In the light of President Obama’s recent speech in which he took credit for saving the U. S. automobile industry and the heated discussion going on in the comments of this post at OTB and taking into account my expressed skepticism on the future of the U. S. automobile industry, I thought it was about time to put a little flesh on the bones of my thought and explain why I don’t believe that the U. S. auto industry has much of a future.
Total car sales, measured in the number of vehicles sold, has been declining for the last forty years:
Although I could ignore the increase in light truck sales from 1970 to the present, I think it calls for some explanation since it highlights the problems faced by domestic carmakers even more.
It’s an artifact of our trade policy and the CAFE standards. Japanese and South Korean carmakers for decades have forestalled Congress’s taking action for dumping on their part by imposing “voluntary” limits on the number of cars they export to the United States and making the difference up in light trucks, a segment completely dominated by Japanese and South Korean manufacturers, just as the full-size pickup truck segment is dominated by U. S. manufacturers. Additionally, light trucks aren’t taken into account in the “total fleet” accounting required by the CAFE standards and, consequently, they can escape a number of the fuel-saving enhancements mandated for automobiles. The bottom line is that you can get a lot more vehicle for a lot less money with a light truck than you can with a passenger car.
Worse yet, the U. S. carmakers’ market shares of the declining passenger car market have themselves been declining:
Here’s another chart illustrating the market shares of the ironically-named “Big 3” Detroit automakers:
As you can see over the period of the last 30 years the combined market share of GM, Ford, and Chrysler has declined from just under 70% of the U. S. market to less than 50%. Whatever the commenters at OTB say, U. S. manufacturers don’t even have 50% of the U. S. market anymore. They’re living in the past. Additionally, we don’t make small auto engines here. All internal combustion engines for small cars in the U. S. are imported, mostly from Japan and South Korea. The Detroit automakers have longstanding partnerships with Asian automakers one of the purposes of which is to bring these engines into the U. S., install them in U. S.-made chassis, and sell them as “Made in the U. S. A.”
The “burden”, the overhead costs not the production costs, is significantly higher for the Detroit automakers than it is for overseas manufacturers. Part of that is the huge overhang of pensions and medical costs for retired hourly workers but a lot of it is that they have structures with overhead built into them. Just as a measure of how persistent that overhead is over the period of the last 30 years the number of hourly workers employed by the Detroit automakers has fallen by more than half. Over the same period the number of salaried workers has fallen, too, but not in half. I believe their wages have risen faster, too, but that’s another story.
That’s the reason the Detroit automakers have concentrated on the high margin (and gas-guzzling) SUVs and minivans: they can actually make money making them. They can’t make any money selling small, inexpensive cars. There’s too much competition from competitors with much small operating costs and enormously smaller burdens.
There are no real prospects for increasing the total number or vehicles sold or improving the market share of U. S. carmakers. If anything, the future is even bleaker. Chinese and Indian auto manufacturers are truly eager to get into the U. S. market (although I’m beginning to wonder if India won’t make its mark in heavy trucks and buses rather than autos). Chinese production costs are so much lower than U. S. costs that there is no way that American manufacturers can meet them. Consequently, I suspect that, if in twenty years GM is selling a lot more cars in the U. S. than it is now, most of those cars will actually be made in China (whatever the sticker says).
So, when the president says that he saved the American auto industry, I can only ask “What American auto industry?” and “For how long?” Probably just long enough for that industry to become some other president’s problem who will, regardless of political party, step in to bail out an even smaller industry that employs even fewer people.
I foolishly briefly entered the fray there, and got what I deserved: a rash of inane comments and responses which mostly wre just hooray for unions and hooray for Obama. The point I tried to make centered on the parallels with the restructuring of the steel industry, which has many similarities, and how it took Mittal and Nucor to finally rationalize the capacity and adjust the cost structure of the industry focusing on those facilities that could compete on cost and quality in value added products. You get rotten eggs hurled at you when you do that.
One elephant in the room is the fact that Chrysler was ” saved” many years ago, and look at its pathetic state now. You may slow things down, but you can’t resist realities.
Train and Winston did an overly exotic ( my words) statistical analysis of the decline in us automakers share. They were able to discard issues such as failing distribution ( dealer) networks, brand loyalty and come up with a blinding flash of the obvious: it’s quality and value, with value being defined as up front price and operating cost, and quality being defined as reliability, appointments and styling. Well, duh.
You have ( rightfully) focused on what are probably intractable cost issues. At least for the foreseeable future. The quality issue is certainly being given a valiant try. In fact I though anjin San had the only valuable insight in the thread: Detroit is actually putting out some nice cars these days. Will it be enough? I doubt it.
That said, I go back to the steel industry. I think the us car makers will ultimately settle out at much lower volumes abandoning econoboxes and avoiding super luxury. These will be made in only the most cost advantageous locations. The industry footprint could fall by half. So much for ” saving” Detroit. Only the rent seekers in place today.
Just a couple throwaway points. While Obama takes his chariot ride, I wonder who will bring up the fact that Delphi workers got hosed in favor of obamas union voters, er, uh, workers? How does it help Detroit to try to ram uneconomic and reputation destroying cars like the volt down people’s throats? And lastly, there may have been a dramatic shift in shares recently, but statistics I’ve seen still show US manufacturers as the dominant brands in light trucks.
I agree with this (except for the part suggesting there was a discussion at OTB)
What I’m reminded of is TWA (the number two airline in the country for decades, and one of the Big Four), a company that went in and out of bankruptcy, reorganizing operations minimally in an expectation that things would improve with an infusion of new cash, change in management, and rosy projections. So it was the third bankruptcy that effectively dissolved itself. In hindsight, everyone can see the airline industry has a lot of problems than some dumb contracts and lack of cash flow.
What I read is an assumption that shorterm loss of aggregate demand was big auto’s problem and managment that was too stupid to see that environmental cars are the future. If you think the problems are worse than that, bankruptcy should have been used to cut all of the legacy costs, and Chrysler should have been sold for parts, at least.
Drew, talk is cheap, I think stormy dragon and I might have been the only owners of a “Detroit” car. My Chevy Equinox was built in Canada though.
We have two cars: a Ford Explorer and a Toyota RAV4 Sport.
The Explorer is unique among SUVs: it’s built on a truck frame and is more truck-like, generally, than most SUVs. It has the largest cargo capacity in its class and you can put two large dog crates in the rear section side by side without folding the back seat down. With the back seat folded down it will hold at least five dog crates.
To my chagrin the suspension isn’t as truck-like as it used to be. When our old Explorer gives up the ghost I don’t know what I’ll do. It may be that by then we won’t need to accommodate two rear dog crates.
Fuel efficiency isn’t of much concern to me. On the average I drive less then 50 miles a week.
The RAV4 is the most fun and comfortable vehicle to drive I’ve owned since I gave up my BMW 2002s a couple of decades ago (I drove a succession of 2002s, the first new, the rest used, from 1975 until the late 1980s). The Sport has a stiffer suspension than the rest of the line and we have the V6. You lose a little gas mileage but the extra oomph when you need it is handy. You can put a single large dog crate in the rear cargo section.
I deal with folks who work for one of the Big 3 automakers on nearly a daily basis and have done over the period of the last 25 years. I’ve had presentations made to me in the boardroom of that company. I think that anybody who knows anything about the auto industry thinks that. Presumably, that’s why the president brought in somebody who didn’t know anything about the auto industry as “auto czar”.
I agree with most of this. But I think there’s a simple point you’re leaving out: namely that the bailouts prevented another major shock from roiling the economy when it was already in free fall. There’s a lot of value in that.
Would it have been better to just give the bailout money to the unemployed? Probably. But that was never politically possible.
Would it be nice if Obama were honest enough to say that this was the point of the bailouts, and not “saving” the industry? Sure. But it also would have been nice if Republicans had been honest enough to not lie about the bailouts leading to incipient communism. Crisis politics, like crisis economics, are rarely optimal.
PS – link to OTB discussion just circles back here.
Well, there are two kinds of politicians. There are those who only do what’s politically possible—that’s the kind we have now. Then there are those who by doing things make them politically possible. I see it as the difference between leaders and bureaucrats.
Those weren’t the only two alternatives. They could have split GM up, reorganized the company. They could have demanded concessions from the UAW (Steve Rattner now acknowledges that should have been done). They could have let things be resolved in bankruptcy while tamping down fears of auto industry collapse (which I think they actively stoked) and put fingers in the dike whereever necessary.
They could have taken the money used to prop up GM and used it to prop up the GM employees (my preference). They could have insisted that the union workers take stock interest in GM in lieu of some or all of the pension arrangements.
What they did was allow GM to cut its work force, trim its dealer roster (an error, IMO), and continue to pour money into the black hole of EVs. If Volt sales continue at their present levels it will take a century for GM to earn its investment back. If the subsidies aren’t continued, can anyone possibly believe that Volts will continue to sell at their present levels?
Thanks. Fixed.
Well, PD, TWA should have been purchased by a friendly PE guy to do what was right”……………
Nyuk, nyuk, nyuk
“I think there’s a simple point you’re leaving out: namely that the bailouts prevented another major shock from roiling the economy when it was already in free fall. There’s a lot of value in that.”
I don’t know, Maxwell. Urgency of the moment is a rationale we hear often from management teams who have been challenged by us to think differently than the past. Somehow things never evolve to the dire results contemplated in change avoidance. I remember the same stuff about the steel industry.
Did you feel the earth move when US Steels south works was shuttered? When the Bethlehem district basically became extinct? Has everlasting light and singing angels graced us with perpetuation of US auto industry buffoonery, or a bunch of bankrupt solar deals?
Drew:
You didn’t get in trouble at OTB for having an opinion, you got in trouble for dishonestly painting the bailout as all Obama’s problem, and then by calling the president an idiot community organizer.
Then you compounded it with your usual thickheaded assertion of your own wonderfulness, and an assertion that your own, particular experience is not only proof beyond a shadow of doubt, but the only possible way one might view the world. You come across, in short, as undeservedly contemptuous, narrow and solipsistic.
Solipsism:
1. the belief that one is the center of the universe
2. the bullheaded insistence on denying in the face of all evidence that I am, in fact, the center of the universe.
😉
Note: I have four younger siblings. At no time since age 2 have I ever believed that I was the center of the universe. Target, yes. Beast of burden, yes. Role model, object lesson, babysitter, yes, yes, yes. Center of the universe, no.
SELF-ESTEEM, n. An erroneous appraisement.
“You didn’t get in trouble at OTB for having an opinion, you got in trouble for dishonestly painting the bailout as all Obama’s problem, and then by calling the president an idiot community organizer.
Then you compounded it with your usual thickheaded assertion of your own wonderfulness, and an assertion that your own, particular experience is not only proof beyond a shadow of doubt, but the only possible way one might view the world. You come across, in short, as undeservedly contemptuous, narrow and solipsistic.”
Micheal – piece by piece
You can tell me Obama isn’t the prime mover in the bailout, and I’m well aware of the caveats. But Obama fucked the lenders, fucked the delphis, and handed over to the union voters, er, uh, workers, a disproportionate and unwarranted portion of the spoils. Facts are just facts. And he did it for political gain. And he is currently using it for political gain – with no attribution to anyone else. Just ” look at me!!!!” If you want to debate the politics or rationale, fine. But what I cited are incontrovertible facts. And they have had bad knock on effect.
As for a community organizer. You are just plain full of it. This is what ” community organizers” do – demonized a group based on cheap populism, and then extract rents lest the community organizer harm their business enterprise. See: Jessie Jackson and myriad other businesses. And Obamas entire early ” career.”
As for thick headed assertions of wonderfulness, aside from the obvious truth of the matter (snicker) I can only imagine that you are referring to the exchange with brummajumma hummer joe.
Quite frankly, BJ traffics in bluff and bluster, capitalizing on the general ignorance of the commentariat, and their willingness to jump on his side for no other reason than hooray for us!!!!!!!
The narrow issue was the legality of setting aside a first priority lien. BJ gave away his ignorance, and his intent to just try to buffalo his way through the argument with those who know no better, by invoking the bond market. I know this is not your field, Michael, so I give you a pass. But the vast majority of first priority lien deals involve banks, and lease companies. First priority links are rare with bonds. Further, to measure a bond premium on this issue would just be impossible. BJ was just fishing, and playing on general ignorance ( no pejorative to others intended). I try not to pull rank, but I was thinking about it. I’ve done about 46-50 M&A deals, depending on what you do with the dinky ones. Every single one had a first priority lien lender. Every damned one. I know what I’m talking about on this subject. BJ? Obviously no clue. None. Sorry.
So think what you want, Michael. But casting your lot with the brummhummers of the world on this one is a dead bang loser. And you can say “You come across, in short, as undeservedly contemptuous, narrow and solipsistic.”
I’d say, deservedly contemptuous of obviously ideologically driven views, broadly and accurately aware of the technical aspects of the issues as opposed to the counterview, and perfectly prepared to challenge the erroneous charge of solipsism by people who obviously have no experience, training or worthwhile perspective on an issue.
It’s struck me that’s on odd handle to use. “Brummagem” is slang for “Birmingham” and, in general, it refers to something that’s poorly made or poorly suited to its use. So, for example, a “brummagem hammer” is something that’s useless.
Ambrose Bierce, I presume?
Who nevertheless supported the deal. And were fucked regardless because they’d loaned to a company run by cretins.
And yet, that’s not a fact. It’s an opinion.
Prove it.
Obviously opinion, not fact, and unsupported and over-general. Community organizers also put together anti-drug efforts, and deal with abandoned properties and try to bring businesses into a community. Which makes your assertion just what I said it was: unsupported, over-general opinion.
I don’t know Brummagem Joe and no, I’m referring not to any particular exchange but to the way you present arguments in most cases.
Solipsism is living life inside a mirrored sphere, seeing yourself wherever you look and imaging that you’re seeing the world. Almost every argument you make begins with the following: I know because I’m a businessman and investor, therefore my opinion is fact.
Here’s the problem with that: you don’t reveal your identity, you simply assert it. Now, I happen to believe you’re a successful businessman, but you don’t make the case very well to others. So about half of them figure you for a bullshit artist.
But even if you are a wonderfully successful investor/businessman, so what? Are you the most successful? More successful than, say, Buffett? Because he seems to differ with you in his opinion of Mr. Obama.
Which leaves you claiming that you are right because of who you are and what you do, while old Warren who is quite likely more successful than you are reaches a different conclusion. Do you not see that this leaves you with handfuls of wet papier mache?
If there’s one theme that emerges above all others from Schuler’s blog, it is this: don’t trust the experts. You are not THE businessman, Drew, you are just A businessman. And opinion is not nearly as uniform as you seem to think it is. The reason you think it is takes us back to solipsism.
You and I are very different people. I’m a mile wide and and an inch thick. But I know it. You don’t know your intellectual or experiential limitations. You think you’ve got it all going on, but you don’t. I assume you have great depth in your field but granting that it still makes you a mile deep and only an inch wide.
When you debate people they see this. You don’t, but they do, and because you’re not self-aware you can’t compensate. You and I are both assholes, Drew, but I’m an asshole who knows his limitations plus has the good fortune to be sufficiently clever with words that I can leave fewer people hating me.
Incidentally, by some definitions I’m a bit of a businessman myself. I have four books coming out this year, earning a mil, give or take, for myself. I also have two movies in development.
I don’t have accurate numbers for what this all comes to but top of my head that’s at least 10 million to publishers, stores, and so on, none of which happens without the seed capital I create by typing with my two fingers. If the movie deals happen add a whole bunch more.
But I don’t think that makes me THE expert on anything. Not even on writing.
Huh. Never thought of it that way. I think I’d’ve said that nearly everybody has an ax to grind and the experts aren’t nearly as expert as they’d lead you to believe.
Or, as Mr. Dooley put it, trust everybody but cut the cards.
drew, in the future at OTB, instead of closing your comments with a cheap shot at Obama, you should close with a comment that all Republicans are racist. You will find your comments no longer hidden.
michael, you allude to one of the reasons that I think Drew’s comment was hidden. He violated the democratic norms of that blogging community by suggesting superior knowledge. I think that makes for a poor, er. . . self-servicing discussion.
dave, yes its Bierce, I’m reading the latest Library of America collection and trying to find a way to complete the Devil’s Dictionary, without doing what I always do and skip around. I find this one incredible:
ACADEME, n. An ancient school where morality and philosophy were taught.
ACADEMY, n. [from ACADEME] A modern school where football is taught.
How prescient is that?
I think Dave is suspicious of expertise directing public policy from a distance, or at least expertise unmoored from real world experience.
Bierce is a favorite of mine. Just search my blog for “Bierce”.
This is one of the Devil’s Dictionary entries I like the best.
But even if you are a wonderfully successful investor/businessman, so what? Are you the most successful? More successful than, say, Buffett? Because he seems to differ with you in his opinion of Mr. Obama.
And Buffet, because of his deals with this and the previous Administration on various bailouts, is just a rent-seeking asshole extracting wealth from the government at the expense of everyone else. (See his deal with GS for an example.) Buffet is more about screwing everyone else for his own benefit than he is some wonderful philanthropist looking to make certain of good government for the rest of us. Case in point: Obama’s new corporate tax policies seem wonderfully crafted to benefit Berkshire Hathaway (high dividend tax rates coupled with low corporate taxes overall) at the expense of any pensioner who directly or indirectly relies on corporate dividends to make ends meet. I can’t believe that this doesn’t get wider play. Buffet is a crook, he’s just got the money to steal legally.
Let’s speak of another wonderful pet of Obama’s, Jeffrey Immelt. He has excoriated American businesses for not hiring more workers. This despite the fact that most every business in the land pays more corporate taxes than GE AND that GE has been shrinking its workforce in the US for a very long time now. (Not to mention sweetheart deals for GE from the government.)
In other words, both Buffet and Immelt have their hands in the till, and as long as Obama continues to let them keep their hands in the till they will support him.
Ice:
Even if we grant that we don’t know enough about Drew to assume he’s any different. I think Drew sees what he wants to see and disregards the rest.
Dave:
Well, that’s my takeaway. That’s the fun of writing and being read: people reach their own conclusions. I could show you some reviews. . .
PD:
And as we know, there are no racists in the GOP: http://www.outsidethebeltway.com/federal-judge-forwards-racist-joke-about-the-president-to-friends-press-eventually-gets-a-copy/
In a clearing stands a boxer and a fighter by his trade
And he carries the reminders of every glove that laid him down
Or cut him ’til he cried out in his anger or his shame
“I am leaving, I am leaving” but the fighter still remains.
and, by the way,
Now the years are rolling by me, they are rockin’ evenly
I am older than I once was and younger than I’ll be and that’s not unusual.
No, it isn’t strange. After changes upon changes
We are more or less the same. After changes we are more or less the same.
That’s the verse that wasn’t recorded on “Bridge Over Troubled Waters”.
Dave:
A bit more on “trust no experts.” Insofar as it is within my limited powers to analyze the arguments offered by various experts, (up to and including a certain Nobel Prize-winning economist), in the light of your critiques, I conclude not that you are necessarily right, but that you are arguably right.
You shouldn’t be.
If we had Dave Schuler versus my cousin the astrophysicist (really) on a matter having to do with astrophysics, I’d expect him to be more right than you in just about every case. Because he’s an actual expert in an actual hard science where 2+2=4 and the star is in a certain location, period, end of story, boo-yah.
When we have a situation where amateurs can regularly poke holes in the statements put out by acknowledged experts, we aren’t really talking science, are we?
I’ve tried formulating some rules, some theories, some explanations for what I do and they’re all bullshit. I can’t begin to explain how to write. Neither can anyone else, in my experience. And I can sit here and poke holes in the generalizations of acknowledged experts in the field of literature all day long, and I shouldn’t be able to do that. Not if they really were experts.
I imagine a number line running from pure bullshit to 2+2. All of human knowledge lies somewhere on that number line. My own field is very close to the pure bullshit end: we do it, we don’t know how, and the more we try to explain the worse it gets. After many years of reading this blog I think economics lies pretty close to the bullshit end of things, and that the degree to which it is as much bs as writing is just disguised by the use of numbers.
Short version: don’t trust experts.
Because he’s an actual expert in an actual hard science where 2+2=4 and the star is in a certain location, period, end of story, boo-yah.
First, mathematics is better than science, because we have other answers for 2+2.
Second, a star’s location is a bit more of a complicated thing than you seem to realize. That astro-physics stuff is HARD CORE.
As for Drew: You hardly need to tell me that he’s a bit blinkered at times.
And do you realoly think that the Democratic Party isn’t full of racists too? Hymie Town, Chocalate City, and on and on.
It would be nice if you assumed that all Democrats weren’t automatically saints and that all non-Democrats should be exterminated because of their purely evil nature. Not that you ever remeber that you claimed Republicans were at least as bad asd the people we went to war against in WWII, and we all know that all those bastards ended up as war criminals, a great many executed.
Ice:
Yeah, I have never equated Republicans with Nazis. You won’t find a lot of Jews who equate anyone with Nazis and any who do should be ashamed.
I don’t even like Democrats. At risk of repeating myself, my first vote was for Nixon. I was a member of the LP when it started however many years ago that was. I despised Jimmy Carter. And I grew up in part in the panhandle of Florida where the great racist migration to the GOP had not yet occurred, so that would have been Democrats threatening our family for teaching n–gers.
I now live in Marin County which is overrun with ex-hippies. I can’t get a plastic bag at Safeway and the only way I can smoke a cigar is to park my car off in some distant, vacant corner of the mall parking lot. Priuses are like cockroaches — slow cockroaches — and bikers in spandex with their nutsacks visible are everywhere. I’m primed and ready to hate Democrats.
Tout comprendre rend très-indulgent
You squared them with Fascists and Mussolini, as you well know and implying that I am claiming differently is just another example of your dishonesty. (Do you ever tell the truth? Could you claim that the sun will rise in the East tomorrow without giving yourself a hernia?) And we know what happened to the Fascists and Mussolini. At the time you were clearly hoping/advocating for a similar outcome for Republicans and Bush. I half suspect that your old web-site disappeared after a visit form the Secret Service. That would explain the missing archives at places like the Wayback Machine.
So spare me the bit about you not being a Democrat. That bullshit isn’t even suitable for fertilizer.
Ice:
You deliberately exaggerate and take out of context the Mussolini thing. You know it, I know it.
And I never said I wasn’t a Democrat. I am a registered Democrat. If you search the web you’ll find I’ve given money to Democrats, so it would be absurd for me to deny it.
I don’t lie, Ice. It’s not some big moral stand, I just don’t need to, so I don’t.