For years, we have been hearing the laments about the fall of the auto industry. The bankruptcy of GM and Chrysler had corresponded with the unemployment in the northern midwest. Detroit is one of the poorest cities in America. To remedy this, the government has practically taken over GM. Chrysler is releasing ads about "buying American" and "made in Detroit". American engineering has begun to be improved. However, the auto trade deficit continues to increase. The top brands in America are Japanese and Korean. The world´s largest auto manufacturer is Japanese. What are the reasons?
They are simple. Unionization and Taxes.
GM pays 75 dollars to its workers while competitors pay 40. This is due to the massive benefits packages that the UAW (the major union) has negotiated. American carmakers are held hostage by these powerful political forces and never been bold enough to outbluff the unions when there is a standoff. In contrast, Toyota´s factories do not have unions. The original purpose of unions was to protect workers from arbitrary wage fluctuation, unexpected firings, bad working conditions, etc. But today, such unions are simply bullies. Their main role is to use their political clout to force automakers to build unionized factories on their terms. With the politicians in the back pocket, automakers cannot eliminate inefficiencies or replace workers with robots, cannot close down old and inefficient factories, and cannot reduce benefits when facing a crisis.
American manufacturers have had no choice but to relocate production to Mexico and other places. In response to this, the unions have demanded the end of NAFTA and free trade. In a short-sighted attempt to preserve the status quo, unions have created a massive trade deficit and have wrecked the US auto industry. Indeed, a whole region of America has been rusting away.
The argument that the unions use is that Asian carmakers take advantage of their workers and cheap labor in Asia. This argument has also been debunked in recent years. Toyota recently built factories in places like Kentucky and Alabama. These states, poor and desperate for money, allowed Toyota to build deunionized factories and gave them huge tax breaks. Contrary to union predictions, Toyota workers express great company loyalty and report satisfaction with their work. The use of robots in factories causes greater profit margins which in turn enable Toyota to hire more workers.
My proposal is simple. Allow manufacturers to deunionize and disband the union. Such a move is unfeasible politically and would be very unpopular but it will be good in the long run. US manufacturers would be able to close down their old factories, modernize production, and reduce wages to market prices. This alone would revitalize the industry. As for abuses of workers, we already have so many laws in place against worker abuse. Any worker abuse could be easily documented in this era of instant reporting from anywhere.
My second proposal is to reduce state corporate taxes to levels similar to Mexico and other countries. I would even be in favor of no tax. In addition, get rid of unwieldy regulation and bureaucratic red tape in order to offer an optimal business environment. When Kentucky and other Southern states did so, the companies came. If anything, Toyota outsourced their production to the US. It is ironic that a Toyota car is made in America while a Ford is made in Mexico.
By following these simple steps and allowing the market to take the reins, the auto deficit will halt and reverse to a healthy balance. The revitalization of Detroit is in our grasp - but it won´t happen through a pointless but snazzy "Made in Detroit" campaign.
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