Thursday, June 26, 2008

General Motors, Ford and WNY's Future

Let's hope Detroit and DC start talking

The great news out of Detroit is that General Motors is busting hump to produce electric cars and hybrids. Detroit knows how to make fuel-efficient cars, even though they’re going to be expensive, and even though they won’t be available for sale for a year or more.

In the meantime, all the Great Lakes communities in which GM, Ford, and Chrysler and their suppliers build cars, SUVs, trucks, and parts can expect more layoffs and downsizing.

In Buffalo, the River Road Powertrain engine plant—which received a huge package of state and county incentives to assist its $1 billion retooling—has only 1,000 workers compared to its 1999 workforce of around 4,000. American Axle on Delevan Avenue, after shedding 1,200 workers, is closed entirely. Delphi in Lockport is down radically. The Ford stamping plant in Woodlawn is down by half but still functioning. Yet it’s all sunshine here compared to Marion, Ohio, where GM plants that produce gas-sucking SUVs will close entirely. Michigan has lost 450,000 auto-related jobs.

GM, Ford, and Chrysler management decided against building energy-efficient vehicles that are profitable. They also decided—despite worldwide experience—not to use their combined Washington lobbying power to seek fundamental US policy change on healthcare, pension, and fuel policy, even as they located more production facilities in Canada.

Thus the decisions of senior executives at Detroit-based, investor-owned companies means that the place where you live will experience more out-migration, more family distress, and more houses put up for sale in a part of the country that already has depressed home prices.

Most annoyingly, the bad decisions by GM, Ford and Chrysler executives—even after President Jimmy Carter and other grownups told them all 30 years ago to start making cars more fuel-efficient—are making politics in the Great Lakes states uglier.

Many a chamber of commerce genius will be heard from, telling us that the road to renewed prosperity in the automobile-producing areas is paved with tax cuts for investors, and an end to high-wage jobs, and to unions, and a rollback of environmental regulations.

Note, however, that high-tax, highly regulated Canada sees good prospects for keeping automobile-related manufacturing jobs. In a mid-2005 report from GM’s CEO Rick Waggoner, the Oshawa plant up the road from Toronto was singled out as the most productive of GM’s 26 North American plants. Waggoner himself noted that the socialized Ontario healthcare system, which left GM paying only 15 percent of what it pays in employee benefits in US plants, left GM a profitable operation that still pays Canadian auto workers the same high wages they make here. Union spokesmen in Oshawa last week spoke hopefully about getting new orders to produce new GM hybrid cars.

That’s the same system that attracted Toyota to invest over $800 million in a new plant, scheduled to come on-line in the next year or so, about 50 miles west of Hamilton.

But even if Michigan, Ohio, Pennsylvania, and Upstate New York were annexed by Ontario (if only to the extent that all the crushing legacy costs of employer-funded healthcare benefits would be picked up by the government), we’d still have to face two tough realities of the car industry.

First, there’s a market reality: The demand for the SUVs and pickup trucks produced in the Great Lakes area has collapsed as gas prices have risen. The second true fact, which is not new at all, is that Washington’s failure to produce an energy policy has visited specific and disproportionate harm on almost all the Great Lakes communities where automobile workers live.

Worse before better

Moody’s Investor Services, which advises investors on how credit-worthy big companies are, last week downgraded General Motors, Ford, and Chrysler, because none of the Big Three American automakers is going to be able to shift production quickly in order to meet consumer demand for cars that drink less $5-a-gallon gasoline.

Harvard economist Michael Porter left the lofty heights of economic theory behind and put up the economic map of the Car States on the screen at a recent Brookings Institution conference in Washington. It’s pretty clear that when economists talk about “industry clusters,” and then pull out the Mapquest display, the Rust Belt overlaps with the GM-Ford-Chrysler belt.

It’s scary stuff.

Meanwhile, there is a growing consensus that fixing the car industry isn’t the only challenge ahead.

For centrists at the Brookings Institution, there has long been a consensus that public transportation has to be part of the federal policy mix. Not so for the folks at the Cato Institute, a libertarian think-tank that has contributed policy analysis, perspective, and rhetoric to Republicans.

Randal O’Toole, a prolific Cato Institute writer, puts it this way: “Ideally, the federal government should not be in the business of funding local transportation and dictating local transportation policies.” He opposes pro-urban regulation, opposes so-called “smart growth,” and saves his most vigorous antipathy for light-rail systems—in part because they go way the heck out into far-flung suburbs, where white folks eschew them in favor of SUVs.

Yet even the Cato guy has had to alter his tune in the new environment of historically high gas prices. “Transit agencies,” he wrote in the Seattle Times on May 1, 2008, “could also consider alternative fuels. Hybrid-electric buses, for example, save far more energy per dollar invested than the most efficient rail systems.”

Moreover, O’Toole wrote, in a back-handed endorsement of public transportation, “Seattle could save even more by expanding its electric-powered trolley buses, which are far less expensive to build—in both dollars and energy—than rail transit.”

I think we are beginning to see a harmonic convergence: When the Cato talking heads write about not whether but how to invest in the transit systems the Brookings people praise, you know we’re in a new time.

Who will get the federal dough?

A recent Wall Street Journal profile of Honda’s CEO, who started his career as a race-car engineer for the Japanese automaker, makes one wish that GM, Ford, and Chrysler were led by people who have known for decades how to make money making efficient cars. Honda and Toyota will likely gain even more market-share even here in the Car States because they already have the capacity to produce and distribute the fuel-efficient cars.

The Big Three have had access to American politicians for decades. Honda may fund its own research and development, but here in America, where there is no such thing as actual free-market economics at work in transportation, the best we can now realistically expect is that GM and Ford win their fight for ever-larger chunks of federal taxpayer dollars for new transportation initiatives—so that Car State economies don’t lose manufacturing entirely.

Today, UCLA economist Matthew E. Kahn estimates that there is a net $40 billion annual subsidy—over and above user fees like gas taxes and tolls—that helps the automobile industry keep its hegemony of personal gasoline-powered transportation over public transport. It would be simplistic, but not inaccurate, to add to that calculation the cost of the Iraq war, and of a foreign policy dominated by a search for allies among oil producers, to the annual auto-industry subsidy.

But that subsidy goes to the automobile industry generally. What form of Lemon Socialism will we see for the Big Three?

The question for the rest of us in the Great Lakes/Car States is not whether we want our federal tax dollars to get spent on transportation, but whether the way in which our money is spent will continue to empower the GM and Ford and Chrysler executives who have screwed things up at our expense—or whether our money comes with instructions.

Senator Obama has spoken only vaguely about new federal investment in public transportation. Senator McCain has a history of hostility to the issue.

Great Lakes communities whose workers know how to manufacture SUVs would, I am sure, be delighted to accept federal funds to host GM, Ford, and Chrysler plants that produce the electric streetcars and fuel-efficient buses that even anti-government ideologues endorse.

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