Wisconsin Public Radio

Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(09/22/06) Prestowitz Interviewed in Pittsburgh Post-Gazette on US Auto Industry


When the going gets tough in Detroit, eyes turn toward Washington, D.C.

The drastic job cuts at Ford Motor Co. and forecast of losses in the United States by DaimlerChrysler AG last week are more evidence the domestic auto industry's condition is moving from poor to desperate. So it's not too surprising that George W. Bush becomes the latest president to hear pleas for help from chief executives at General Motors Corp., Ford and DaimlerChrysler, the German automaker that bought Chrysler Corp. in 1998.

Political considerations dictate that a president listen to auto executives when they want to talk about their troubles, though history suggests that actions taken by previous administrations to help haven't done much. Will more federal support put the industry on a sound footing? Many are dubious because U.S. automakers have struggled with the basics - designing and building desirable vehicles.

"People are getting tired of listening to Detroit," said Clyde Prestowitz, a former U.S. trade negotiator and president of the Washington-based Economic Strategy Institute.

President Bush this summer decided to delay a proposed summit with Detroit executives until after the election. His advisers were concerned that Democrats intended to use the meeting to advocate a government-backed solution for health-care costs and vilify Republicans and any president that stood in the way.

Mr. Bush's decision was a sign to some that he was unmoved by the industry's plight. Democratic politicians and even Michigan's Republican gubernatorial candidate, Dick DeVos, portrayed it as callous and mistaken.

Mr. Bush then called Bill Ford Jr., Ford's chairman, to reassure him that a meeting will take place.

Mr. Ford is one of many Detroit executives, along with the United Auto Workers union, who has been pushing for some kind of nationalized health-care system, possibly like what Germany, Canada or Japan already sponsor. Corporations such as Ford and GM instantly could shed billions of dollars in liabilities. Taxpayers, naturally, would have to pick up the slack.

Mr. Bush and most Republicans, by contrast, want to keep health care in the private sector as much as possible. The president has endorsed ideas including tax-free health-savings accounts that would shift some of the cost from companies to individuals.

Democrats and Detroit automakers also complain about what they call an artificially weak Japanese yen, which they say amounts to a large subsidy to companies exporting from Japan.

The dialogue between Detroit and the federal government over ways to alleviate pension costs, currency imbalances, Japanese competition, fuel-efficiency regulations and other woes have a long and rich history.

The administration of President Jimmy Carter agreed to guarantee loans to Chrysler to help the automaker avert bankruptcy. President Ronald Reagan's administration negotiated voluntary export restraints with Japan, which held back the tide of Toyotas and Hondas.

All were fixes that yielded no lasting health for the industry.

"I was in the Reagan administration when we negotiated the quotas," Mr. Prestowitz said. "The notion was Detroit was going to clean up its act. The industry had a case, but it wasn't hard to see Detroit had its own problems."

The first President Bush led a trade delegation to the Far East promoting purchases of U.S.-made parts by Japanese automakers. President Bill Clinton brokered the Partnership for a New Generation Vehicle, a joint research project among automakers and the government that spent on the order of $1 billion to create an 80-mile-per-gallon car.

When President Bush II came to Washington, the Partnership for a New Generation Vehicle morphed into the "Freedom Car" project, its focus changing to alternative fuel research, mainly related to hydrogen and fuel cells. Spending for the Freedom Car under Bush has been running at $150 million to $200 million annually.

Health-care benefits and pensions, known as legacy costs, have hurt the automakers. But the automakers promised their workers and unions benefits that were unsustainable.

Even without legacy costs, Detroit fails to make enough of the vehicles that U.S. consumers demand, never mind cars that get 80 miles per gallon. They struggle to keep costs in check. Detroit automakers say they are improving, though most measures of cost, efficiency and quality show they still lag behind the world's top producers, led by Toyota Motor Corp.

Toyota, Honda Motor Co., Hyundai Motor Corp. of South Korea and others have built factories in the United States and are operating profitably. Several have opened research and design laboratories in this country as well.

If foreign automakers can prosper here, why not the Detroit-based producers? Surely the question has occurred to the president and his advisers, as it has to many of us.

Join our mailing list

Latest Publications

The Betrayal of American Prosperity.

The Trans-Paific Partnership and Japan.

Making the Mexian Miracle.

Industrial Policy and Rebalancing in the US and China.

The Evolving Role of China in International Institutions.


Contact us

Economic Strategy Institute

1730 Rhode Island Avenue, NW, Suite 414 |  Washington DC  |  20036
Ph (202) 213-7051  |  Fax (202) 965-1104  |  info@econstrat.org