You're kidding. Seriously. I had no idea. I don't drive. I believe it's unethical to destroy the environment. I walk a lot.
UAW Strike May Hasten Detroit’s Decline
Decades of regulations and subsidies have left the Big Three uncompetitive in the age of electric cars.
By Clifford Winston, WSJ
Sept. 21, 2023 3:01 pm ET
The United Auto Workers are on strike against a declining industry. During the past four decades, Ford, General Motors and Chrysler (now part of Stellantis) have lost more than half their combined market share—in part as the result of government actions. Some policies have weakened them by raising their costs; others have assisted them, with the unintended consequence that they failed to address the sources of their declining market share. The auto makers and the UAW need to realize that unless they commit to working as partners, neither will survive as the industry moves toward electric cars and eventually autonomous ones.
The federal government has helped U.S. auto makers by protecting them against foreign rivals and by giving them financial assistance after economic shocks.
It began in 1964, when Lyndon B. Johnson’s administration imposed a 25% tariff on light trucks. Known as the “Chicken Tax,” it was one of a series of retaliatory measures against France and West Germany, which had imposed tariffs on U.S. chickens. The so-called Chicken War is long over, but the tax on light trucks remains, protecting U.S. auto makers from foreign competition in that market segment.
During the 1970s energy crises, Japanese auto makers offered American consumers reliable, fuel-efficient vehicles at low prices. This significant new competition resulted in Chrysler’s near-bankruptcy in 1980 and record losses for the industry as a whole in 1981. Congress authorized $1.5 billion in loan guarantees for Chrysler. The Reagan administration tried to give the Big Three time to become more competitive with the Japanese by negotiating voluntary export restrictions with Tokyo, which limited total annual U.S. sales of new Japanese cars.
The Japanese government abided by the restrictions until 1988, during which time the U.S. industry’s profitability improved. But by 2000, a dozen years after they ended, U.S. auto makers hadn’t closed the gap between the quality and value of their vehicles and that of their foreign competitors.
Policies that contributed to strong macroeconomic growth helped auto makers by increasing annual vehicle demand by 1.5 million units from 1997 to 2007. Nevertheless, by the eve of the Great Recession, U.S. auto makers still hadn’t addressed their production-cost problems and product deficiencies.
During that recession, General Motors and Chrysler went into bankruptcy, but the government didn’t allow them to go through a court-supervised reorganization or to fail, which would have allowed their more-profitable light-truck operations to be acquired quickly by other companies. Instead, the Obama administration advanced roughly $80 billion to the companies and their financing arms and provided tax benefits not normally available to bankrupt companies.
By 2013 the overall economy and vehicle sales improved. All the U.S. auto makers became profitable and remained so for the next several years because of the growth in the light-truck market and the continuing protection provided by the 25% tariff on light trucks.
In response to the Covid pandemic, Congress made loans available to the auto companies and provided other benefits, such as a 50% employee retention tax credit. Most recently, the Biden administration has helped the auto companies record profits by providing billions in tax credits to spur purchases of new and used domestic electric vehicles.
Government policies that have reduced auto makers’ competitiveness include inefficient safety and environmental rules and mandates. Regulations mandated installation of various safety devices, such as shatterproof windshields and energy-absorbing steering columns, that raised auto makers’ costs but didn’t reduce overall highway deaths. Legislation required auto makers to install air bags on both sides of the front seat by 1998, increasing costs and risking the safety of smaller passengers. Corporate average fuel economy standards enacted in 1975 continue to increase, raising auto makers’ costs and consumer prices with uncertain benefits to the environment. And state and federal mandates to increase dramatically the share of electric vehicles on the road are pressuring auto makers to transform their production processes.
After more than 40 years of government policies that have both assisted them and raised their costs, U.S. auto makers must compete with foreign companies, as well as Tesla and other companies, to determine which will be viable competitors in electric vehicles, including autonomous ones. The path to survival will require large investments in new technologies that generate high returns and efficient production of vehicles that consumers want. Because U.S. auto makers haven’t caught up with their rivals in cost and quality, they claim they would be severely disadvantaged if labor costs surge.
At the same time, a prolonged UAW strike could fuel inflation by reducing the supply of cars and in turn cause the Federal Reserve to maintain high interest rates. This would hinder President Biden’s re-election campaign. His administration could encourage auto makers to reach a settlement with the UAW by, say, offering to eliminate fuel-economy standards, electric-vehicle market share mandates, and proposed mandates to install automated safety equipment, which would reduce their costs. The government could then replace those inefficient policies and fuel taxes with an efficient vehicle-miles-traveled tax on drivers that would reduce driving, especially during peak periods, and thereby reduce automobile emissions, safety and congestion externalities.
Unfortunately, the legacy of government assistance and costly policies is that U.S. auto makers have significant catching up to do to compete effectively in an industry gearing up for large-scale production of electric vehicles and ultimately autonomous ones. Government incentives aren’t enough. If the auto makers and UAW don’t commit to succeeding together, they will fail together.
Mr. Winston is a senior fellow at the Brookings Institution.
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