Philip S. Dedig – 12/9/08

This page was last updated on December 10, 2008.

No choice but to help auto makers; Philip S. Dedig; Beaver County Times; December 9, 2008.

Earlier this year Mr. Dedig supported the proposed federal gasoline tax holiday, Hillary Clinton for President, complained about “business as usual” (“Business as usual in D.C.,” 6/17/08) in Washington, DC, regarding energy, opposed offshore drilling, said Democrat voters deserve better candidates (“Local Democratic voters merit better,” 8/22/08), and supported “bailing out Freddie Mac and Fannie Mae” (“Fed, Treasury had to move”, 9/30/08).

Below is a detailed critique of the letter.

“The federal government should bail out the auto industry because it is in the best interest of the nation to do so.”

[RWC] As you will read, Mr. Dedig doesn’t make a good case.

“The bailout would consist of a low-interest (5 percent) loan that has to be paid back to the U.S. Treasury Department. One out of 10 jobs in this country is directly or indirectly related to the auto industry. If it goes bankrupt, it could result in the loss of 3 million jobs.”

[RWC] Bankruptcy doesn’t mean going out of business. For example, US Airways has been in and out of bankruptcy twice and is still in business.

“The states of Tennessee, Alabama, Mississippi and South Carolina subsidized foreign auto makers to build factories in their states.”

[RWC] State governments also threw money at the “Big Three.”

“Some cars imported into this country are less expensive because their manufacturers do not have legacy costs, such as pensions and health care. This puts the American auto industry at a competitive disadvantage.”

[RWC] This is also true for “foreign” cars manufactured in the U.S.

“The auto industry also builds tanks and trucks for the military. We might need these vehicles in time of war. This country does not need to lose more jobs to foreign competition. Our manufacturing base has already been depleted by outsourcing.”

[RWC] I believe the comment that the “auto industry also builds tanks and trucks for the military” is mostly wrong. For example, General Dynamics builds U.S. tanks (M1 Abrams) and AM General builds HMMWVs (Humvees). Other manufacturers of military vehicles include BAE Systems, Oshkosh, and Stewart & Stevenson. While the Big Three likely supply some components, it appears they don’t actually build many military vehicles themselves.

I believe Mr. Dedig meant “off-shoring,” not “outsourcing.”

“The most important issue is the social costs of these companies going bankrupt and the negative effect this would have on auto workers and the communities in which they reside.”

[RWC] If Mr. Dedig believes throwing money at the automakers will solve their problem, he’s mistaken. Until these guys can close the cost gap (at least $1,500 to $2,000 per car) with their competitors, they will continue to be in trouble. Lending the U.S. automakers taxpayer dollars won’t fix the problems; it will only delay the inevitable. As painful as it may be to correct the problem today, it will only get worse as time passes. Bankruptcy is the process we have for failing businesses to reorganize themselves into ventures with a chance of succeeding.