Paul R. Hollrah
Who Killed the Automobile Industry?If we look
outside our windows we can see very quickly that almost every aspect of
our daily lives is somehow dependent on trucks and automobiles. So how
could such a large and vital industry die, and who would want to kill
November 19, 2008
The death of the
American automobile industry began in 1954 with the Phillips Petroleum
v. Wisconsin (347 U.S. 672) decision of the United States Supreme Court.
In that momentous decision, the Court ruled that natural gas producers
that sold natural gas into interstate pipelines fell within the
definition of "natural gas companies” in the 1938 Natural Gas Act and,
as such, were subject to price regulation by the Federal Power
understood immediately what the long term impact of the decision would
be. Because natural gas was plentiful and clean-burning, it was often
referred to as the "Cadillac” of hydrocarbon fuels. And if gas was to be
regulated at an artificially low price, without regard to its true
economic value, it would have a devastating impact on competing fuels
such as coal and petroleum, depressing the price of those commodities,
In the years that
followed, coal producers reduced production due to power plant
conversions to low cost natural gas, and the search for new oil and gas
reserves went into sharp decline.
Oil and gas industry
analysts warned of a future energy crisis if gas prices were not
deregulated. In the years between 1954 and 1973, when OPEC embargoed
just 6% of U.S. imports, oil and gas executives wore a path to Capitol
Hill, attempting to convince the Congress of what would happen if it
failed to deregulate natural gas prices. Democrats in Congress, always
with an eye toward the next election and catering to what they
mistakenly felt was in the best interests of consumers... cheap energy
prices... blocked any action.
The amount of testimony
delivered before Congress, describing the path to a future energy
crisis, would fill several boxcars. But it all fell on deaf ears...
except in Detroit. The major automobile manufacturers understood what
the oil executives were saying and quickly decided that the days of the
"gas-guzzler” were numbered. They began thinking in terms of producing
smaller, more fuel-efficient automobiles.
One of the first such
cars to reach the market was the Chevrolet Corvair, produced between
1959 and 1969, with annual sales of approximately 200,000 vehicles. It
was preceded in the market, fleetingly, by the Nash Rambler, 1950-1956,
and joined by the Studebaker Lark, 1959-1966.
Unfortunately, a young
man named Ralph Nader, a self-appointed consumer advocate with no real
evidence to support his allegations, decided that the Corvair was not as
safe on the highway as the larger gas-guzzling sedans and station
wagons. In 1965, Nader published a book on the Corvair, titled Unsafe
at Any Speed. The Corvair’s days were numbered and small
fuel-efficient American-made cars began to disappear from the highways.
tastes in automobiles had experienced a major shift, away from the heavy
"gas-guzzlers” to smaller, less expensive, and fuel-efficient cars, and
that demand was soon filled by millions of high-quality imports, such as
Volkswagens, Toyotas, and Hondas.
The first major
American industry to suffer was the steel industry. Today, the former
leader of the industry, U.S. Steel, produces only slightly more steel
than it did a hundred years ago. And what was once the second largest
U.S. steel maker, Bethlehem Steel, filed for
in 2001. With the killing off of the U.S. small car manufacturing
sector, whose market share was filled by small fuel-efficient imports,
the once-great steel industry was reduced to a shadow of its former self
and Nader had his first victim... the U.S. Steel industry.
signs of real economic trouble in the automobile industry came in 1979
when the Chrysler Corporation was granted a $1.5 billion bailout package
by the federal government. However, that sign of economic weakness in
the industry meant nothing to leaders of the United Autoworkers Union
(UAW) who were engaged in a decades-long assault on the profitability of
the Big Three... or what was left of the U.S. automobile industry.
growing imports of foreign cars and a steady loss in market share, the
auto makers were easy targets for union blackmail. UAW officials
developed a bargaining scheme in which they targeted just one of the Big
Three auto makers, threatening to strike that automaker if their demands
on wages, benefits, and work rules were not met. The selected auto
maker, fearful of loss of market share and other economic consequences
if they were the only one of the Big Three idled by an extended work
stoppage, usually capitulated. And once that agreement was reached the
rest of the industry necessarily fell into line.
excesses of UAW greed are visible everywhere. According to a November
14, 2008 report by George Reisman of the American Conservative Union,
without the UAW, GM’s Oklahoma City plant would not be required to pay
2,300 workers full salary and benefits for doing nothing, and GM would
not be losing $1,200 for each car sold, instead of, like Toyota, gaining
$2,000 per vehicle.
charges that, without the UAW, GM would not be losing billions of
dollars each year and its bonds would not be rated as "junk,” GM would
not have healthcare costs that increase the cost of each vehicle
produced by $1,600, and without the UAW, GM would not have bloated
pension obligations which, if entered on their balance sheets, would
leave the company with a negative net worth of $16 billion.
This is an
industry where the average Big Three auto worker is paid more than $72
per hour in wages and benefits ($150,000 per year, compared to $48 per
hour, or $100,000, for a Toyota worker), and where union-negotiated work
rules such as "job banks,” a cute little euphemism for paying large
numbers of employees not to work, are commonplace.
together, the economic mischief created by Ralph Nader’s attack on
small, fuel-efficient American-made cars, along with the decades-long
attack on automobile industry profitability by the United Auto
Workers... all accomplished with the active complicity of Democrats in
Congress and the White House... has devastated two of America’s greatest
the auto industry threatens to follow the steel industry into man-made
obsolescence and congressional Democrats demand that the Obama
Administration expend tens of billions of tax dollars to prop up the
terminally ill industry... all of which would soon be drained off by
greedy auto workers and union leaders... we hear of no efforts
whatsoever by the industry and the UAW to save themselves.
UAW voluntarily agrees to massive give-backs in wages and benefits, the
American taxpayer should simply sit on the sidelines. Unionized auto
workers must be made to understand that the farther we push the economic
pendulum in one direction, the more it hurts when it swings back and
hits us square in the face.