While asking Congress for billions in bailout money, General Motors CEO Rick Wagoner promised that "we will repay the taxpayers' faith."
Yo, Rick: What faith?
The CEOs of GM, Ford, and Chrysler clearly believe that the old adage is still true: If it's good for the automakers, it's good for America. Thus, the predictable doom-saying about how the entire U.S. economy will be reduced to ashes if even one of those bloated automakers is forced to declare bankruptcy.
Most Americans understand that the auto industry still provides millions of jobs and that this is a bad time to be throwing any more people out of work than necessary. But they slam on the brakes at the idea of giving Detroit billions in taxpayer money. A recent Gallup poll found that 49 percent of Americans oppose federal aid to the automakers, while 47 percent favor it. If that seems close enough for comfort, consider how telling it would be if half of the fans at a Yankees or Cowboys game were rooting for the home team to lose.
Congress seems even less supportive, with several members of the Senate Banking Committee ripping the Detroit CEOs a new tailpipe when they pleaded for aid at a recent hearing. Most Republicans and some Democrats oppose a bailout, and legislators seem unlikely to do anything until next year at the earliest, even though GM could be out of money by then.
These are the only domestic automakers we have. Yet they've become the scourge of their fellow Americans. Here's how it happened:
They alienated millions of customers. You have to try hard to give up 30 percentage points of market share, which is what the domestic automakers have done since 1970. The downfall began with the introduction of cheap cars like the Ford Pinto and Chevrolet Vega, meant to battle thrifty imports. Those cars and numerous follow-ons now wear badges of horror identifying them as some of the worst cars in history—with millions of owners to bear witness.
There was, for instance, that little exploding gas tank problem on the Pinto, which Ford denied for years. The Vega came with a cheap aluminum engine that couldn't withstand its own heat and often warped or melted before the car reached 50,000 miles. On Detroit creations like the Citation, the Nova, the Omni, the Aspen, the Fiesta, the Mustang II, the Skylark, the Cavalier, the Cimmaron, and many others, fenders rusted after just one or two winters, engines seized up, radiators leaked, switches broke, headliners drooped. In short, bottom-rung benchmarks were set. Millions of customers—many from families with a long history of loyalty to Ford or Chevrolet or Chrysler—swore off domestics forever. Detroit builds better cars today, but many spurned customers from the past don't care. To them, Detroit's predicament isn't a national emergency. It's justice.
Detroit lost its lock on Congress. When Congress approved $1.5 billion in aid to help Chrysler avoid bankruptcy in 1979, the vote in the Senate was a comfortable 53 to 44. In the House, it was even more decisive: 271 to 136. As there are now, there were critics who argued that a failing company should work out its own problems. But the automakers had factories in many states and deep leverage in Congress.
As Detroit drove its customers away, however, the importers that were getting a lot of new business began to build factories here, too—to lower shipping costs, insulate themselves from exchange-rate burbles, and build credibility with buy-American consumers. Today, nearly every "importer" has at least one U.S. factory. All told, foreign-based automakers build cars or their components in more than 20 U.S. states, accounting for more than 150,000 jobs. And they buy parts from many of the same American suppliers that serve Detroit.
Result: A conflicted Congress. Influential Republican Sen. Richard Shelby of Alabama comes from a state with factories run by Hyundai, Mercedes, Toyota, and Honda. No surprise he's a loud critic of a Detroit bailout. Republican Rep. Mike Pence comes from a traditional Rust Belt state, Indiana, with several domestic factories. But he recently argued—while standing in the shadow of a new Honda plant in his home state—that the Detroit Three would fare just fine in bankruptcy court. Back in Washington, the balance of power is tipping against Detroit, as healthier automakers create jobs in many states without asking for help.
The Detroit Three's workers became arrogant. Critics overstate the difficulties caused these days by labor unions, which have actually made significant concessions in recent years. Still, unions continue to demand benefits—especially healthcare—that many of their fellow Americans don't get. Everybody knows that corporations are methodically trimming benefits to cut costs, and some smaller companies don't offer health insurance at all. For entrepreneurs, paying for healthcare costs is one of the biggest barriers to starting a business. Many people struggling to cobble together a healthcare plan for their family resent union complaints about the erosion of cradle-to-grave coverage.
Their cars became obnoxious. Detroit gets blamed for building too many big SUVs, but they did that because Americans bought them. Well, some Americans. SUVs and other light trucks became so popular that at one point they represented half of all new-car sales. But the other half of buyers, those sticking with sedans and subcompacts, increasingly resented all those 5,000-pound behemoths bearing down on them. The schadenfreude was palpable when gas prices rose to $4 per gallon earlier this year, and all those Frugal Franks delighted over the SUV owners who were suddenly shelling out $75 a week just to get around town. With "Detroit" synonymous with "SUV," the automakers' woes have now become a proxy referendum on a gaudy lifestyle whose time appears to be past. We're about to find out if it really is.