No Detroit Bailout

Detroit can't compete with Alabama, let alone China, Matt Kibbe writes.

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In 1985, 3,200,000 vehicles were made in Michigan, compared with 2,400,000 today—a loss of 800,000 units. In 1987, the first car rolled off the assembly line in Alabama. Today, 750,000 cars are made in Alabama, almost completely offsetting losses in Michigan.

The story was slightly different in Ohio, where 1,900,000 cars were built in 1985. Auto production dropped slightly, to 1,800,000 vehicles in 2007. But while the Big Three dramatically shed jobs across the Buckeye State , Honda set a record in 2007 by producing 700,000 vehicles in Ohio. GM, Ford, and Chrysler are all shedding jobs at UAW facilities in Dayton, Cleveland, and Toledo, but non union Honda factories in rural Ohio employ 16,000 and are stable.

In the long run, the automobile industry faces dramatic changes, with new sources of propulsion and a greater focus on design and marketing. In the not-too-distant future, we will design and purchase vehicles online. The winners in this era will be the most flexible companies able to respond to consumer demands overnight.

If this is where the industry is heading, why should the cash-strapped American taxpayer bankroll failed management teams and the UAW in Detroit, who are clearly not prepared for this new automotive era?

Even if the Big Three get their bailout from reality, it only postpones the inevitable as they continue to grapple with an inflexible workforce and catastrophically high legacy costs. Consumers will still get a piece of the 1970s with every new car they purchase. It will be a repeat of the British bailout of the automotive giant British Leyland. After nearly $15 billion, the British taxpayer is left with nothing but nostalgia.

Recession is like nature's wildfire: It cleans out the deadwood from the economy. The Big Three will survive only as auto companies, not employee benefit organizations propped up with taxpayer money.

After a successful reorganization—not a bailout—the Big Three (or two, by that point) will be able to escape the past and emerge as competitive companies. Chapter 11 might be the last shot for the Big Three to credibly claim it is a new day in Detroit and to win back the faith of the consumer.

Matt Kibbe is president of FreedomWorks Foundation, a grass-roots education organization that believes in lower taxes, less government, and more freedom.