Yes, Detroit Can Be Fixed

A CAFE tweak can bust the UAW labor monopoly.

For that guy elected yesterday, a puzzle is how Detroit’s auto makers should be reshaped by the hand of government — with a taxpayer bailout or by letting bankruptcy judges take charge? Both fixes have their fans, yet neither would really solve the industry’s essential problem.

[Business World] Corbis

Here’s a better idea, one you haven’t heard before, involving a contemporary curse word seldom used in the debate over the auto makers: “deregulation.”

No, Washington wouldn’t have to find the courage to amend the labor laws to end the Detroit Three’s captivity by the UAW. Nor would it have to repeal the CAFE rules that are now a sacred cow. It 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.

How dumb is the two-fleet rule? Nissan, in a petition for its removal, points out foreign brands may actually minimize the domestic content in their U.S. cars so they can continue to count as “nondomestic.”

How dumb is the rule? Chrysler might not be unraveling today if not for the two-fleet rule, the real genesis of the Hail Marys it’s been throwing in all directions to find an electric car or a small-car partner or to merge with GM. Chrysler has a perfectly salvageable business making trucks, minivans, muscle cars and Jeeps — doomed only by the lack of enough small, fuel-efficient cars to roll out of a UAW factory with a Chrysler emblem slapped on.

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.)

Sure, this bullet would be far from silver and would still cause pain. The UAW might declare war to stop production from being shifted offshore. The Big Three might have to pay billions in job buyouts to use their new freedom. Since 2005, they’ve had some leeway under Nafta to shift “domestic” production to Mexico and haven’t done much about it.

But here’s the key: Detroit would finally get what every foreign competitor and just about every other business has — normal leverage over labor costs. Auto jobs wouldn’t automatically flee offshore. The Big Three would rather hire high-quality U.S. workers — but on the same terms that Toyota or Nissan or BMW do.

Let’s not kid ourselves that a taxpayer rescue would be anything but a down payment on a never-ending bailout. The bailout already is never-ending: Chrysler was already rescued once. Forgotten are the Reagan-era import quotas that inflated the price of every car sold in America to help prop up the Big Three. If hooked up to Washington life supports today, Detroit’s first assignment would be to “protect jobs” — job protection guarantees being one of the Big Three’s fatal errors in the first place.

Meanwhile, a bankruptcy judge can only void contracts, not laws. Not only would the UAW’s labor monopoly remain intact, but the union is a major creditor of the Big Three and would likely become a major shareholder in any reorganized auto maker.

With or without a taxpayer rescue or the ministrations of a bankruptcy court, breaking the labor monopoly is the step without which Detroit will remain the problem child of American industrial policy. And, lo, what would be politically unthinkable under any other circumstances is quite doable if styled a tweak to the fuel-economy rules. In last year’s CAFE bill, the Senate actually voted to get rid of two-fleet, though it crept back via a House-Senate conference.

The UAW, of course, has different ideas. The union expects Congress to pass new “card check” legislation to speed union takeovers of nonunion companies. Rather than reducing Detroit’s domestic costs, why not raise Toyota’s and Honda’s? Then what about the cars they produce in their overseas factories? If Reagan could be buffaloed into imposing “voluntary” import quotas to keep GM afloat, why not a president what’s-his-name?

The stakes here are even bigger than they seem. Detroit’s bad news could be America’s worse news if the industry’s year of living extra miserably starts the whole economy down the road to protectionism and taxpayer-financed industrial cronyism.

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