American Elephants


How Democrats are destroying the auto industry. by The Elephant's Child
November 8, 2008, 9:24 pm
Filed under: Domestic Policy, Economy, Liberalism | Tags: , ,

We have an interesting situation brewing.  Auto companies are requesting a larger bailout from congress. Congress is eager to provide, depending on what penalties they can extract from auto executives.  What has brought the automobile companies to this state?  Most recently the skyrocketing price of gas meant that car buyers suddenly were not so enamored with their SUVs once they found out how much it cost to fill up.

Americans had a love affair with the SUV. It held the whole family and the dog. You could go to Home Depot and actually get all the stuff into the car.  It was good in bad weather or in the mountains.  Suddenly, when gas topped $4.00 a gallon SUVs sat on the lot, unloved. Of course there was the credit crunch which left car companies increasingly struggling to raise money in the credit markets. But the auto companies had troubles long before  the price of gas went up.

We send our representatives to Congress, often because they were who was on the ticket and we didn’t have much choice, or because they looked better than the other guy. Or perhaps you had someone you could really be excited about.  Did he or she know anything whatsoever about building cars?  Did they have any understanding about running an automobile company or any company of any size, for that matter? Do they know anything about managing a group of hundreds of people or coping with union contracts with very powerful unions? Didn’t think so.

Congressional incentives come not from their constituents at home, but from the big groups that provide them with their financial support.  The UAW wants more power, more members and no free trade. Environmental groups want to ‘save the planet’ by eliminating fossil fuels and putting everyone in public transportation. Leftist groups want an end to big business or capitalism. Great recipe for automotive success.

Barney Frank, House Financial Services Chairman,  wants to create a “systemic-risk regulator” with unprecedented powers over a wide range of financial institutions with responsibility for protecting the soundness of the whole financial system, not just one sector. We’ve had lots of luck with regulatory czars.

Sen. Charles Schumer (D. NY) said Congress would try to redraw supervision of financial markets completely in the first six months.  According to Democratic aides, Congress is expected to tighten standards on executive compensation at firms receiving federal money.  I’m sure you can find the spot in the Constitution that allows Congress to set the pay of business executives.  The problem of course is that they usually make more than members of Congress do, and are far more respected.

Nancy Pelosi wants a faster roll-out of more fuel efficient vehicles. She wants to help automakers compete “in a green way”.  Sigh.

Investors Business Daily reports that:

Automotive chiefs are meeting with House Speaker Nancy Pelosi with their hands out.  At issue are vast pension obligations to 780,000 retired workers that already add $2,300 to the cost of every new car sold.  Credit-strapped consumers want value, not pension-inflated price tags.  So the bailout is in the works.

Bankruptcy is a better solution, but if a bailout can’t be stopped, taxpayers are owed a reckoning about how this industry got into a situation that a downturn could knock it over.  This ought to be a condition for the bailout.

Unions are at the center of every problem affecting industry competitiveness.  It’s not only the United Auto Workers’ lavish pensions, generous health care and leaden bureaucracies, its unions reflexive  hostility to free trade.  Yet if profits matter, new markets can return automotive companies to profitability — and rid the industry of the dead weight of those pensions….

Unions claim trade brings deficits, and that’s true in non-free-trade countries such as China.  But the U.S. has trade surpluses among the 14 free-trade partners — signaling that exports — and U.S. jobs, not outsourcing , are the basis for the trade.

Holman Jenkins Jr., in the Wall Street Journal, suggests a better idea, a “curse word seldom used in the debate over the automakers: deregulation.”

[Washington] would simply have to allow auto makers to meet the fuel economy standards with any mix of autos made in domestic or overseas factories.

Under the nonsensical “two fleet” rule that now applies, manufacturers meet the standards separately with their “domestically” and “nondomestically” produced fleets.  What does this have to do with making sure U.S. consumers get good mileage? Nothing.  It’s a naked handout to the UAW at the expense of the companies and their customers….

For 30 years, to make and sell the large vehicles that earn their profits, the Detroit Three have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car. (That — not some perverse desire to make bad cars — is why they skimped for decades on styling, engineering and materials in their family sedans).

So as usual, we have Congress attempting to fix a problem that they were complicit in creating, without accepting any blame whatsoever. Of course that applies to the credit crisis too, which they now blame on “deregulation,” which should make everyone lie down and roll around on the floor consumed with laughter.

There are reasons why  the approval ratings for this Democrat Congress are the lowest ever recorded, and they may be aiming for something lower still.



Sorting out the early signs from the Office of the President-elect. by The Elephant's Child

The signs are not encouraging.  President-elect Barack Obama has named Michigan governor Jennifer Granholm to his 17-member economic advisory panel.  Granholm’s vision has led to heavily subsidized ethanol plants and renewable-power mandates for utilities, which pleased the Obama team.

Unfortunately, the ethanol boom is fading as ethanol companies go bankrupt.

Granholm has also presided over the worst state economy in the country since her election in 2003.  With a huge budget deficit, and unemployment rates reaching 8.7% she has raised personal income taxes by 17 percent. Her energy plans have raised the utility bills for Michigan’s citizens by an estimated 12%.

To combat the increased unemployment and high union costs, she has offered her “investments” in alternative energy and increased road construction to grow jobs. But then her failing auto industry is asking for a government bailout. Which makes her a questionable economic adviser at best.

Leftists put a lot of “hope” in the promise of “green jobs”. This promise remains fairly gauzy and often includes, according to Chris Horner of CEI, gimmicks like shifting “steel jobs” into the “green jobs” column because windmills have steel arms.  The Washington Policy Center’s Todd Myers says” Nuclear, hydro, and other “non-green” energy sources produce more power per worker than renewable alternatives.  Moving from efficient to inefficient energy means more people are needed to do the same amount of work.”

Kathleen Hartnett White of the Texas Public Policy Foundation points out some of the changes in the climate for climate change policy:

The European Union’s (EU) Emission Trading System (ETS), once the model for a U.S. program, continues to fail.  Europe’s program is not reducing CO2 and has led to higher energy costs.  The U.S. has reduced more CO2 by market efficiencies and without any complicated cap-and-trade programs.  Growing numbers of EU member countries, including Italy, now want to delay (read: scratch) the ETS because of economic woes approaching crisis proportions.

Obama’s plan was to stick the oil companies with a “windfall profits tax” to get the money for a big stimulus package, but the declining price of oil is taking the profits out of the windfall.  And a windfall profits tax would drive up the price of oil again, harming consumers. But then, stimulus packages don’t work either.

Obama’s campaign proposals have been heavy on giving government (taxpayer) money to those he found more deserving, but these actions have consequences. Raising taxes as the economy is declining is a very bad idea, as any student of the Great Depression would tell you. Something Obama has yet to learn.

The Environmental organizations that have been vigorous supporters of Obama are, above all, true believers in clean energy, strong global warming legislation, and locking up America’s natural resources so they cannot be defiled.  Larry Schweiger, President and CEO of the National Wildlife Federation said:

President-elect Obama and the incoming Congress offer new hope that Americans will come together to repower America with clean energy that revitalizes our economy and defends a planet in peril from the climate crisis…to pass strong global warming legislation that invests boldly in clean energy, caps and cuts the pollution that causes global warming, and restores America’s natural resources.

Other environmental CEOs rhapsodized about the environmental mandate that voters demanded.  Unfortunately, four of five environmental initiatives lost heavily at the ballot box.  Voters are more skeptical about excessive regulation and exorbitant costs with no clear benefits.  And even more, a study by the American Climate Values Survey found that only 18% of respondents strongly believe that global warming is real, caused by humans and is harmful.

As I said, the signs are not encouraging.  If you add in the observed fact that the sun has gone quiet, and the earth has not been warming for the last ten years, but cooling. And it is expected to continue cooling for the next two decades at least, you can see that there are some things that badly need to be sorted out.

You might want to keep an eye on an over-enthusiastic Congress.




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