Wednesday, November 12, 2008

US Auto Industry

I've been chewing this over for about a week now in order to determine where I sit on this issue.

While I'm certainly not one to favor bailouts since it prevents individuals and organizations from learning from their mistakes, Detroit is intricately woven throughout our national economy. More importantly, a large portion of the troubles GM and the others are facing is attributable to various federal and state governments - and indirectly to the voters that elected them.

Throughout the presidential campaign, the Democrats blamed the situation on the automakers failure to produce fuel efficient vehicles. This is most certainly nonsense. Since the mid 70's, automakers have been REQUIRED to produce fuel efficient vehicles. The problem is, that Americans did not want fuel efficient vehicles. Even today, many owners regret downsizing their car over this past summer.

Conversely, foreign manufactures have no trouble selling small cars. Given that even at it's highest, US pump prices pale in comparison to those found in Europe and Asia. However, while going green is a good move politically, adding $5/gal in taxes to drive buyers to smaller cars would be political suicide. Putting the onous on the car companies allows voters to temporarily have their cake and eat it to. Sticking it to corporations is always good press.

In order to meet mandated fuel efficiency standards, US manufacturers had to build and sell cars Americans did not want. While foreign manufacturers had demand overseas, they also were not saddled with labor Unions. In order to compete with foreign manufacturers and sell enough small cars to meet CAFE standards, Detroit had to sell them at a loss. While gas was cheap, they were able to cover those losses by selling light trucks and SUV's at a huge premium. With gas prices rising, this was no longer the case. Detroit was selling cars at a loss and was unable to move its money maker.

To be continued...

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