NCPA - National Center for Policy Analysis


November 7, 2008

How should Detroit's automakers be reshaped by the government?  Should it be through a taxpayer bailout or by letting bankruptcy judges take charge?  Both fixes have their fans, yet neither would really solve the industry's essential problem.  Here's a better idea: deregulation, says the Wall Street Journal.

Currently, the "two fleet" rule -- manufactures must meet separate standards with their "domestically" and "nondomestically" produced fleets -- is doing nothing for U.S. consumers and is just a naked handout to the United Auto Workers (UAW) at the expense of the companies and their customers, says the Journal:

  • Nissan, in a petition for its removal, points out foreign brands may actually minimize the domestic content in their U.S. cars so they can continue to count as "nondomestic."
  • Chrysler might not be unraveling today if not for the two fleet rule, the real genesis of the Hail Marys it's been throwing in all directions to find an electric car or a small-car partner or to merge with GM.
  • It has a perfectly salvageable business making trucks, minivans, muscle cars and Jeeps -- doomed only by the lack of enough small, fuel-efficient cars to roll out of a UAW factory with a Chrysler emblem slapped on.
  • For 30 years, to make and sell the large vehicles that earn their profits, the Detroit BigThree have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car.

Deregulation would allow automakers to meet the fuel economy standards with any mix of autos made in domestic or overseas factories, adds the Journal.  But here's the key: Detroit would finally get what every foreign competitor and just about every other business has -- normal leverage over labor costs.  Auto jobs wouldn't automatically flee offshore; thus, protecting jobs here at home, says the Journal.

Source: Holman W. Jenkins, Jr., "Yes, Detroit Can Be Fixed," Wall Street Journal, November 5, 2008.

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