– Robert J. Dewar is a former Ford Motor Company general foreman and author of A Savage Factory: An Eyewitness Account of the Auto Industry’s Self-Destruction. He currently lives in Cincinnati, OH and runs a successful packaging business with his wife and family. The views expressed are his own. –

The war in the auto plants never ended. It flared up and died down, but it never ceased. Management and labor circle each other like sumo wrestlers searching for an opening. Like any war, it ignores honesty, human dignity and common sense. Like any conflict, it leaves collateral damage.

As a supervisor at Ford Motor Company’s largest transmission plant, I fought on the front lines. Despite leaving the auto company many years ago, the factory skirmishes were a key factor in the industry’s disastrous decline in the 1980s, and likely continue to play a part in the failures of the industry today.

The factory foremen had one big gun: Form 4600. It was the stepwise disciplinary tool that could take an employee up the punitive ladder to termination. Many supervisors rose in the management ranks not because of job performance, but by virtue of their 4600 tally. The auto industry rewarded tyrants rather than qualified managers with integrity and an ability to successfully lead.

The UAW arsenal easily outgunned management. Production was sabotaged. Critical employees were absent when high production was most needed. Tools mysteriously disappeared. Bad quality was run purposely. The weakest, least desirable employees were protected with the full power of the labor contract. When management and the UAW stood eyeball to eyeball, management always backed down – they had too – productivity and profitability hung in the balance.

The Ford factory was operated by two warring gangs. Clearly, this business model is doomed for failure.

The spark that ignites the factory battles is ever changing, but the underlying philosophy “us against them” remains the same. Foremen lead by oppression, intentionally making the work environment as uncomfortable as possible for the hourly employees. They justify these conditions with high salary. The UAW fights back the only way they can – production sabotage.

My time in the trenches still haunts me. One particular occasion I was assigned the task of scrutinizing a single employee’s every move for an entire eight hour shift. My only assignment was to nail him with something, anything, by the end of the day. The orders were clear. At the end of the shift someone would lose their job – it would either be him or me. What good was a supervisor who could not nail one single employee after observing him for eight hours?

Like a voyeuristic watchdog I was expected to follow the man to the rest room, noting how long he took to relieve himself, hand count and record his hourly output, follow his every move…

One employee brought his snub nose .38 to work with the explicit intention of murdering me. Fortunately he was so drunk that he left the gun under the seat of his car, and fell into a drunken stupor at his work station. The UAW saved his job despite repeatedly showing up for work intoxicated.

There were the regular bathroom sweeps – teams of supervisors and security guards periodically raided restrooms to ensure nobody was resting. Anyone caught not standing at a urinal or sitting on a commode was slapped with a 4600 disciplinary form.

The Coffee Pot War during the midnight shift was particularly noteworthy. Management confiscated and held hostage the only coffee pot available to the hourly employees, reportedly because they were taking too many breaks. This ill-conceived plan was designed to punish the workers and increase productivity. Things quickly turned sour. Machines stopped running properly. Production dropped. A critical tool that was needed for all the machines went missing. Squads of supervisors and security guards raided lockers, searched cars in the parking lot, and overturned trash cans. Foremen and UAW committeemen screamed in each others faces. Production came to a standstill. The critical tool could not be found.

The Coffee Pot War raged for days. Bleary eyed supervisors, fighting fatigue, faced the possible shutdown of assembly plants in four states because they were running out of transmissions. The foreman of that department had a nervous breakdown, and was carried out of the plant by mental health workers. In desperation, management returned the coffee pot. Within a few hours the missing tool showed up as mysteriously as it had disappeared. Production returned to a normal level.

These never-ending battles on the factory floor ushered in the quality control nightmare of the 1970s that caused 33 states to pass “Lemon Laws” designed to protect American car buyers from the Big Three. The wars destroyed confidence and trust in American built cars, which marked the beginning of the end of the U.S. auto industry. It opened the door for smaller, weaker, less experienced foreign auto companies to come to our shores and beat us at our own game. The wars drove the final nail in the coffin of Detroit.

– James Saft is a Reuters columnist. The opinions expressed are his own –

There is one law, it appears, for failing U.S. automakers but sadly quite another for similarly failing banks.

The Obama administration has decided to play hardball with auto firms; rejecting recovery plans from General Motors and Chrysler LLC (GM.N) and warning they could be thrown into bankruptcy. Chrysler, which is controlled by Cerberus Capital Management CBS.UL, has 30 days to complete an alliance with Italy’s Fiat SpA (FIA.MI) or face losing its government funding. GM chief executive Rick Wagoner is out at government request, as will be most of his board of directors in coming months.

This is painful and risky but probably for the best; the auto industry has far too much capacity and both firms have blundered repeatedly, avoiding making hard decisions to improve their competitiveness and products. In short, this is what is supposed to happen in capitalism when you fail.

It is also a huge contrast to what is being done for U.S. banks, where management has generally remained entrenched and where Treasury Secretary Geithner and his predecessor have thrown cheap money and other subsidies at doubtful banks in ever more complicated forms. Most recently, going as far as cutting hedge funds and other investors into the deal under the public private partnership in order to create the illusion of a return to market forces.

If the U.S. administration thinks the auto tough love will make them look like they are taking a hard line with highly compensated executives, they could not be more wrong. If anything it will increase the perception of the divide between how Main Street and Wall Street are treated when they come begging at the public trough.

To be fair, the case against the automakers is pretty airtight. Even given a recovery, which is by no means a sure thing, they may not be viable. The best counterargument, that bankruptcy causes rolling failures among suppliers and that consumers will shun automakers which are in bankruptcy. Those possibilities are hard to measure, and even if true, probably not enough to justify keeping the two on life support for what could be an indefinite period.

IT’S DIFFERENT FOR BIG BANKS IN TROUBLE

So what accounts for the difference in treatment, given that many banks, large and small, are both insolvent and dependent upon government support for their continued existence?

There are some legitimate reasons but they quickly bleed into special pleading and moral hazard. The entire economy is dependent in substantial part on the health of the financial system which intermediates capital, theoretically allocating it (insert ironical remark here) where it will make the best return.

That makes it harder for policy makers to simply allow banks to fail and for the industry to find its right size, the damage in the meantime would be too great. That gives large overleveraged banks a strong negotiating position with government, even in their weakness. That’s unacceptable and needs to be dealt with now, by treating them on their merits, rather than later through regulation to control the size and leverage of institutions.

There is a real risk that we get the worst of all worlds; the banks are kept alive and make it through with management in place and are able to use their obvious influence and might to deflect legislation. We then have a system with moral hazard at its heart and another larger crisis heading our way after the next bubble.

It is striking that the guy leading the enquiry into the viability of the automakers is former media investment banker, financier and private equity investor Steven Rattner rather than an auto person. Quite right too, someone who has lived and breathed this stuff is conflicted and won’t have the proper perspective.

But what a contrast with the number of once and future investment bankers (former Goldman Sachsite’s Neel Kashkari being exhibit A) involved in the government side of the banking bailout. After all, who else could understand this stuff? Don’t Trouble Your Pretty Little Head about that, as they used to say down south.

There is an alternative, after all. Rather than constructing a bank bailout which is essentially the Resolution Trust Corporation but missing out all that messy stuff about banks failing and executives getting canned, why not simply impose tough capital limits, fail the banks and executives that fail and come up with a reasonable timetable for selling on what you are left holding?

It has two great advantages; it has worked, both in the U.S. and around the world, and it is fair and easy to understand as fair.

Rescuing the economy and the banking system, as opposed to the banks, is going to require more government money. The favorable treatment of banking executives and shareholders may make that money very difficult politically for the administration to get.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

The world is falling in love with plug-in hybrids and all-electric cars. President-elect Obama wants to put 1 million on the road by 2015. GM features them, particularly the Chevy Volt, in its new business plan for a debut in 2010. The EU wants them to shrink greenhouse gas emissions in 2020 by 20% from 1990 levels. This week the Chinese auto company BYD began selling the world’s first commercially-available plug-in hybrid sedan.

No matter that these cars are not widely available; that they are priced far above traditional models; that many have a short range, making them useful only for local trips; that batteries may be prone to catching fire; and that many motorists park on the street, where charging is impractical.

For some, these issues pale in importance to saving the planet from harmful emissions of carbon, sulfur dioxide and nitrogen dioxide—all of which are released from internal combustion engine vehicles. If battery powered cars reduce emissions, environmentalists argue, they should be produced and consumers should be enticed to buy them.

But whereas electric cars don’t pollute when they’re running on batteries, they’re not pollution-free. Making the lithium-ion batteries is pollution-intensive and recharging the batteries uses electricity. And most electricity generation, from coal- and gas-fired power plants, still causes pollution.

Which means that pollution from the extra electricity for car batteries has to be weighed against savings from burning less gasoline. Whether battery power can trump the internal combustion engine, which is continually getting more efficient, depends on when drivers decide to charge their future cars, as well as how the electricity is made.

A 2008 study by the Oak Ridge National Laboratory projected U.S. power needs in 2030 if 25% of the car fleet used some form of battery power.

If drivers charged vehicles after 10:00 p.m., when household power consumption is at its lowest, then at most eight extra power plants would be needed for electric cars. In contrast, if drivers charged cars in early evening when household use is peaking, 160 new power plants would have to be built.

At issue here is the way that America will generate its electricity when Obama’s 1 million plug-in hybrids hit the road in 2015. Nuclear power plants do not generate harmful emissions, and are a far cleaner source of electricity than oil, natural gas, or coal. Yet America has refused to build them for fear of accidents and because of controversy about where to dispose of spent fuel. A third problem is long delays in winning government licenses for new plants.

Private companies don’t want to face litigious American consumers, trial lawyers at the ready, and so do not dare embark on nuclear power plants. Until Congress makes serious efforts to shield companies from liability, nuclear power won’t be viable. The Nuclear Regulatory Commission has not licensed a new nuclear power plant in over 30 years.

France, on the other hand, does have nuclear power; it generates 78% of its supply from splitting the atom, far more than America’s 19% share. Electric cars in France, therefore, if they can overcome problems of range, safety, and price, would be more environmentally friendly than their American counterparts.

Until America can resume construction of nuclear power plants, it might be that the way to energy efficiency on the road is not through the electric car but by making improvements in the way cars burn gasoline. That would be a good use of the $25 billion that Congress gave to the auto industry last year to improve efficiency.

Call it a dual-highway route to saving energy on the road.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

– Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission, testified before the Senate Banking Committee on the proposed bailout for the domestic auto industry. The following is his written testimony to the committee. The opinions expressed are his own. —

The domestic automobile industry has two major components—the Detroit Three and the Japanese, Asian and European transplants that also assemble and source components in the United States and Canada. Both contribute importantly to the vitality of our national economy. Ensuring these companies have the means to compete globally is vitally important.

The gradual erosion of the market shares of the Detroit Three over the last several decades stems from higher labor costs—having origins in wages, benefits and work rules–poor management decisions, and less than fully supportive government policies. Although the U.S. government has been sympathetic to the needs of the industry, the industry has fallen victim to currency manipulation and other forms of protectionism in Japan, Korea, India, and China.

The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization. It would be better to let them go through that process and reemerge with new labor agreements, reduced debt and strengthened management that would permit these companies to produce cars at costs comparable to those enjoyed by their Japanese and other foreign competitors assembling vehicles in the United States.

Circumstances are dramatically different today than in 1979 when Chrysler received assistance from the federal government. In those days, the challenge at Chrysler was to become competitive with Ford and GM, and Lee Iacocca had a clear plan to achieve that objective and succeeded. Today, the Detroit Three, though improved in productivity and with lower labor costs thanks to concessions from the United Auto Workers, are still not as competitive as the Japanese transplants.

Margins in automobile manufacturing are thin and there is no such thing as being competitive enough. Either a company is competitive or it is not—either it accomplishes the cost structure enjoyed by Toyota and Honda, operating in the United States, or it will continually cede market share and run into financial difficulties.

By assisting the Detroit Three, Congress can delay one or all of them going through Chapter 11 reorganization but sooner or later one or all will face reorganization. The communities and suppliers dependent on these companies would be better off going through that process now than by delaying it with assistance from the federal government.

Without a new labor agreement that brings wages, benefits and work rules in line with those at the most competitive transplant factories, and without reduced debt and other liabilities, the Detroit Three will continue to lag in product innovation and field too few attractive new vehicles, because their higher costs, debt and other liabilities require them to spend less on new productive development than they should. Also, they are inclined to field products with less desirable content to compensate for higher costs.

As consumers find vehicles made by Japanese and other transplants more attractive, like those imported from Korea and eventually from China, the Detroit Three will cede market share of one or a few percentage points each year.

If Chapter 11 is put off, the successors to GM, Ford and Chrysler that emerge from a bankruptcy reorganization process will be smaller and support fewer jobs than if these companies endure this difficult transition in 2009.

More jobs can be saved among GM, Ford and Chrysler and their suppliers if bankruptcy reorganization is endured now than in the future.

When Americans buy automobiles from the Detroit Three, more is contributed to the vitality of the U.S. economy than when Americans buy vehicles assembled here by transplants or imports. These vehicles have more U.S. content in terms of jobs, engineering and profits than do foreign nameplate vehicles.

The Congress could take steps to improve the attractiveness of making cars and parts in the United States by improving the public policy environment. This would include finally addressing, directly and forthrightly, undervalued currencies in Asia—currencies kept cheap by intervention by foreign monetary authorities in China and elsewhere. In addition, assertive efforts to develop fuel efficient vehicles could strengthen the industry and create export strength.

For example, Congress could offer an incentive for car buyers to trade in their gas guzzlers—the newer and the bigger the clunker, the more the car buyer would receive under the condition the vehicle is destroyed. This would raise the price carmakers receive from selling smaller vehicles.

Congress could provide substantial product development assistance to U.S.-based automakers and suppliers. The latter includes Toyota, Nissan and Honda, as well as the Detroit Three, battery makers and other suppliers to accelerate the production of innovative, high-mileage cars.

The condition for assistance would be that beneficiaries do their R&D and first large production runs in the United States, and share their patents at reasonable costs with other companies manufacturing in the United States. The huge U.S. market would help attract producers from around the world and rejuvenate the U.S. auto supply chain.