Wednesday, November 12, 2008

US Auto Industry (part II)

Where do we go from here?

Given that Detroit's problems are of our own making as a nation (see previous post), we do bear some responsibilty to help them get back on track. However, without the ability to manufacture vehicles at a cost that permits them to sell at a profit is like throwing money down a hole.

Financial assistance is in order, but Detroit also needs to be rescued from a labor union contract that prevents them from selling vehicles at a profit. The need to be released from government requirements that force them to sell unprofitable vehicles.

Unfortunately, this is what will most likely happen: Pelosi & Reid will give them financial assistance, but instead of permitting Detroit to profit, they will impose stricter efficiency standards. And since the Democrat Party is in the pocket of the Unions, there will be no relief in sight on that front either. President Bush may resist somwhat, but will sign it. Detroit will continue to be unprofitable and we the taxpayers will be in an even deeper hole.


  1. This post -and the last one that served as its “background”- are unconsidered bilge.

    Detroit might be “intricately woven into our economy” but that does not matter. The government is simply a framework for balancing the benefits and burdens of social cooperation, not a justified actor in the private sector economy.

    Should taxpayers have similarly bailed out steamship makers, southern plantations, or water powered garment mills in order to prop-up outdated and inefficient private business models? Maybe a cash-infusion into the VCR and BetaMax tape sector would have help save jobs lost to DVD and Blue Ray. Certainly not.

    The American public continues to buy US built cars because prices are artificially low, thanks to government subsidies and loan guarantees. The costs are born by the public in the form of taxes. These policies of redistribution have also perpetuated the production of inferior cars. The gas prices and the CAFÉ standards you mentioned are not germane to your point and will fluctuate as the dollar strengthens.

    The only insight –perhaps accidental- of your post was about organized Labor and its role in decreasing design and production efficiency. Sadly, you failed to learn from this, and rather than argue for total retreat from big government regulation and micromanagement, you have adopted the ill-considered “too big to fail” mantra that was screamed prior to the so-called “government bailout.”

  2. I take exception to the "unconsidered bilge" comment - at worst it was "carefully considered bilge" ;)

    "Balancing the benefits and burdens of social cooperation" IS acting in the private sector economy. Fuel efficiency comes at a cost - you can't legislate away that cost.

    It may have been a mistake on my part to mention Detroit's connection to the economy at large - it was meant as a mere statement of fact - not as a reason for my final conclusion.

    References to organized labor were certainly not accidental and I think you missed my conclusion - or maybe I didn't explain it well enough.

    I DO argue a retreat from government regulation and micromanagement, but since it was said regulation & micromanagement (at the behest of the American electorate) that put Detroit in its current state, it bears some responsibility for destroying an industry.

    My opinion on what form that responsibility takes is a bit in flux, but voters can't expect CAFE standards and exorbidant labor costs without costs as a result. Those costs will either be taxpayer money or double-digit unemployment.

    I'm not completely closed to the notion that the latter IS actually the correct long term solution - either way, voters need to be aware what drove that cost.

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  4. "unconsidered bilge"! That's just the kind of purple prose I love! I don't think I probably know nearly as much as either of you about the intricacies of the Auto industry's problem, and, forgive me, John, if I misunderstand your point. But it seems like John is cautiously suggesting that, since the government's interference is what ruined the industry (making the steamship analogy, though fun, not quite apt) perhaps the government could right its wrongs. A more helpful metaphor: if a contract were violated to the financial ruin of an individual, would it be a departure from libertarian principles to, after the fact when the wrong is discovered, financially restore that individual? It's a simplistic analogy I know, but I don't think I've missed the essence of the debate.

  5. John,

    It isn't distasteful to me to let people fail and have to pick up the pieces. Maybe I missed the point, but the earlier post on Hamilton and Jefferson touched on that.

    Joe-what if the contract itself was illegitimate because one of the parties had no right to place itself within the bonds of the agreement, and the other party knew it, but went ahead anyway?
    That's how I tend to view the whole situation. Obviously, John and the 'Bilge' guy know far more about the details than I.

    Come on John, I don't get to hear people use words like "bilge" very much.

  6. When did the government impose any industry altering regulations on steamship makers or the VCR/Beta industry? Ford sells the Focus solely to meet federally mandated CAFE standards; they make practically nothing on each sale. (That has probably changed somewhat with the higher gas prices and decline in large truck and SUV sales, Focus sales are up some 40% this past year) The only point I am making is your bilge does not address the point John was making. Let the industry regulate itself and a bailout will not be necessary. Impose ever increasing CAFE standards and over protective crash regulations (main reason Ford cannot directly import European small cars) and then bail them out. Also, you might want to compare the quality of the top domestics with the top imports, things have changed.

  7. Pardon my simplicity and ignorance on the matter, but you've got me interested. Are you suggesting that, since our government caused the problem, that the bailout idea provides a solution much the same way that a civil suit would? So the auto industry has filed suit against the government and won monetary renumeration without actually solving the root problem of CAFE standards? Enlighten please. I'm a little slow.

  8. You could liken it to a civil suit.

    Financial assistance provided by the government would be remuneration for the harm created by their policies - but they also need to repeal the legislation that created the harm in the first place.

    Unfortunately, what is more likely to occur is that the feds will give them a boatload of money and apply stricter regulation.

  9. Well then, after thinking about it a little more, I'd have to say I still can't get myself to bite on liking this bailout deal. I know that the US auto industry is an intrinsic part of our society, but to suggest a bailout here seems to be opening a very big pandora's box of "unintended consequences."

    You know how they say, "Never go to the grocery store on an empty stomach"? How about a new analogy: "Never go to D.C. with an empty purse"? The book of Proverbs also comes to mind: "When thou sittest to eat with a ruler, consider diligently what is before thee: and put a knife to thy throat if thou be a man given to appetite. Be not desirous of his dainties, for they are deceitful meat."

    The way I see it, in most cases sharks should be penalized and victims should be compensated. Seems to be safe and simple. But in a situation as complicated as kings and subjects, (or Congress and auto industries), no matter how you write the bill to repeal the legislation, somebody is gonna find a loophole and the strings attatched to the actual bailout bill itself are gonna strangle everybody even more in the long run.

    It comes back to my distrust of government handouts regardless of party lines, I guess. I see Reid and Pelosi just absolutely salivating over this whole situation. I have bad feelings about this deal. And while I don't necessarily think that all government officials are as corrupt as these two weasels, I don't think any of them are really savvy enough or even selfless enough to forsee and avoid all the reprecussions that a government bailout would create. . . regardless of whether Republicans or Democrats hold the House and Senate.

    So I'd rather see a couple bulwarks of the American economy such as GM and the rest go belly-up now and teach a really tough lesson to Americans than I would want to give means to a bunch of "wascally" politicians to increase their capacity for bureaucratic sway in that economy.

  10. I'd like to add that government has had a part in the weakening and or ruin of many industries. Shall we give them all the right to "file suit" in this way? The agricultural industry which has been burdened unnecessarily by bureaucracy for example? No, not individually as connected to the whole of our society enough to count? Then how are you going to write the bill to exclude these now and who gets to be the judge later on?

    Like I said, Pandora's Box . . .

  11. Jeremy: Not exactly, Let me see if I can explain further. First let me say that I am under no illusion that any of my thoughts will become reality. John is correct in his assumption of what will actually happen. That being said, I am not saying the bailout is a good idea or a bad idea. I am simply saying the government should keep its obnoxious head out of regulating fuel economy standards and some forms of safety regulations. For example, I am a consumer with a family that I would like to protect. I will buy a vehicle that has faired well in consumer reports (or another third party) safety tests. In turn, if you choose to make unsafe vehicles you will not be in business for very long. The government can provide basic crash test and safety requirements, but it has truly gotten out of hand. If you want some real world examples of how auto makers are struggling to keep up with the regulations; I can provide those as well. You can make the same type of argument for fuel economy. If you want to survive when gas prices are over four dollars a gallon, then you must find a way to profit from a small fuel efficient vehicle. So assuming John is correct and they regulate more and dump money on them, they will still need to resolve the true problems.

  12. Melodie: "Well then, after thinking about it a little more, I'd have to say I still can't get myself to bite on liking this bailout deal"

    I've chewed on this a little more (which dovetails nicely with my post on resistance to change), and even with the spirit of my original post, I never "liked" the bailout deal.

    Maybe 15-20% unemployment could serve as a lesson. Unfortunately, the lesson people are hearing from the media, and both parties is that the free market failed them. In reality, the current economic situation at hand is the result of years of well-intended policies.

    CAFE standards and ever shifting regulations, government backing of risky lending practices in the name of increasing home-ownership. The time has come to pay the piper and people are told that capitalism failed them - when in fact, the market has been growing less free as we move along.

    What is ironic to me is that the Democrats badgered Bush for rushing us into war with Iraq - even though we spent the better part of a year and a half in deliberation, but as soon as a hint of trouble comes, we need something passed within a few days that will somehow provide an overnight fix a problem that has been growing for over a decade.