Objects in Mirror Are Closer Than They Appear

Visual acuity improves with hindsight. Still, it's hard to understand how American automobile manufacturers let their situation deteriorate to the point of crisis. The auto industry's woes are a replay of the collapse of the domestic steel industry in the 1980's. As John Hoeer documented in And the Wolf Finally Came – The Decline of the American Steel Industry, self-serving, short-sighted behavior by management and the union is bad for business. Both parties functionally ignored the obvious challenge that foreign steel manufacturers presented. By the time the steel industry and the United Steelworkers were done fighting over concessionary contracts, the game had changed.

More than 350,000 steel industry jobs have disappeared since 1977. Since the 1980's, most of the losses have been due to automated manufacturing processes that have multiplied productivity.

Profits for steel makers are closely tied to the numbers of autos sold. Automobile production costs reflect the price of steel. As domestic steel companies endured bankruptcy, reorganization, and fought for trade regulation, the Big 3 was there, watching from a front row seat.

Many Americans, including the Republican side of the U.S. Senate, believe that a $14 billion loan is not the best avenue to avoid a Detroit debacle. Some analysts believe otherwise. Parallels between the decline of domestic steel and auto companies don't necessarily translate into the same prescription for survival. Comparing the auto industry's plight to steel, the Pittsburgh Post-Gazette's Len Boselovic recently wrote:

Even when the steel industry hit bottom, a few stable producers remained standing that had enough staying power to acquire their fallen foes, such as U.S. Steel's $1.3 billion acquisition of National Steel. Also, a major financial buyer emerged: financier Wilbur Ross, who lined up credit to purchase Bethlehem, LTV Steel and Weirton Steel.

The Big 3 have attracted some private capital in recent years, with Cerberus Capital Management acquiring a controlling stake in Chrysler last year for $7 billion. But there is no private source of capital to fund their way out of the recession now.

Boselovic interviewed Scott Paul, of the Alliance for American Manufacturing, who warned of far-reaching effects if General Motors, Chrysler, or Ford goes under:

The Washington, D.C.-based policy analyst said the auto industry has a much larger economic footprint than steel. Including dealers and parts suppliers, it employs more than 1.5 million workers, spends $156 billion annually on parts, materials and services and supports as many as one in 10 U.S. jobs. Car manufacturers are the biggest customers for steel, plastics, electronics and computer chips.

Today, the House of Representatives passed a bill to aid GM and Chrysler. Ford Motor Company does not face short-term liquidity problems, but supports loans to the other car companies.

The Senate will take up the issue on Thursday. Although President Bush favors the loan legislation, it's not likely to get to his desk in it's present form.