Morici V the Big 3

Peter Morici, an international business professor at the University of Maryland, last week singlehandedly put paid any hopes the Detroit 3 -(General Motors, Ford, and Chrysler) had that US Senate Banking Committee would approve a $25 billion bail-out by the government.

The case Morici made was such a strong one that the the the Chicago Tribune calling him “a one-man wrecking crew”, printed  the full transcript of his evidence.

Morici’s remarks are worth reading because if he’s diagnosing the situation correctly, than he presents President-elect Barack Obama and congressional Democrats who received strong backing from the UAW and organized labor generally with a real dilemma: The UAW desperately wants the bailout.

But a bailout to the tune of tens of billions of dollars may just be throwing good money after bad.
MR. MORICI: My name is Peter Morici. I’m an economist and professor at the University of Maryland. I’m the sole panelist here to speak against the bailout. I guess three CEOs and a president of a labor union, one Terrapin (the school’s turtle mascot) — I think it’s a pretty fair matchup actually. I feel sort of like the mouse that stowed away on the Titanic.

The automobile industry has two major components: the Detroit Three and the Japanese, Asian and European transplants that assemble vehicles here. Both contribute vitally to our national economy. And ensuring that these companies have the means, to compete, is of the most important national interest.

The gradual erosion of the market shares, of the Detroit Three, over the last several decades, stems from higher labor costs, having origins in wages, benefits, work rules, poor management decisions and less than fully supportive government policies.

Although the government has been sympathetic, to the needs of this industry, the industry has fallen victim to currency manipulation and other forms of protectionism, predominantly in Asia, in Japan, Korea, China, India and elsewhere. The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization.

It’s my position that it would be better to let them go through that process and reemerge with new labor agreements, reduced debt, strengthened management. That would permit these companies to produce cars at costs comparable to those enjoyed by their Japanese and other foreign competitors assembling vehicles in the United States.

Circumstances today …..(read on)

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