Washington Needs to Break Out Jumper Cables for Big Three

No industry did more to build the American middle class than the big domestic auto manufacturers.

The rise of the automobile in the 20th century provided Americans unprecedented personal mobility. But the social mobility the industry offered may have changed the nation even more. Detroit’s assembly lines not only transformed rubber and steel into Buicks and Chryslers, they also carried men with strong backs but little education -- whites and blacks, immigrants and native-born workers -- from lives with meager prospects into the security of the middle class.

Henry Ford started the escalator in 1914 when he raised the pay for workers building his Model T to $5 a day, roughly doubling the prevailing wage.

After World War II, the contracts Walter Reuther, the visionary president of the United Auto Workers, negotiated with General Motors established such crucial benchmarks as cost-of-living raises, pensions and health insurance benefits. As other employers matched their terms, those agreements helped inaugurate a quarter-century of shared prosperity that created the largest middle class in American history.

The postwar labor gains at GM “provided a basis for advances in the general wage level of everyone,� said Nelson Lichtenstein, a labor historian at UC Santa Barbara. “It created, for a moment, a working class with the world’s highest standard of living.�

Today, the domestic auto industry is wasting away like a patient in a terminal ward. Employment at GM has dropped from its peak of 618,000 in 1979 to 142,000. Last week, the beleaguered giant announced it would cut 30,000 jobs and close 12 plants over the next three years.

Delphi Corp., GM’s largest parts supplier, has filed for bankruptcy protection, largely to shed pension and healthcare costs for its retirees. Ford Motor Co. recently announced that it would cut its white-collar workforce by 10% and is rumored to be planning a GM-like round of plant layoffs as soon as January.

It’s easy to say the industry is only reaping what it sowed. The U.S. companies responded slowly to the initial Japanese challenge in the 1980s and grew so addicted to the high profits from gargantuan SUVs and trucks in the 1990s that they failed to plan for the era of high gas prices now confronting them. For too long, the UAW tried to preserve privileged contracts that the companies’ weakened competitive position could no longer justify.

Even now the companies struggle to produce cars that American consumers find as attractive as imports from Japan and Europe. At bottom, the companies’ real problem “is product,� said Kim Hill, assistant director of the Center for Automotive Research, a nonprofit organization in Ann Arbor, Mich. “They are not putting out a product that people want to buy.�

With this recent history, the domestic auto industry is hard to love. But it remains important to preserve. Too many communities still depend on the big domestic manufacturers to passively accept their continued collapse. It’s safe to bet there wasn’t much holiday cheer last weekend in places that GM targeted for plant closings, such as Lansing, Mich., and Spring Hill, Tenn.

Some say it doesn’t matter if the domestic manufacturers (which include DaimlerChrysler, the merger of Germany’s Daimler-Benz and the old Chrysler Corp.) continue shrinking because Asian and European companies will simply build more cars in the U.S., and create more jobs, as their market share here grows.

To an extent that’s true. But replacing the sale of a GM car with the sale of an Audi or a Honda is not an even trade for American workers. Foreign manufacturers now assemble in the U.S. about 44% of the cars they sell here, up substantially since the 1980s. But GM assembles in the U.S. about 97% of the cars it sells here. Although foreign manufacturers are using more American parts in the cars they assemble in the U.S. (a Honda Accord, for instance, has 70% domestic content), the domestic manufacturers typically buy even more American-made parts.

For all these reasons, an agenda to revive the domestic auto industry makes sense. Any initiative would start by lightening the companies’ crushing burden of healthcare costs (GM spends $1,500 per car on healthcare).

One good idea is the proposal from Sen. Barack Obama (D-Ill.) for Washington to assume some of the companies’ retiree healthcare expenses if they commit to produce more fuel-efficient vehicles. The auto companies also provide the best justification for proposals from Senate Majority Leader Bill Frist (R-Tenn.) and Sen. John F. Kerry (D-Mass.) to lower health insurance premiums for employers by shifting the most expensive cases to a public reinsurance pool. Others see the industry’s distress as a compelling reason to resume discussions about transferring all healthcare expenses to a national single-payer system.

Other, more immediately viable, ideas include using federal procurement to steer the companies toward greater production of hybrid vehicles and mounting greater efforts, through state-run manufacturing extension services, to increase productivity at small suppliers who provide most of their parts. Reciprocity should be the key: All public aid should be conditioned on reform at the companies.

None of this will be easy, partly because the industry (abetted by its myopic congressional defenders) has been as short-sighted in its political demands as its management decisions. (Does anyone doubt the Big Three would be in a better position to compete with the Japanese today if they had not blocked federal efforts to mandate greater fuel efficiency?) But it would be a national tragedy if Washington stands aside and lets the domestic auto manufacturers drive themselves, and the millions of workers who depend on them, deeper into the ditch.