Want Domestic Auto Manufacturing? Nationalize Healthcare
In 2008 General Motors held on to the title of the chief carmaker of the world. That same year, as the US entered into a recession due to Wall Street thug’s ponzi schemes in the subprime lending housing market, the auto industry –already in two decades of steady decline – plummeted. As even monks meditating at Mt. Baldy are aware by now, on June 1, 2009 GM filed for Chapter 11 bankruptcy. The US government dished out $25 billion to save what few jobs remained. Initially the US Treasury owned 60% of the “New GM,” while the Canadian government still owns 12% in exchange for $9.5 billion in financing. The United Auto Workers’ Health Care Trust Fund owns 17.5% and unsecured creditors in the form of bondholders own the remaining 10%. In November of 2010, as GM made surprising profits, the US treasury opened shares to the public.
Although the bailout helped put the brakes on the crashing industry, the economic collapse wasn’t really what ailed the Big Three. Dim-witted business decisions and outstanding health insurance costs played key rolls. These problems may very well come back to haunt the US economy if major policy change isn’t invoked in the near future.
A Brief History of The Auto Industry’s Dream For America
The aesthetic of the car had grown drastically during the 1930’s. The post war era of auto consumers were even more intrigued by style. The Cadillac by GM became the pinnacle of American luxury. No longer was the status of being a car owner enough for consumers, according to marketers of the era the design of the car really said who you were. Towards the end of the fifties International auto manufacturers influenced by the Bauhaus School of Design, such as Fiat, BMW, and Ferrari brought focus to body design and soon grew in appeal to the American market. European cars, as well as those made by new Japanese companies, were also high tech and small. The Big Three feared the competition and attempted to radically cut down on the size and cost of their cars. The American consumer wasn’t having it. Sales began to slide. GM and Ford quickly decided to turn to the image of the American Dream. They turned to the freedom of roaring speedily across the open road, hair waving in the wind as the beautiful dame in the passenger seat slid from side to side in the Armor Alled seat. Thus the muscle car was born. The next line of US cars starting with the Ford Mustang in 1964 and the Chevy Camaro in 1967, focused on performance. It worked. The Big Three quickly rose back to the top.
A half-century after the car was invented, through the likes of Chuck Berry and Bruce Springsteen the automobile as a symbol of American freedom and exceptionalism was amplified. Rock and roll was America vocalized; the car was rock and roll in motion. To American consumers of the past, and Tea Party members of today, the car isn’t merely a means of transportation it’s an extension of one’s ego. Cars, since their inceptions, embody mobility; if one cannot achieve it upward, then it should be found outward – and at high speeds.
In 1969 the Datsun240Z began the first successful wave of Japanese imports. Through out the 70’s as oil prices fluctuated the smaller more economically sound Japanese vehicles grew in appeal. In 1979 Chrysler would’ve gone under if not for a turnaround engineered by former chairman Lee Iacocca leading to $1.5 billion in U.S. government loan guarantees.
In 1980, as Iran and Iraq engaged in a war, oil production in the region nearly stopped. The rising prices led to stagflation in the US and the economy entered into a recession. Under these conditions the American consumer found Japanese cars better on gas mileage, superiorly constructed, and cheaper to purchase. In the eighties one in every four cars sold was made in Japan. Soon the Japanese manufacturers started transplant factories in North America to ease on shipping and import costs.
The nineties brought successful sales to Ford via the Ford Taurus. But as the Taurus flooded the market with mediocrity, Consumer Reports found that for every 1 in a 100 parts that may need replacing in five years of driving an American made car, such as the Taurus, only 1 in a 1,000 would need to be replaced in a Honda, Nissan or Toyota. The Big Three decided that the way to compete would be not to spend the money making a better product, but to focus on the truck market. SUV’s proved to be five times as profitable as the car for the Big Three. This shift of focus pleased their government subsidized buddies in the oil industry. While Japan focused on fuel efficiency and new technologies, GM, Ford and Chrysler tried to play into the identity of the American consumer who has always had an affinity to see bigger as better. American freedom in the form of the automobile was appealed to yet again. In the short-run this strategy garnered various profits at the sacrifice of innovation.
By the end of 2003, most passenger cars sold in the U.S. market were either imported or manufactured by foreign-based North American transplants. GM and Ford were profitable overall in 2004, despite declines in domestic market share, losses on U.S. automotive operations, and problems in Europe. Gross output in the U.S. automotive manufacturing sector in 2004, including vehicle parts, bodies, trailers and heavy trucks, was $424 billion (current dollars). That was the largest output of any manufactured durable goods grouping measured by the Commerce Department Bureau of Economic Analysis (BEA). In 2004 the US automotive trade deficit was nearly $150 billion. The largest component of the deficit was bilateral trade with Japan, from which U.S. imports were more than $48 billion, and U.S. exports were about $2 billion.
If one is employed by a business selling the American Dream it’s common to feel entitled to a wage that will grant you that dream. The United Auto Workers, a union founded in 1935 through benefaction from the American Federation of Labor, used to hold 1.5 million members. Due to their actions, until the last decade, GM gave full medical benefits to its employees and a wage decent enough to purchase a home. This proved to be great for the employees but had repercussions for a failed GM in the long run. As of today, the UAW holds less than 700,000 members, half as many as it did in the 1970s. Those who have remained members have only been able to retain employment by making many concessions, including taking up to forty percent pay cuts.
Currently GM has about 100,000 domestic employees, however they are paying health insurance for more than a million retirees. In a 2004 congressional report it’s estimated that GM spends $1500 of every vehicle it sells on paying health insurance. GM seems to look at the short-run on employee pay, opting out of wage increases when they chose to purchase insurance policies based on rates for an employee base ten-times their current size. And while they look at the long-run when tax is concerned they avoid it when it comes to their products. A consensus that’s recently become fashionable is to blame the unions. The UAW, however, has made many concessions throughout the past couple decades. And when a company is as large as GM you can bet that they get the best rates when purchasing insurance.
What to do?
US Citizens tend to over simplify and misjudge the state of the nation by the ebb and flow of gas prices. For some reason US auto manufacturers have chosen to ignore this public cognitive dissonance while trying to rely on the “freedom” and “power” ideologies that the American automobile stood for generations ago. As our nation urbanizes and takes environmental issues more seriously, the car doesn’t mean what it used to. We’ve now got ipads and smart phones –as well as a multitude of other multiuse devices—that represent a new generation’s perception of freedom.
It’s no doubt that making cars in the US is more expensive than elsewhere. In 2011 we’ve seen the auto bailout partially revive the industry. But if we want to see long-run growth, universal healthcare would make domestic auto manufacturers competitive in the global market. The Big three are so aware of the need for health care reform that they have moved several plants to Canada and have publicly declared their support for Canada’s health care system — specifically because of the competitive advantage it gives them over their American counterparts.
Three Democratic House members, Ohio Representatives Dennis Kucinich and Marcy Kaptur and Michigan Representative John Conyers explained such sentiments in a letter to GM CEO Richard Wagoner Jr:
“As the nation’s largest provider of health care in the U.S., GM is likely to have captured the majority of the efficiencies that can be gained under a system with multiple, competing insurers. If true, systemic health care reform is the remedy of choice,” explain the congress men, who add that, “There is a model for health care finance that has proven in several countries to control costs, provide health care to all, and increase the quality of care: national health insurance, which is embodied in H.R. 676.”
For the United States to be a contender in the global market it may need to end being the last developed nation to provide healthcare for its citizens. This may take shedding the nationalism and perceived freedom of the automobile and meet the ideals of a new generation. It’s time to not only reform healthcare, but the American Dream as well.