Is the impending collapse of America's Big Three automakers the next "crisis" that must be solved by a massive federal bailout? Most politicians of a certain ideological or geographic bent think so. But Dan Ikenson, the associate director of the Cato Institute's Center for Trade Policy Studies, thinks GM, Ford and Daimler-Chrysler needs a shakeout, not a bailout. I talked to Ikenson Thursday, Nov. 13, by phone from his office in Washington.
Q: Does the auto industry deserve a bailout?
A: That's any easier question than "Will they get one?" The answer is "no." They definitely do not deserve a bailout. Taxpayers, first of all, should never be on the hook to bail out private companies. They should definitely not be on the hook to bail out companies that have made terrible decisions time and again. And that's what describes the Big Three: They've made bad decisions with respect to the products they make and they've made bad decisions with respect to their labor relations and the capitulations to the unions over the years that have really landed them with an uneconomic cost structure that makes it virtually impossible for them to compete going forward.
Q: What's the worst thing the auto industry has done to put itself in this fix?
A: Well, I don't knowhow to rank them, in particular. But two things strike me as particularly problematic. On the product side, management demonstrated an egregious failure of leadership by never envisioning the day when SUVS and big trucks would fall out of favor. In the 1980s, the Big Three made predominantly cars. And over a 20-year period they have shifted to predominately SUVs and trucks. I think in 2006 about 75 percent of Ford's output were big trucks and SUVs; slightly smaller for Chrysler and GM. Now those are high-profit margin cars for them, so I can understand why they would want to produce those. But you have to diversify your products and you can't just rely on trucks and SUVs.
If you look at the top-10 selling passenger cars this decade, the Big Three offerings make that list at slots 7, 8, 9, 10 occasionally. None of them has ever been in the Top 5 this decade. Those are always occupied by the foreign nameplate products - the Honda Accord, the Toyota Camry, the Nissan Altima. I don't know if we should start this story back in the 1960s and 1970s, when the Big Three never thought they were going to face competition from anybody else and therefore they could give lavish benefits to the unions and stop caring about the products they made, or if it is something that has happened more recently.