Amtraking Automakers

The odds that the federal government will ever get its hooks out of Chrysler or General Motors are slim to none, regardless what President Obama says. Why?  In one word, Amtrak.  

There are reasons why Chrysler and General Motors are failing, and they have nothing to do with hard luck.  Both companies are top-heavy, paying more for union labor (and retirees) than their competitors and, since the 1970s, have turned out cars that consumers want in dwindling numbers. 

The Big Three (that includes Ford) have higher costs and have gotten an image as lower quality than some foreign competitors. Toyota and Honda have gotten technology, design, quality, and value right more often. And they build cars on American soil.  Though both companies are experiencing downturns in sales, neither is looking for handouts (to its credit, neither is the struggling Ford Motor Company). 

In Wednesday night's press conference, and on Thursday afternoon, when the President announced the Chrysler plan, he made it clear that the feds had no intention of staking a permanent claim in either of the two companies. 

But with the United Auto Workers receiving a majority stake in the company for its concessions, and Italian automaker, Fiat, claiming a minority share, and the federal government with its stake until every last penny of taxpayer money is repaid, what is the likelihood that Chrysler ever turns the corner?

Making the UAW Chrysler's majority owner is putting one of the problems in charge of finding a solution.  A union's first obligation is to its members.  Yes, the UAW made concessions in wages and benefits to help engineer its takeover, but how much further is it willing to go to gain economies or reforms that benefit the company at the expense of its rank and file?  Union bosses aren't likely to approve additional cuts that threaten a revolt among dues paying members. 

And Fiat?  Fiat was brought into the picture because it makes little green cars -- green as in environmentally friendly.  The President has made no bones about wanting Fiat 500more fuel efficient cars produced out of Detroit and elsewhere.  All the hybrid technology is nice, and may prove to be cost-competitive down the road, but the surest route to higher gas mileage now is to make cars smaller, not unlike what Fiat makes for its European markets. 

Enter American consumers.  They tend not to like small cars.  And for two very important reasons.  Unlike Europeans, Americans keep making babies.  Americans have bigger families, and need bigger cars -- or SUVs and vans.  Bigger cars are less a luxury than a practicality.  Try stuffing two or three kids into the back of an Escort or a Smart car. 

The second reason is safety.  Smaller cars may receive Al Gore's seal of approval, but plenty of tests demonstrate that smaller cars are less safeEven if every last man, woman and teenager in America drove small cars, it wouldn't make the roads safer.  Two small cars plowing into one another are tantamount to sure death.  Most Americans aren't willing to risk their lives -- or their families -- for a dubious environmental trade-off.   

If Chrysler is forced to Fiat-ize its models, if prices aren't competitive, if quality continues to lag, what are the chances that the automaker will ever detach from the government teat? 

And what are the chances that the President and congressional Democrats would let Chrysler fail and all those union voters queue up for unemployment?

This brings us to Amtrak.  Amtrak may just be the future business model -- if you can call it that -- for Chrysler and General Motors.  Amtrak is highly subsidized, underutilized and poorly performing.      

Since its inception thirty-nine years ago, Amtrak has been a losing proposition.  It survives only because of generous annual federal subsidies.  That number was $1.3 billion in taxpayer money in 2008.  On its own in the free market, Amtrak would have gone the way of the Ford Edsel years ago.  But it lives on because East Coast politicians gain votes from a small population of commuters who use the system.  And Amtrak employees.   

Ronald D. Utt, PhD, wrote for The Heritage Foundation a year and a half ago:

"Since Amtrak's inception in 1970, the annual business-as-usual bailout has allowed it to squander $30 billion in taxpayers' money for the benefit of a tiny fraction of the traveling public and its overpaid workforce. Despite this massive subsidy and end­less promises of improvement by a series of recent managers, Amtrak is no closer to service sustain­ability today than it was in 1971 when the system began service."

An earlier generation would term Amtrak a "boondoggle."  Today, it's just a public service investment.   

Perhaps Doctor Utt will be writing something like this in the coming years:

"Since Chrysler's rescue plan in 2009, the annual business-as-usual bailout has allowed it to squander $30 billion in taxpayers' money for the benefit of a tiny fraction of car buyers and Chrysler's overpaid workforce. Despite this massive subsidy and end­less promises of improvement by a series of recent managers, Chrysler is no closer to sustain­ability today than it was in 2009 after its initial bailout."

And given the President's plans for other parts of the economy, that may be only half the truth. 
The odds that the federal government will ever get its hooks out of Chrysler or General Motors are slim to none, regardless what President Obama says. Why?  In one word, Amtrak.  

There are reasons why Chrysler and General Motors are failing, and they have nothing to do with hard luck.  Both companies are top-heavy, paying more for union labor (and retirees) than their competitors and, since the 1970s, have turned out cars that consumers want in dwindling numbers. 

The Big Three (that includes Ford) have higher costs and have gotten an image as lower quality than some foreign competitors. Toyota and Honda have gotten technology, design, quality, and value right more often. And they build cars on American soil.  Though both companies are experiencing downturns in sales, neither is looking for handouts (to its credit, neither is the struggling Ford Motor Company). 

In Wednesday night's press conference, and on Thursday afternoon, when the President announced the Chrysler plan, he made it clear that the feds had no intention of staking a permanent claim in either of the two companies. 

But with the United Auto Workers receiving a majority stake in the company for its concessions, and Italian automaker, Fiat, claiming a minority share, and the federal government with its stake until every last penny of taxpayer money is repaid, what is the likelihood that Chrysler ever turns the corner?

Making the UAW Chrysler's majority owner is putting one of the problems in charge of finding a solution.  A union's first obligation is to its members.  Yes, the UAW made concessions in wages and benefits to help engineer its takeover, but how much further is it willing to go to gain economies or reforms that benefit the company at the expense of its rank and file?  Union bosses aren't likely to approve additional cuts that threaten a revolt among dues paying members. 

And Fiat?  Fiat was brought into the picture because it makes little green cars -- green as in environmentally friendly.  The President has made no bones about wanting Fiat 500more fuel efficient cars produced out of Detroit and elsewhere.  All the hybrid technology is nice, and may prove to be cost-competitive down the road, but the surest route to higher gas mileage now is to make cars smaller, not unlike what Fiat makes for its European markets. 

Enter American consumers.  They tend not to like small cars.  And for two very important reasons.  Unlike Europeans, Americans keep making babies.  Americans have bigger families, and need bigger cars -- or SUVs and vans.  Bigger cars are less a luxury than a practicality.  Try stuffing two or three kids into the back of an Escort or a Smart car. 

The second reason is safety.  Smaller cars may receive Al Gore's seal of approval, but plenty of tests demonstrate that smaller cars are less safeEven if every last man, woman and teenager in America drove small cars, it wouldn't make the roads safer.  Two small cars plowing into one another are tantamount to sure death.  Most Americans aren't willing to risk their lives -- or their families -- for a dubious environmental trade-off.   

If Chrysler is forced to Fiat-ize its models, if prices aren't competitive, if quality continues to lag, what are the chances that the automaker will ever detach from the government teat? 

And what are the chances that the President and congressional Democrats would let Chrysler fail and all those union voters queue up for unemployment?

This brings us to Amtrak.  Amtrak may just be the future business model -- if you can call it that -- for Chrysler and General Motors.  Amtrak is highly subsidized, underutilized and poorly performing.      

Since its inception thirty-nine years ago, Amtrak has been a losing proposition.  It survives only because of generous annual federal subsidies.  That number was $1.3 billion in taxpayer money in 2008.  On its own in the free market, Amtrak would have gone the way of the Ford Edsel years ago.  But it lives on because East Coast politicians gain votes from a small population of commuters who use the system.  And Amtrak employees.   

Ronald D. Utt, PhD, wrote for The Heritage Foundation a year and a half ago:

"Since Amtrak's inception in 1970, the annual business-as-usual bailout has allowed it to squander $30 billion in taxpayers' money for the benefit of a tiny fraction of the traveling public and its overpaid workforce. Despite this massive subsidy and end­less promises of improvement by a series of recent managers, Amtrak is no closer to service sustain­ability today than it was in 1971 when the system began service."

An earlier generation would term Amtrak a "boondoggle."  Today, it's just a public service investment.   

Perhaps Doctor Utt will be writing something like this in the coming years:

"Since Chrysler's rescue plan in 2009, the annual business-as-usual bailout has allowed it to squander $30 billion in taxpayers' money for the benefit of a tiny fraction of car buyers and Chrysler's overpaid workforce. Despite this massive subsidy and end­less promises of improvement by a series of recent managers, Chrysler is no closer to sustain­ability today than it was in 2009 after its initial bailout."

And given the President's plans for other parts of the economy, that may be only half the truth.