congress and several Presidents left policies in place that allowed this to happen. And 'Dig' is correct. There was a tax break for large suvs for business owners, many of whom used these trucks solely for personal use. Government is guilty of having a terrible energy policy.

Greg Thibodeau

November 20, 2008 10:24 AM

Bailing Out US Automobile Manufacturers

http://blog.myautoloan.com/
Like anything in life, if you are not allowed to fail you can never truly succeed. My own successes in life are built on the many lessons I have learned and the understandings I have gleaned from the times I’ve failed. So true is this simple fact of life, that it translates to simple economics. If an individual business or industry is to succeed, they must be allowed to fail. Business entities and industries in a truly free marketplace use the lessons of failure to build a more competitive marketplace, product and services.

Free markets behave like the natural laws of physics. Take water for example, water always seeks the lowest level. The pull of gravity on a liquid is enormous and forever. Try to dam the river, the forces of gravity are so constant and strong that over time the dam will fail, always has and always will. Call it what ever you want, but trying to shore up, bail out, or subsidize ailing US auto manufacturers is like damming the river, the forces of inefficiency, government regulation, horrendous labor contracts with the United Auto Workers Union, and executive level management greed will be so great that over time they will fail. Subsidizing, propping up, and bailing out any business or industry almost certainly guarantees inefficiency, lower productivity, higher prices, shortages, reduced quality and sub par services.

So, with this I say let them fail or succeed on the basis of free market economics. Failure would allow them the reorganize under Chapter 11 of the US bankruptcy code. A bankruptcy filing allows them to restructure their debt, union contracts and executive compensation packages. I say this with the caveat that the US auto industry is not solely at fault here. Our US Congress and the EPA have single handedly continually changed and added new regulations that place an overwhelming burden and hurdles for these companies to overcome. As far as an Obama presidency, I can only see him maintaining and expanding these oppressive regulations. My hope is that in the future, the people of this country will elect a conservative congress that will see and understand the damage these oppressive regulations forced on these manufacturers and repeal or attempt to restrict themselves from further damaging this industry. With free market economics, the big three will emerge as lean, technology driven, productive manufactures of high quality, highly demanded US automobiles. Why, they may even emerge as the big two or even the big one!

Morgan

November 20, 2008 10:30 AM

There is plenty of blame to go around. We, the consumers, like the bigger the better, more fancy, and to live up with the Jones. The politicans are all greedy and vote to line their pockets and not vote to protect the taxpayers. The automakers are also greedy and want us to bail them out because they didn't run their companies right. Who will bail me out if I don't balance my household budget or get too far in debt? I say no more money for the big oil companies, vote all the politicans out after two years, and no more money for the automakers. I'm sorry Mr. Unionworker, but I hope you have saved alot of that $70.00 a hour screw in a bolt money you made.

Paul (Vw)

November 20, 2008 10:44 AM

>>> But the point still stands that Congress and several Presidents left policies in place that allowed this to happen.

This smacks of a victim-hood mentality. How is foreign automakers are able to survive...no, thrive in the US market? Good corporations thrive by anticipating and adapting to change. Bad ones should just wither away. That's capitalism.

diggy

November 20, 2008 11:15 AM

to scott,

its very naive to think that wallstreet produces nothing...

well functioning credit markets are needed.

companies that produce crappy cars with overpaid workers are not.

David Mullings

November 20, 2008 12:33 PM

Welch is correct that blaming Detroit alone is naive but how many politicians like to point some fingers at themselves? We should not be surprised when they don't take some of the blame.

However, Detroit's problem is not as simple as gas-guzzlers. Toyota, Honda and Hyundai, which manufacture large volumes of cars right here in the USA profitably, are not begging for bailouts.

Why?

Only the Detroit 3 have shown up cap in hand and it is because they simply cannot compete due to their cost structures. A bailout without fundamental changes to those cost structures will do nothing but throw good money after bad.

GM, Ford and Chrysler have made some steps to reduce their cost structures but they have moved too slow.

The big question is will a bailout buy them enough time to trim those costs and be able to compete?

A bailout can't guarantee customers and the customers have voted on the winners with their wallets.

Julie

November 20, 2008 12:47 PM

Most people here are completely missing the point. The Big 3's over reliance on trucks isn't the cause of the problem. It's one of industry volume. US sales have contracted by about 30% this year and not one single domestic or foreign automaker saw it coming. Toyota invested hundreds of millions of dollars to build a fullsize pickup plant in Texas and it's been shut down for three months straight, less than two years after opening!

The Big 3's problem isn't quality and it isn't the product porfolio because if you take the time to review the facts instead of being stuck back in the 70's or 80's you can find plenty of safety and quality awards for Ford and GM in 2008 alone!

The Big 3's problem is three-fold. First, there are legacy costs because they are saddled with the union. They shouldn't have to pay a UAW worker $100,000 to leave their job and when a plant has to shut down to avoid over producing UAW workers shouldn't receive 95% of their pay, yet these are the exorbitant costs brought on by the UAW. Second, they only recently figured out how to profitably build small cars. Third, is simple...it's the economy stupid! Significantly fewer consumers can actually get approved for a loan to purchase a $20,000 vehicle

A lot of the import automakers have leased acres and acres of property on the West Coast to store all the vehicles built overseas that are now arriving in the US, but they have no dealer orders for them.

Toyota has already adjusted their earning forecast down by over 50% and now they are being hit with a double whammy because the global economy is slowing down.

A few FACTS to consider:

GM offers more than 20 vehicles achieving 30 mpg or more on the highway. More than any other domestic or import manufacturer.

GM also offers 6 hybrid vehicles with two more due out before the end of the calendar year. More than anyone else.

For those who argue GM doesn't build vehicles people want, here's another FACT: GM sells more vehicles in the US than any other automaker!

Whether you buy foreign or domestic vehicles, take a look at what the stock market did yesterday and think about how much lower it will go when millions of people find themselves unemployed. If you think foreclosures are bad now, they will get much much worse. You may find yourself surprised at the impact it has on you as a small business owner (fewer people will go out to eat, get their hair done, go to the spa, pay for dry-cleaning, get their pet groomed, have their car detailed, etc.)

Wake up America....this is going to effect everyone!

MikeyC

November 21, 2008 8:39 AM

The feds don't want to do anything until they know there is something in it for them. And since when do they really care about the working class in which the auto industry employs millions. They'll just tie leashes on the unemployed like they do everything else and act like they are our leaders.

I've been involved in the auto industry on many levels, if the Big 3 go under, we will all ahve our asses handed to us along with a welfare check and government promises.

I think the Big 3 will form some kind of alliance and figure this problem out one way or another.

Victoria

November 21, 2008 6:01 PM

When in school in Florida I did a term paper in 1970 on Ralph Nader – needless to say the arrogance - waste - last but in no way least – the corruption were dramatic for me. Then life saving change only came when forced by law.

I was raised military in a culture a few notches higher with integrity. I was appalled writing this paper. Wouldn’t you know – I ended up living in Metro Detroit and live there now- ugh.

The auto industry is a reflection of SE Michigan culture. Gray mediocre behavior permeates. Just look at the mayor (is he in jail finally?) Leadership in this dark location are reflections of a sad culture. Never in a million years did I think my youthful term paper would become a piece of my life.

Socialized medicine not only would help the auto industry- it would put the whole greed factor in medicine and law practices into cost effective realm benefiting all business - and lower insurance costs.

Union mentality creates an air of entitlement – needless to say – the CEO’s came without a ‘plan’ as entitlement mentality pervades the leadership. Since 1979 my auto purchases have been USA sympathy purchases, but not the next vehicle. The best value for our dollar is how we will spend our next ‘wheel’ money.

jerry e

November 21, 2008 10:46 PM

BAILOUT means give me something for nothing.... the BIG3 aren't asking for bailout they are asking for LOAN.... to be paid back with INTEREST... ie REVENUE to the taxpayer! BAILOUT is what we already gave to the banks. Do you "freemarket" weenies seriously believe Tokyo or Stutgard would let Toyota or VW go bankrupt...!!!! Ha!!

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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