Posted by
john on Wednesday, December 03, 2008 10:02:04 PM
Holman Jenkins of the WSJ recently hit upon a tremendous idea that would not only help the Detroit Three survive (and perhaps even thrive if and when the economy returns to growth mode), but also save the taxpayers from massive subsidization of failure, which, as we know all-too-well, will only beget more failure. His solution: abolish the ridiculous "two fleet" rule that guides CAFE compliance.
The "two fleet" rule holds that in determining CAFE compliance, manufacturers must segregate their fleets by "domestic" and "non-domestic" production. Then, a determination is made for each of these categories, separately, whether they comply with CAFE. Thus, even if your combined "domestic" and "non-domestic" fleets are in compliance, if your "domestic" fleet, by itself, is not, it must bring itself into compliance or pay heavy fines.
The effect of this approach, according to Mr. Jenkins, is that domestic manufacturers are trapped into making large numbers of money-losing, high-mileage vehicles in the U.S., as a sop to the UAW. This dilemma has potentially huge consequences not just for the health of Detroit, but for economic recovery generally.
Folks, this is the 21st century. Walter Reuther died in 1970. Ancient rules such as the "two fleet" rule are the barnacle-encrusted residue of a world in which the "Big Three" ruled like Triceratops, and the UAW squeezed them for their share. Now, in a world in which the "Big Three" are clinging to life, thanks to this anachronism we are faced with two alternatives, on promising, one ugly.
The good: permit a company, such as Chrysler "which has a perfectly salvageable business" to meet CAFE standards by making low value-added, high mileage vehicles offshore, thus leveling the cost structure playing field with "foreign" makes (which not only aren't unionized, but infamously evade the two-fleet rule by minimizing domestic content in their U.S.-made cars so they can count as "non-domestic").
The ugly: a never-ending bailout, consisting not only of direct taxpayer aid, but massive indirect costs to the nation in terms of protectionism and "taxpayer financed industrial cronyism".
I wish I could be optimistic about where this is headed. In theory, the indications of apparent willingness on the part of the UAW to go along with "concessions" might indicate the possibility of a solution along the lines set forth above. But, as mentioned in other posts, I'm afraid the endgame doesn't involve putting the Detroit Three on a solid footing for profitability as private (non-goverment sponsored) entities. This, I'm certain, bodes ill for economic growth.