Reagan Stamped Legacy on Detroit

Looking back, it's apparent that the late Ronald Reagan had a big impact on the automobile industry.

Only the year before Reagan was inaugurated, a Democratic Congress effectively saved the Chrysler Corp. by approving loan guarantees. Reagan and his economic team, however, didn't approve of the loan guarantees on principle, and their hostility helped turn then Chrysler Chairman Lee Iacocca into a partisan Democrat for a time. Iacocca also made a point of paying off the loan guarantees ahead of the schedule after the sniping from the Reagan administration.

"There is no question in my mind that if there had been a Republican administration in 1979, Chrysler wouldn't be around," Iacocca wrote in his famous autobiography, which remains one of the foundation texts for any study of the 1980s. "The Republicans wouldn't even have said hello to us. Chrysler would have gone bankrupt and today they'd be writing books about how they defended free enterprise," Iacocca added. "Reagan lives in the past," he added at another point.

Reagan, however, appears to have won the argument. The federal loan guarantees approved by Jimmy Carter ultimately did lead to the restructuring that cost thousands workers their jobs, rewrote union contracts and forced company's board of directors in a new management team, headed by Iacocca.

Chrysler, however, was ultimately stalked throughout the 1990s by a corporate raider, another legacy of the Reagan era. The pressure from Kirk Kerkorian helped push Chrysler's management to think merger. By 1998, perhaps the one man who could have stalled or stopped the deal with Daimler-Benz was Stephen P. Yokich, the president of the United Auto Workers. Yokich, however, had also concluded the merger was a necessity because the union couldn't count on any kind of help from the federal government if the company got into serious trouble again.

While the Bush administration rushed throughout a multi-billion rescue package for the major airlines in the wake of 9/11, it is hard difficult to come up a scenario where Congress would again put together a bailout for one company in a competitive industry. The more likely scenario would be a forced merger or bankruptcy under Chapter 11 that would lead to a broad restructuring of the troubled company.

Lifting burdens

Reagan, however, did make good on his promise to lift the regulatory burden on the industry. The Reagan administration never abolished the federal fuel economy standards but they were modified to give the automakers later deadlines to meet them. The safety standards imposed during the 1970s were upheld but the Reaganites were loathe to adopt new ones. Airbags became mandatory equipment only after Reagan left the White House and the implementation of tougher clean air standards also slowed dramatically during the Reagan era.

In principle, Reagan also was a free trader and generally turned his bad ear on the demands from unions andDetroitexecutives such as Iacocca about imposing tough restrictions on Japanese imports. Reagan, however, was also a pragmatic politician and during the heat of the Presidential campaign in 1980, he agreed to support quotas on Japanese autos imports. The quotas were imposed but the end result was that it pushed the Japanese Big Three, Toyota, Honda and Nissan, to expedite the construction of new plants in the United States. Honda already had made plans to open a plant in theU.S.but the plant quickly expanded. The competition ultimately helped make American and foreign cars better.

Over time, Reagan also had a decisive influence on labor relations in the auto industry. The firing of the federal air traffic controllers, who had violated a federal statute with an illegal strike. The firing of the air traffic controllers inspired a whole movement among American managers to pressure unions for major concessions or get rid of them altogether.

The UAW hung on to its base in the domestic Big Three but it has never managed to organize any of the new plants built by Honda, Nissan orToyota. The only so-called transplants with unions are Japanese joint ventures with GM and Ford and Mitsubishi's plant inBloomington,Ill., which began life as a joint venture with the old Chrysler Corp.

The loss of union influence has been even more dramatic in the supplier sector. In the late 1970s, close to two-thirds of the workers in the supplier sector belonged to unions. Today the figure is less than 25 percent and falling. Cost pressures, competition from foreign companies entering the U.S. market for the first time and changing sourcing patterns that have automakers buying more and more material from factories in Mexico and China have hastened the decline of union influence in the supplier sector -- but Reagan anti-union rhetoric also played a role in changing the car business.

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