Wednesday, June 3, 2009

WSJ's best writer on the auto vs. rail industry bailouts

AlphaNinja has said it before and will say it again - Detroit can be green or it can be profitable, but there's no chance in hell it can be both. Jenkins below on the complete farce that is the CAFE standards, and how to right the industry.

Jenkins: Lessons from setting the freight railroads free.

"We have a second auto industry, founded after the political and legal system had thought better of mandatory unionization, born of foreign parents, mostly in the South. It's surviving the recession without extraordinary help."

In his message to Congress, Mr. Carter warned of a "catastrophic series of bankruptcies" and "massive federal expenditure" unless deregulation was allowed to "overhaul our nation's rail system, leading to higher labor productivity and more efficient use of plant and equipment."

Involving Congress meant the plan had to be explained and rationally coherent -- features missing from Mr. Obama's contradictory auto policies.

Nothing really will be solved, even by GM's bankruptcy, until Washington recognizes its own policy incoherence -- namely the impossibility of reconciling stiff fuel mileage mandates with gasoline prices set by the market, with a domestic labor monopoly, with a high degree of openness to international trade. (You can have three, but not four.)

It took 103 years after the Interstate Commerce Act for Congress to junk the regulatory apparatus that destroyed the railroads. To get rid of CAFE after only 34 years would be some kind of record -- if Mr. Obama had Mr. Carter's courage.

Let's face it: CAFE has done nothing to reduce gasoline usage or oil imports (car owners just end up driving more miles). In 34 years, not a whisper of testimony has come from any quarter that the policy actually works. It only causes U.S. manufacturers to make small cars and dump them at a loss on the public, subsidized with the profits of pickups and SUVs.

Detroit doesn't have to match the transplants in wages and benefits, but CAFE distorted what would have been the Big Three's natural path of adaptation to the natural fact of growing diversity in the marketplace with the arrival of foreign manufacturers. Detroit would have focused on market segments where it could compete profitably even with its higher labor cost -- on bigger, pricier vehicles where labor cost is a lower share of value added.

Unfortunately, Mr. Obama, that freethinker, took to the CAFE fraud like a bat to a belfry. He signaled his arrival on the presidential stage by sternly demanding higher mileage standards early in his campaign. The "change" candidate who might have broken with a generation of political cant about CAFE instead appropriated the fraud for his own careerist purposes.

That tangled web now catches him in a fatal contradiction as he pours tens of billions of taxpayer dollars into the failed business model that CAFE foisted on Detroit."

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