Mitt's Detroit diagnosis
In an op-ed in today's Times, Mitt Romney makes a pretty good case against bailing out the domestic auto industry. But he seems to lay an inordinate amount of blame for Detroit's woes on the extra costs that current labor agreements impose on American manufacturers in comparison with foreign competitors. Here's the section in question:
First, their huge disadvantage in costs relative to foreign brands
must be eliminated. That means new labor agreements to align pay and
benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota.
Furthermore, retiree benefits must be reduced so that the total burden
per auto for domestic makers is not higher than that of foreign
producers.
That extra burden is estimated to be more than
$2,000 per car. Think what that means: Ford, for example, needs to cut
$2,000 worth of features and quality out of its Taurus to compete with
Toyota’s Avalon. Of course the Avalon feels like a better product — it
has $2,000 more put into it. Considering this disadvantage, Detroit has
done a remarkable job of designing and engineering its cars. But if
this cost penalty persists, any bailout will only delay the inevitable. [emph. added]
The implication, obviously, is that if Ford could put $2000 bucks more into the Taurus, it would be just as appealing as the Avalon.
This seems like a real reach. I recently heard a talk-radio caller explain that he won't buy domestic because American-built cars start breaking down at 120,000 miles, while Japanese imports routinely make it to 200,000 miles with minimal repairs. That sounds about right; it definitely fits my own experience.
So here's the question: if Ford had an extra $2000 per car to play with, would this difference magically disappear? I don't know cars like Mitt does, but I'm skeptical.
P.S.--If nother $2000 bucks per car would make all the difference, than Ford should spend it, pass the bill on to the consumer, and let the market take its course. After all, the Taurus's bottom MSRP is currently $24,125; the Avalon's is $27,845.
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