Consumers, not taxpayers, should set auto fate

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The Article

When GM and Chrysler asked for a $4.2-billion government bailout in December, I wrote that it was insane to continue to toss money into the auto industry money pit and expect a different result. After all, we’ve handed the Big Three plenty of money over the years (according to the Canadian Taxpayers Federation, we’ve bailed them out to the tune of $782 million over the past five years alone), with the only result being more requests for more money.Why should this bailout be any different?

Less than three months later, GM and Chrysler proved my point. In that short period, they lost even more money and have more than doubled their bailout request; it will now take $10 billion to save them. That number could rise even higher, but the end result will always be the same—the industry will be broke.

Most Canadians seem to agree with that assessment. According to a Strategic Counsel web poll released this week, 49 per cent of Canadians agreed that “it would be better to let the Big Three automakers (GM, Chrysler and Ford) go bankrupt than bail them out,“while 67 per cent said it would be “throwing good money after bad, and they will go bankrupt anyway.”

The main problem isn’t the global financial crisis. Rather, the survey indicates a growing consensus that the Big Three have failed to keep up with foreign car manufacturers in adapting to the changing needs of North Americans.

I recall childhood family vacations where our 1980 Cadillac pulled a 26-foot trailer and got four mpg. While North American manufacturers built big luxury cars during the oil shortages of the 1970s, the foreign car manufacturers crept into the market with their small, more energy-efficient cars.

Three decades later, not much has changed. Oil is again at a premium and energy-efficient foreign cars dominate the Canadian landscape, while huge numbers of gas-guzzling SUVs take up space on dealer lots. Canadian manufacturers are still a step behind Canadian consumers and foreign manufacturers. That’s why President Barack Obama and his administration want to tie the American auto bailout to an industry that produces “the cars of the future.”

North American manufacturers have failed to learn from their mistakes. The Big Three market share has fallen from 95 per cent in 1962 to 80 per cent in 1980 and 44 per cent today. Asian carmakers now sell the most cars in the U. S. markets. The story is the same in Canada, where seven of the 10 top selling cars for 2007 and the first half of 2008 were made by Honda, Toyota and Mazda. The Chevy Cobalt, Pontiac Gand Ford Focus were the only American products to make the list, with the Cobalt leading in fifth place.

A second problem keeping the industry from profit is their insane union wages that average $76 an hour (compared to $57 an hour at Toyota). As a result, it is estimated that labour costs account for $1,500 per vehicle, compared to $300 for foreign manufacturers. GM recently struck a deal with the Canadian Autoworkers Union to cut wages by $7.25 per hour, but Chrysler remains adamant that it needs a $19 per hour pay cut to keep the company afloat.

Decades ago, the North American car was a status symbol and a sign of the superior technology of American industry. But times have changed; many consumers are more concerned about conserving gas and/or saving the environment than driving a big car with all the bells and whistles.

The real issue is whether Canadians are comfortable with an auto industry that is dominated by foreign automakers. The market share for North American cars has been falling for the past 30 years. If we want domestic manufacturing to continue, we either have to start buying Canadian cars or agree that we will always keep the industry afloat with our tax dollars.

Alternatively, if we are OK with foreign carmakers having a dominant presence, then we should let the market forces—not government bailout—decide the fate of the Big Three.

Consumers have made their choice—and now it’s up to the federal and Ontario governments to make theirs.

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Joel Johannesen
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