And, Solving it Presents Opportunities for a New Economy
While the automobile companies deserve some blame for the problems in their industry, there is blame to spread around. The root cause of the biggest problems is the alliance between big corporations and government which has led to poor decision-making in Washington. It is embarrassing to hear Congress put all the blame on the Detroit triopoly and not acknowledge their irresponsible behavior in bowing to corporate pressures.
Solving the auto industry problems is an opportunity to begin to shape a more effective new economy that changes the relationship between corporations and government as well as share’s the wealth more equitably.
The Causes of the Auto Crisis
Corporate-government created the three major causes of the auto industry crisis: health care, the credit crunch and low efficiency cars.
Health care is an out of control cost where double digit annual price increases are more common than rare. While other industrialized nations have controlled the cost of health care, the United States has not. President Truman called for a single payer national health insurance plan many decades ago, but the Congress has been unable to show the will to face-up to the issue because of the power of the health insurance and pharmaceutical industries. While health insurance is on the Obama-Kennedy agenda, they are still not challenging those industries as they should and not confronting the real problems.
Every business small and large has struggled with paying the health insurance costs of their employees. It has held back hiring and holds back wages. A mega-corporation like General Motors sees those problems amplified. It would not be unfair to describe General Motors as a health insurance provider who happens to make cars. GM spends $5 billion annually on health care for 1.2 million people – only 150,000 of whom work for the company. GM, Ford and Chrysler have a combined unfunded retiree health care obligation of more than $90 billion. Health care adds $1,500 to the cost of each vehicle. This reality alone makes it virtually impossible for GM to have a successful economic model and it is not something GM can fix. Health care is a major problem not only for the auto industry, but the airline and steel industry as well as businesses of all size. The failure of Congress to face up to single payer health care is becoming a threat to the American economy.
The second major cause of the current auto industry crisis is the crash of the credit markets. This has made getting loans to purchase cars more difficult and has resulted in a massive drop in automobile purchases. The U.S. auto market fell 14.8% through the first 10 months of 2008 and sales in October plunged 31.9%. Why? The lack of available credit for potential car buyers. And, on the other end, the industry cannot get loans to cover the dramatic loss in car sales.