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Detroit Breakdown


By Jonathan B. Propp

NEXT MONTH MORE THAN 30,000 Ford and General Motors employees will join the ranks of the 200,000 auto workers already laid off in this country. As always, business and labor, conservatives and liberals alike, will call upon the federal government to clean up the disaster created by Detroit's mismanagement. Congress' action--or inaction--will reveal what the government intends to do about the effects of the decline of America's prestige industry.

Only a few months ago Congress approved a package of $1.5 billion worth of federal loan guarantees to rescue Chrysler from bankruptcy. During hearings on the legislation, industry representatives presented evidence indicating that Ford and GM were not far behind in the negative profits race. The reason: American buyers were passing by domestic gas-guzzling cars of dubious longevity for smaller, sturdier imports, causing sales of previously popular models to fall by as much as 30%.

The Chrysler debate turned into the liberal's great dilemma. While believing that the federal government should step in and prevent vast unemployment and its ripple effects throughout the economy, they hesitated to set the precedent of bailing out a major corporation from a crisis of its own making. The auto industry has not only been blind to possible consumer reactions to escalating gasoline prices, but it has worked actively to keep the American gas-guzzler on the road. As recently as two years ago, the carmakers lobbied legislators working on the National Energy Act to postpone the proposed deadline for improving the gas mileage of their fleets. Ironically, with the drop in sales of larger cars and the consequent emphasis on compacts in Detroit, the fleets may meet the original deadline of their own accord.

Unfortunately, when the invisible hand of the free market spanks the Big Three, somebody has to lose, and that usually means the workers. Sales plummet, stocks pile up, production stops; in some cases, such as the Ford plant in Mahwa, New Jersey, the closing is considered permanent. All the closings in the current rash of layoffs affect plants producing large and midsize cars or trucks. Meanwhile General Motors' Tarrytown, New York plant is working overtime to keep up with the burgeoning demand for subcompact X-cars.

Most of the laid-off workers will receive compensation from the United Auto Workers equivalent to 95% of their pay for up to a year. Those permanently laid off will qualify for state and federal unemployment compensation programs, Department of Labor retraining funds, and a myriad other government programs that work haltingly but nonetheless ease the economic costs of shutdowns.

Some of the human costs are more difficult to handle. For workers whose only mistake was taking employment in an industry that was running itself into the ground, the specter of indefinite layoffs can be daunting. In a one-industry town like Mahwah that will soon become a zero-industry town, often the only solution is to leave.

The community invariably bears the brunt of such a closing. It loses retail sales, corporate income taxes, residents--in short, its vitality. A confusing tangle of redevelopment assistance from the Department of Housing and Urban Development, the Economic Development Administration, and other agencies frequently remains beyond reach for smaller cities, where the closings often have the greatest impact. Even when it is successfully administered, redevelopment assistance takes much longer than GM needs to pack up its assembly lines and head back to Detroit.

THE QUESTION of blame becomes irrelevant now that the American auto indistustry is suffering from a prolonged sickness, or at least from a serious coughing spell. In addition to the economic motives for trying to heal the industry are interests of international prestige: the automobile symbolizes American technological and economic strength. Federal bail-outs, however, fail to confront the more fundamental problems of economic dislocation.

The federal government could opt for the example set by the European steel-producing nations and attempt a long-term restructuring of the auto industry, since they will end up paying for the results anyway. But central economic planning has never been Congress' favorite project, and it certainly has no hope amidst the current budget-cutting fervor. In all likelihood, Congress will leave the restructuring of out ailing auto industry to the workings of the free market.

Nevertheless, the layoffs in the auto industry have become widespread enough that Congress cannot afford to sit back and wait. As the administration consciously leads the country into a recession, with building industry layoffs already exceeding those in the auto industry, it is economically unwise and tragically inhumane to do so without a comprehensive recovery program to prevent some of the greater disasters.

Such a program would include prior notification of at least six months for plant closings, a reasonable length of time for planning the reuse of facilities. This would allow planning to occur before the closing, not afterward as is done now. The cost of planning, currently the responsibility of the community--sometimes with the help of federal government planning grants--should be borne in part by the departing industry. Furthermore, the grant application process could be streamlined to make the possibility of federal assistance a less forbidding prospect.

We cannot prevent the whims of the free market from leading to occasional pitfalls; we can soften the blow of these falls considerably by being prepared in advance and by easing the transition to a new economic base for cities and their working residents. If the Ford Motor Company has just discovered that Thunderbirds don't sell like they used to, so much the better--but surely several thousand workers should not be forced to suffer the consequences alone.

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