Government policy matters greatly as a foundation for profitable and sustainable business activity.
 
There is no clearer evidence of this than in the fortunes of auto companies that operate in Europe and the U.S., as the quarterly reports of Ford and Chrysler-Fiat illustrated this week.
 
Ford earned a pretax automotive profit of more than $2.2 billion in North America during three months that ended Sept. 30. In Europe, it lost $468 million.
 
Third-quarter Ford sales of cars and trucks rose 8% in North America while plunging 26% in Europe.
 
On Monday, Chrysler, predominantly a North American automaker, reported a $381-million net profit for the third quarter, up 80% from a year ago. But a day later, its Italian partner Fiat reported that it would have lost $364 million, if not for the profits derived from its 58.5% ownership stake in Chrysler. Fiat sales dropped 13% in Europe during the quarter.
 
The chasm between auto industry performance in the European and American markets -- in sales volume and profit margins -- has been widening since the global economic crisis of 2008-09.
 
Alan Mulally and Sergio Marchionne, the CEOs of Ford and Chrysler-Fiat, are presumably not geniuses on one continent and idiots on the other.
 
That brings us back to government policy.
 
In a conference call Tuesday, I asked Ford's brass whether their divergent results were attributable to government policies in the U.S. and Europe.
 
Stephen O'Dell, chairman of Ford of Europe, responded matter-of-factly: "During the global recession, the North American car industry took action to reduce surplus capacity, and unfortunately during the global recession, Europe didn't. Over a period of time, that's just not sustainable."
 
His point: European governments and their strong labor unions have refused to cut capacity -- and thus thousands of jobs -- to match lower demand.
 
In the U.S. by contrast, the auto industry bailout and bankruptcy restructuring of Chrysler and General Motors resulted in the closure of plants, elimination of several brands and hundreds of dealers, plus cost-saving changes in labor union contracts. While Ford did not receive bailout cash, it did bargain similar UAW concessions and discarded several brands on its own.
 
The outcome for the U.S. automakers has been strong profitability despite a slow-growth economy overall. Ford's eye-popping 12% profit margin on North American vehicle sales last quarter prompted Marchionne to declare himself "jealous" and "envious."
 
President Barack Obama has predictably -- and with some justification -- claimed credit for his administration's stewardship of the U.S. auto industry's recovery. His auto industry task force quickly and ably whisked GM and Chrysler through bankruptcies and, in GM's case, imposed dramatic cuts.
 
My primary point here, however, is not so much to hail America's auto industry restructuring as to point out the perils of Europe's failure to do likewise.
 
In case you haven't noticed, the U.S. has several gargantuan money problems -- think Medicare, Social Security, the federal debt and budget deficits -- that presidents and the Congress have failed to address, just as Europe has failed to address its auto industry capacity issue.
 
And be assured, no matter who is elected president and to Congress next week, if they don't tackle those problems, America's future economic woes could make Europe's auto industry crisis look like chump change.



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