The auto industry as model for Obamacare

Read this piece and then think about what happens to an industry when the focus is lost. The very same will happen to the medical industry if the government takes over. The key is in the sentence I highlighted in this column. When cost is the focus you'll get crappy health care.

The Race to Failure
How company executives and union leaders brought the auto industry down.

By MICHAEL MURPHY
In the mid-1970s a small Japanese auto maker found growing success by exporting simple small cars to America. Its success did not escape the notice of Detroit: The Ford Motor Co. began negotiations to buy large quantities of Honda's four-cylinder engines to equip Ford's next generation of small cars. But the negotiations, although at first promising, were soon threatened by a hostile United Auto Workers Union—it balked at a possible loss of jobs—and finally killed off altogether by Henry Ford II, who declared that "no car with my name on the hood is going to have a Jap engine inside." Rebuffed, Honda took what it thought was a riskier path and decided to build factories to mass-produce Honda cars in the U.S. itself.
The long decline of Detroit's auto industry could be said to date from that moment. But of course a great deal else contributed to the ever deepening malaise, as Paul Ingrassia vividly shows in "Crash Course: The American Automobile Industry's Road from Glory to Disaster." The story that Mr. Ingrassia tells is concise, enthralling and ultimately heartbreaking.
It begins with the industry's early days, when old-school industrialists like Alfred P. Sloan, Henry Ford and Walter Chrysler built the companies that became the Big Three. With the rise of such empires came the rise of the UAW: Its negotiations brought hundreds of thousands of factory workers into the American middle class. Mr. Ingrassia, who won the Pulitzer Prize for his work covering the auto industry for this newspaper, recounts the postwar glory days with fondness and respect, reminding us of how Detroit created America's muscular auto culture, complete with tailfins and Olds Rocket engines.
By 1965, General Motors spanned the globe, the largest industrial enterprise in the world. A generation or so later it would collapse into the shelter of the bankruptcy courts and beg for billions of dollars in government aid.
What happened? The tipping point was indeed the 1970s, when the Big Three, lazy and arrogant in their assumption that their pre-eminence would go unchallenged, allowed their budgets to bloat and their designs to stagnate, even as the price of oil rose and consumers, for a while at least, worried about the cost of gasoline. Meanwhile, the storied "car men" from the design labs and factory floors began to fade from power, and a new breed of financial engineers began their ascent within the industry's bureaucracies. Washington stepped in as well, turning the auto business into an increasingly regulated arena, from safety standards to fuel-economy regulations.

The hungry Japanese companies, as they moved into American markets, did more than make smaller, well-made cars: They fostered a culture of worker and management cooperation that was alien to Detroit's auto makers and the UAW. A few people understood the challenge. The saddest part of "Crash Course" describes the doomed reformers— Donald Elphin at the UAW, for instance—who tried to learn from the Japanese and create a more effective partnership of employee and employer. Mr. Ingrassia rightly dwells on General Motors' ill-fated Saturn experiment in the 1980s, during which the company took a new customer-centric approach to selling cars and a less labor-costly approach to building them, winning over the union at the Saturn plant in Spring Hill, Tenn. Saturn enjoyed early success but ended in failure, mostly because a radicalized UAW leadership undercut the project from Detroit.
In the 1980s and 1990s, as Mr. Ingrassia relates, the auto companies ricocheted between huge SUV-driven profits and floods of red ink. The Daimler-Chrysler merger of 1998 was a disaster, thanks in part to the overreach of Daimler's empire-building CEO, Jürgen Schrempp. And the boardroom coup inside fortress GM, in 2000, forced out one company man only to replace him with another who could not change the culture. And little wonder. The Big Three and the UAW were locked a symbiotic race to failure. The companies could not fathom taking a strong stand against the union: The price of conflict was too high. And the union's leaders lacked the vision to understand that, if they failed to help the companies succeed, they were cheating their own membership.
As we know, the story ends in 2009 in Washington, where well-meaning people try to help Detroit but, as always, are pushed by the rules of politics against making tough choices. A few remaining pieces of Chrysler are turned over to Fiat, whose canny CEO pulls off a deal that combines billions from the U.S. Treasury with little risk for his company. GM is cut down to a theoretically profitable size—though steady profits are hard to see in the near future at least. The pension costs of retired auto workers, in the meantime, are twisted into something else with a neat bit of financial engineering: Owed pension money becomes stock in the shaky new enterprises. If this scheme fails, Detroit's pension liabilities will be the next enormous bailout-request stepping up to Treasury's pay window.
Mr. Ingrassia is hard on GM's management, and his case is solid. But one can also look to the past few years in foreign markets, such as China, where Detroit's often maligned executives run operations that do as well or better than those of their Japanese competitors. The difference is a level playing field on labor costs. In the long accounting of Detroit's fumbles, the leadership of the UAW has almost always made things worse. Alas, the triumphs abroad have been too little, too late.
There is a bright spot in the gloom, however. Mr. Ingrassia notes that, while Ford suffered the same problems as GM and Chrysler, it chose a different course. Cuts were made early on, before government billions were needed. And there was leadership. The hero of the story is Bill Ford, the great-grandson of the company's founder. He ousted an ineffective CEO, took the job himself for a time and then, in a move alien to Detroit's executive suites, fired himself and reached outside the industry to find a CEO (Alan Mulally) with the skills needed to lead a painful but vital turnaround. Yesterday Ford announced $2.7 billion in profits for 2009.
Mr. Murphy is a screenwriter and political consultant in Los Angeles.