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In search of a road map

November 26, 2005

IT HAS BEEN A GRIM FALL FOR the American auto industry. Surging gas prices put a damper on the sale of high-margin SUVs; Delphi, the nation's largest supplier of auto parts, filed for bankruptcy in early October, and this week, General Motors announced a restructuring that will reduce its domestic manufacturing capacity by nearly 30%, or 2 million vehicles since 2002, thereby eliminating about 30,000 jobs. That announcement came after GM reported a staggering $1.6-billion loss for the third quarter. The one hopeful sign for GM is that it reached a deal with the United Auto Workers to shave $1 billion off its annual healthcare tab.

Detroit's Big Three have little margin of error as they struggle to achieve a soft landing in the face of unrelenting foreign competition. It's bad enough that many consumers believe Japanese brands are more reliable. The fact that Honda and Toyota are not hobbled by Detroit's huge pension and healthcare liabilities adds insult to injury. By the end of next year, Toyota is expected to overtake GM as the world's biggest automaker.

The domestic automakers' woes threaten to become a major political issue, as they did when Japanese imports flooded American shores in the 1980s. Depending on what form the debate takes, Washington's concern for Detroit could spell disaster -- or serve as a catalyst for needed reform.

Last Tuesday, William Clay Ford Jr., chairman and chief executive of the company that bears his name (and which is expected to announce a major restructuring of its own soon), went to Washington to ask the government to assist the nation's auto industry. His speech highlights both the dangers and opportunities inherent in federal concern for the industry.

Ford's request that Congress pass new tax incentives to help Detroit modernize aging plants falls into the latter category. Such incentives would amount to a naked protectionist handout. His call for even more tax credits to promote hybrid technologies also needs to be scrutinized carefully.

A car's nationality is becoming less discernible, as foreigners build plants in America and Detroit outsources some production, but Ford argued that there is a still a distinction between the domestic and foreign industries. Perhaps, but Ford then indulged in protectionist overstatement: "We must take the lead and show the world that there is only one true innovative manufacturing giant. And it has three distinct initials: U.S.A."

On the other hand, in asking the White House to focus more broadly on lessening our reliance on foreign oil, Ford is lobbying for action that could benefit all Americans. And though Ford didn't offer any proposals to bring down healthcare costs in his speech, that is another front on which the automakers' plight can add pressure to address a general problem without serving as an excuse for bailouts.

Many of the problems facing the U.S. auto industry are of its own making. Others are representative of the challenges facing all U.S. manufacturers in the global marketplace. Congress should be careful to separate the two.

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