Big 3 Automakers Double-Dipping?

When is enough enough? Each of the Big 3 automakers has received immense local and state tax breaks to locate their manufacturing and research facilities in this state and the next. Politicians have clamored around them for years because they see manufacturing as job creation. To some extent, this is true. The state and local governments make tax concessions on the front-end to the automakers in exchange for building a manufacturing plant or research facility. The local and state taxpayers must make up the difference, because heaven forbid that tax concessions be covered by a reduced government budget. The new facilities commence operation and the local politicians pat themselves on the back and get re-elected a couple of times. Let's not overlook the fact that the Big 3 auto industry has not been expanding in many years, so those "new jobs" were actually replacement jobs. For every "new job", there was a worker displaced somewhere else - but then, that is some other politician’s problem . . . .

Then reality sets in. The auto industry is highly competitive with a broad range of interchangeable vehicles to choose from, i.e. - they all get the passengers from point A to point B, so differentiation is difficult. As time goes on for any specific product line, costs must drop because new competition will be driving down the actual net sales price. Ah - now the reality part. The manufacturing facilities are loaded up with union laborers who, by contract, are getting regular salary increases. The automakers used the government tax incentives to get by in the early going of their operations, but as time passes, the contract labor rates eat that up and more. They are then left with a top-heavy salary burden that cannot be resolved, even with all the off-shore parts manufacturing they can farm out.

So . . . . as we contemplate giving the Big 3 another round (the double-dip) of taxpayer money - the $25 billion discussion of the day - shouldn't we step back a bit and ask why? Saving jobs is a typical response, but for how long? Management fundamentals seem to be missing in action. I particularly enjoyed these reports from today’s hearings in Washington, and applaud these Congressmen:

-- Rep. Brad Sherman, D-Calif., asked the three auto chiefs seated at the witness table before him to raise their hands if they had come to Washington on commercial airliners. No hands went up. Then he asked if any planned to sell their corporate jets. Again, no hands went up.
-- Sherman and Rep. Gary Ackerman, D-N.Y., told the auto executives they were having a hard time justifying to their constituents bailing out companies whose chiefs fly around in expensive private jets.
-- Ackerman said there was "a delicious irony in seeing private jets flying into Washington D.C. and people coming off them with tin cups in their hands."

Given this reaction from the other wing of Congress within his own party, Senate Majority Leader Harry Reid promptly asked President Bush to standby in case he needed help in getting a Big 3 bailout pushed through. Excuse me? Good leaders listen – get a clue, Harry!

Oh, and by the way, the double-dip is actually a triple-dip. Remember the manufacturing plants that were built in exchange for local and state tax concessions? Well, at the Federal tax level, the manufacturers are rewarded for modernizing their manufacturing facilities - yet another tax benefit for big business. Why manage? Uncle Sam will always come to the rescue! What class did all these folks take in grad school, anyway?

Congratulations, America! Don't Let Up!!

A couple of days ago I noted the gasoline price at my most frequented filling station at $1.89 per gallon. I was amused and reflected back to late spring when many candidates in the Presidential primaries from both parties were supporting the idea of suspending the Federal gas tax for the summer months. Only one candidate stood up for addressing the problem versus buying primary votes at roughly $60 apiece (the average saving per household with the gas tax scheme for the entire summer). Only one candidate spoke openly that the problem was the demand for gasoline and if demand was reduced, that the price would follow - his opponents scoffed at him as being an elitist and not being in touch with the average American. Gosh - imagine that - someone trying to understand and solve the problem instead of giving a few token dollars for votes. At the time, there were 17 candidates still duking it out in the Democrat & Republican camps. Statistically speaking, 94% of them were clueless about the problem and thought $60 per household would make Americans forget about it. Amazingly enough, they are almost all still holding their elected offices today in spite of this shallow thinking. Wake up, voters - you really need to pay attention!

At our house, we sold our gas-guzzling SUV and picked up a small (American made) economy car which immediately started saving us $75/month in gasoline expenditures. Many other Americans did the same thing. We were delighted to participate in this exercise, proving that free markets can and do correct themselves - without government intervention.

So now we are seeing sub-$2/gallon gasoline after just 5 months of reducing our collective demand - down from $4/gallon. My message today is very simple. GASOLINE IS NOT ON SALE, folks. Do not go out and start guzzling gasoline because it feels like it is "on sale". A 50% price drop at the pumps was due to reduced consumption. Increasing consumption will have the opposite effect. It will require immense discipline on the part of all American consumers to keep the price down and frankly, to cause it to drop even further. Gasoline cost roughly $0.24 per gallon when I first learned to drive. Wouldn't you like to see that on the sign outside your local filling station?

And just to expand this thinking a bit, as we have reduced our consumption of gasoline, would you be open to the notion that in so doing, we have also reduced our harmful emissions into the atmosphere and helped the environment? Wow - an amazingly simple thing like driving less and converting to more fuel-efficient automobiles providing more net income to your household AND helping improve the environment at the same time. The next time someone comes to my doorstep and wants my signature on a petition and a donation to fund a political action committee / lobbyist to buy influence in Washington regarding an environmental cause to cleanse my conscience, I can now engage in a meaningful conversation about how I have already made a difference and suggest that they are the new endangered species. We may be on to something here, America. Keep up the good work!