Dysfunctional Detroit by Navin Doshi (February 6, 2009)

It’s clear that society functions best when a man literally minds his own business. When individual or institutional autonomy is disturbed due to the actions of governments, be they communists, dictatorships or socialists, or by organizations like trade unions or coalitions of business interests that don’t have a nation’s interest at heart….that’s when things start to fall apart. If you are busy paying attention to your neighbor’s farm and not manning your own, you’re setting yourself up for a bad crop, or maybe even a foreclosure. There are too many examples including that of India how country suffered due to too much of Government bureaucracy during last half of the 20th century.

The current situation in Detroit is a case in point. Once an innovator of manufacturing that changed America, Detroit was born from Henry Ford’s brilliance of assembly line productivity that allowed the common man the ability to own his own car. The rest was history with resulting freeways across the United States, bearing millions of autos for years to come. The rallying call defining America as “baseball, hot dogs, apple pie and Chevrolet” was the legacy of an auto industry that made good money for pensioners and shareholders for the first 70 years of the twentieth century.

Then came the competition from outside.

It is one thing to have right wages proportional to productivity…or even profit sharing in a business…but it is different when wages and benefits continue to increase regardless of market conditions or productivity. And certainly this has been the case in Detroit where foreign creativity, motivation, and cheap labor were the causes that ultimately favored the imported cars in their challenge to Detroit’s legacy. Management and bosses of unionized workers kept on digging into Ford, GM and Chrysler’s shareholders’ equity for decades while they continued to proclaim America’s auto industry was the king.

And the people swallowed it … thinking America was the best. But in time the consumers became better informed….and Detroit started to steadily lose its share of the market. Occasionally new demands were created for new automobile products by employing good marketing strategies that made the SUV a household word and the Hummer a sign of the modern urban warrior of the road. However, within the last ten years Toyota, a Japanese company, climbed to the top of the heap, and General Motors began to see that it was selling more cars to Asia and South America than in its own domestic back yard.

Though oil got cheaper at different periods, the foreign imports kept on coming back and remained competitive. Ultimately the music stopped, and the sale of inefficient cars of Detroit began to really suffer when oil prices went up to stratosphere in 2008. Then markets of every thing crashed including autos …Detroit found itself in a very precarious condition.

The US car company bosses and their unions came to Washington with hat in hand looking for billions of dollars loan from Uncle Sam. Opinions are divided on whether John Doe Public should pay for Detroit’s irresponsibility and failure to pay attention to their farm. It isn’t the first time it has happened. It had happened in 1970s during Carter administration to save Chrysler. The seeds of today’s auto crises were sown in the 1970s as to what America is dealing with now.

I do believe in the balance of two opposites, but not at the expense of someone else. Surely Detroit’s management and unionized workers found a balance to survive with one another lacking harmony and with little complementing; but in so doing they mutually made their business less competitive and their product less effective. They, as a cooperating nemesis, stole the auto industry’s shareholders’ equity which in the case of GM for example, was over 60 or 70 dollars per share only a few years ago. Last year during November 2008, GM shares were trading below 3 dollars.

This is an undesired balance on the dark side. I advocate a balance complimenting two opposites maintaining harmony without stepping on the toes of the share holders. But there was no harmony, only revenge against business owners who had colluded with managers against workers in the past. It was basically the snake biting its own tail in a choreographed regression of going backward and not forward. Overall result: we seem to be first in a severe recession, then probably a rising inflation and ending up with a greatly devalued American greenback. If you look closely it also bears an eerie similarity to the state of the US economy during later part of the 1970s when we were hit with stagflation; high unemployment, high inflation and high interest rate.

In 1962 I bought my first new car, a Corvair, for around 3000 dollars. An equivalent car today would cost around 30,000 dollars. Gold in the 1960s, though not legally owned in USA, was around 90 dollars an ounce. Today gold is around 900 dollars an ounce. A hamburger in the 1960’s was 30 to 40 cents; today its median price is about three to four dollars. So a dollar of the 1960s have dropped down to a dime about forty-five years later. However, with all this money coming out of Washington trying to prop up everything from Wall Street to Detroit (Obama administration is looking at over a trillion dollar stimulus package as I write) we may see an accelerated devaluation of a US dollar going to a dime within 10 years rather than the 45 years it has taken in the past.

President-elect Obama seems to be assuming FDR’s role, assuming we are in a similar predicament as America was in 1930’s, which ultimately means he doesn’t really have a choice but to bail out Detroit, even though Detroit doesn’t deserve to be rescued. Americans are not ready for the potential economic hardships headed our way. We’ve become such a soft consuming society we’ve lost our legacy of creativity, production and manufacturing we once had. Apparently we have lost our spirit of free enterprise so all that’s left are government inflationary measures to basically try to maintain the status quo of continuing to spend. Experts are evenly divided on what effect, if any, Washington’s stimulus will have on our 14 trillion dollar economy. We do not seem to have a farm to run anymore; we’ve been out minding everyone else’s but our own….and as Obama’s former pastor, Reverend Wright famously said, “chickens are coming home to roost.” That goes especially for Detroit.

Navin Doshi (February 6, 2009)
(Mr. Doshi is a writer, business man, and philanthropist.)

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