Sunday, November 16, 2008

Auto Industry Collapse Would Be Disastrous In Today's Economy

Does it really make sense to follow the advice of Republican Senator Richard Shelby of Alabama and let the auto industry collapse?

"They're not building the right products," Shelby said. "They've got good workers but I don't believe they've got good management. They don't innovate. They're a dinosaur in a sense."

Columnist Bob Herbert outlines the consequences, especially dire in today's volatile economy:

It’s not just General Motors or Chrysler or Ford. The U.S. auto industry is the cornerstone of American manufacturing. It supports millions of jobs, directly or indirectly, in a vast array of businesses.

Start with the thousands of parts in each vehicle. They are produced by suppliers across the country, from one coast to the other. Those supplies have to be manufactured, packaged and transported. Truck drivers, railway systems and shipping companies are involved.

And, of course, there are dealers everywhere. And the auto repair industry. And the insurance industry. And vast systems of advertising supporting every kind of job you can imagine, from messengers to accountants to filmmakers and beyond. All of that advertising funnels absolutely crucial revenues to television, magazines, newspapers — you name it.

If G.M., which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of entire armies of American workers. It would undermine the standard of living of hundreds of thousands of families and shutter the entrances of untold numbers of small and intermediate businesses.

Unlike Shelby's defeatist stance, Herbert advocates crafting a plan that calls for both rescue and reform:

This whole matter needs some intensive thought. At the moment, Washington has tremendous leverage over the failing auto industry. The government should craft a rescue plan that is both tough and very, very smart. That means dragging the industry (kicking and screaming, no doubt) into the 21st century by insisting on ironclad commitments to design and develop vehicles that make sense economically and that serve the nation’s long-term energy security requirements.

Barack Obama made the same point in his "60 Minutes" interview on Sunday:

For the auto industry to completely collapse would be a disaster in this kind of environment. So my hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all of the stakeholders coming together with a plan — what does a sustainable U.S. auto industry look like?

One thing's for sure: allowing the auto industry to collapse is not part of a sustainable economic recovery.

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