Andrew Jenkins at the Wall Street Journal has written yet another interesting summary of the automobile industry "crisis" in the US. Well, actually, not exactly; Jenkins writes about the so-called "Big Three" companies headquartered in Detroit. Other companies, such as Toyota and Honda, employ thousands of US worker and profitably build and sell tens of thousands of cars, but these companies are not the ones in line for handouts.
As Jenkins has mentioned before, the people running the Big Three automobile companies are not idiots; their problems stem in large part from government intervention. Jenkins advocates the simple but remarkable idea that the government help the automobile companies not by giving them money but by changing laws and regulations that force them into untenable situations.
I particularly enjoyed reading the first article I referenced for two reasons. Firstly, Jenkins explains in loving detail why GM's Volt, an automobile that may go on sale in 2010 and touted as the salvation of the company, will actually (if anything) put GM into an even more precarious situation.
Secondly, in both articles Jenkins mentions the "two-fleet rule." This rule, put into place at the insistence of automobile workers' unions, forces the Big Three to build small cars in the US using union workers. Put simply, the government artificially disaggregates the cars built by the Big Three into two categories: built in the US, and built overseas. Each separate "fleet" must meet Corporate Average Fuel Economy (CAFE) requirements. As a result, the automobile manufacturers must build small, high-mileage cars in the US as a counterweight to their less fuel-efficient big cars; they cannot blend the two "fleets" to find their average fuel economy.
The result of this artificial disaggregation is very simple: union jobs and huge costs to the manufacturers. But of course, the former was the intent of the disaggregation while the latter is simply a side effect. Still, I find it interesting to see the role that artificially-imposed disaggregation can play in killing, rather than invigorating, a company.
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