Detroit Blame Game

There is plenty of reason to blame Detroit for its own circumstances. The Detroit automakers have been some of the most poorly managed companies in the nation for many years, operating at times oblivious to actual and important market trends. They pushed bad products for years because it was easy, but they are not solely to blame for the collapse of the American auto industry, according to Forbes.

If we are going to look outside of the automakers for the source of their problems the first stop we have to make is in the halls of Congress and the legislative capitols of every state in the country. Governmental policy restrictions and regulations hindered and undermined the automakers for decades.

The government imposed fuel economy restrictions and mandated that the “Big Three” build smaller more efficient cars, yet gave no reason for consumers to purchase them. In other countries a gallon of gas is taxed so heavily they regularly pay prices Americans would never dream of. In the United States the government’s close relationship with oil companies makes gasoline much cheaper than anywhere else in the world. Until recently consumers had no reason to buy small vehicles. The automakers, however, had to continue making smaller vehicles even though they didn’t turn much profit. Small cars are usually just as expensive to make as light trucks or SUV’s but cannot demand the same price.

Furthermore, in an effort to avoid allowing a market monopoly, the Department of Justice forced American automakers to allow Japanese imports into their showrooms. In no other industry, and in no other country, is one competitor allowed free access to its competition’s facilities.

The government basically allowed the influx of Japanese imports to begin. Eventually these vehicles proved to be of higher quality than their American counterparts and they “earned” their market-share. However, the fact that they were invited to come is disturbing. The trend of inviting competition in for free is common in the U.S. where states will provide hundreds of millions of dollars in tax incentives and subsidies to get Toyota, Honda or Nissan to build a plant in their community. They charge their residents for the right to purchase foreign competition which undermines domestic manufacturers. To make matters worse, in their constant yearning for “jobs” the constituents largely agree with these policies. There are no GM or Ford production facilities in Japan or Korea, their governments guarantee a “captive” market for domestic autos. The United States, in its endless and ruinous pursuit of “free-markets,” is the only country that allows such practices.

The United Autoworkers Union has not helped matters either. Its push to increase workers wages – and thus increase their union dues – has effectively priced American manufacturers out of any ability to compete with foreign brands. The “Big Three” use essentially the same technology, the same methods and many of the same components to build their vehicles, yet they have to pay their employees, demand less and are left with little bargaining leverage.

Perhaps the most blame can be passed to the U.S. consumer, who charged ahead with purchases of big “gas guzzlers” instead of realizing the obvious dangers of oil price increases. Had consumers demanded more efficiency the automakers would have had to comply – instead we demanded this.

There is plenty of blame to go around when assessing the deteriorating situation in Detroit. The people running the companies certainly did a lot to bury themselves, but America must also look in the mirror. Detroit has largely been replaced by more efficient, often “better” foreign alternatives. But why has it gotten to this point? We all took a backseat while the American auto industry fell from its pinnacle. Now we all have to shoulder the blame and hoist the auto industry out of its ashes.

Source Forbes:

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