Let the people decide

I found this article (GM, Chrysler suing taxpayers with taxpayer money) via Twitter and DIGG today and I felt that it was worth more than a quick response on either site.

Rather than react directly to the article I'm going to respond to the many various comments I've read regarding the auto industry as a whole lately (especially the big three US automakers).

Domestic Automakers Vs. Domestic Autos – There is a big difference between these two, a difference that is often overlooked or ignored. I happen to prefer driving Volkswagen cars. I like the way they drive, among a number of other reasons. I don’t however buy ‘forgien’ to stick it to the US automakers. It’s also not un-American of me to prefer and drive a German car.

The reality is that there is no such thing as foreign vs. domestic cars any more. It's a joke to think otherwise. For example, GM owns Opel, a European automaker and has been bringing over Opels, rebadging and selling them as Saturns, an American brand. Many of the BMWs sold in the US are built in Georgia (the state not the country). There lots of examples of this situation. Lots of 'foreign' automakers have large offices and factories here in the USA, just as Ford, Chrysler, and GM have factories all over the globe as well. It's just how it's done. Buying a Toyota takes no jobs away from Americans. Buying a Ford doesn't take jobs away from non-US residents.

If you want to stick it to the US automakers because of their politics, that's fine, but don't use it as an excuse for buying a Honda or a Volkswagen. Some auto workers who are losing their jobs because the US automakers screwed up and because the market is down are mad at people driving cars they didn’t make. They have a right to be mad, but the reality is that in many cases those cars they are growling at were probably manufactured, at least in part, here in the US.

(On a personal note, I know my car was not made in the USA, but Volkswagen is building a new factory in Chattanooga, TN to build a sedan specifically for the US market. VW is bringing in lots of jobs, helping the schools and the city as a whole. Hard to argue how that is bad for the US.)

Auto Regulations vs. Free Market – The article I reference at the beginning of this post talks, largely, about how California wants to set its own, stricter fuel efficiency standards, other states also want this, though I suspect they’d back down if California failed.

Arguments against it are that it creates an unfair environment for automakers and that only some automakers can meet those demands. I have to wonder, how is it unfair? Was it unfair that seat belts had to be installed or that airbags should be standard? The difference there is that those are safety regulations. It’s easy to quantify lives saved. It’s also easy to find people who have been directly affected by the lack of safety equipment to lobby for it.

Fuel efficiency hits our wallets and not equally. A $75,000 car is going to have roughly the same mileage as a $20,000 car, so the wealthier are less affected. When gas goes up to $4.00 per gallon, lower and middle-class people start getting pinched hard, especially those who had to move an hour, or more out of the city, to find affordable housing. The upper classes are considerably less affected. However, they are the ones who often have the control. Right or wrong, the wealthy are the ones in politics. Do they listen to the lower classes who want more fuel efficient cars? No. Why? Because doing so puts pressure on the automakers, who: 1) have powerful lobbies and 2) would not make profits for a short run, while they engineer new motors. That affects their stocks, their value and ultimately that has a greater impact on the wallets of the wealthy than $4.00 fuel. It’s more effective to try to make fuel cheaper than it is to make cars more efficient.

So why not let the market decide? If people want fuel efficient cars they’ll buy them from who has them, forcing other automakers to compete. Isn’t that what the Prius has done? It’s more or less created the Hybrid market. Hybrids are in hot demand these days, however so are Trucks and SUVs still. When the fuel prices were in the $4/gal range last summer demand for large gas guzzling vehicles went down. As soon as fuel prices dropped, the demand for large vehicles rose again. That shows that while there is a large portion of people out there looking for fuel efficient cars, there is still a very large group of buyers who really don’t care and just want as much size and utility as possible. Some of these buyers live in rural environments and really need and use those large trucks, but there is still a large percentage of {pick your favorite SUV driving stereotype} that loves a big vehicle though they have little to NO need for it.

Conclusion - Let the markets decide. I was against the auto bail-out and still am. I was against the bank bail-outs too (and look how the banks have abused it!). If a company cannot stay in business by its own business practices it should be allowed to fail. If there is enough consumer demand for a product or service either the remaining competing businesses will pick up the slack or a new player will be able to join.

The argument that if Chrysler failed that it would take down a bunch of parts makers seems a bit dubious to me, given the number of other manufactures still in business. The market falling out has done more damage than what one automaker would have done, in my opinion. The other automakers would have picked up the slack or the parts makers would reduce in number to match demand.

Market demand for fuel efficiency would also dictate the direction automakers would take. Companies like Toyota, which have fought to compete with US automakers in the large vehicle market, would (and do) focus on the smaller car market where they are already strong. This makes companies like Ford and GM compete or get out of that market. Where there is a need there will be someone to fill it. Companies like GM however seem to try to fill all needs at once, poorly. That business strategy is coming back to bite them now.

The market should be allowed to work, allowed to kill companies that are failures and reward those who made the right choices. It should be allowed to dictate how efficient our cars are. Let the people vote with their dollars on what car they want. The government should step away from this one.

“Green” note – Cars make up a minor percentage of the overall pollution problem here in the US. I’m not suggesting that nothing be done but over regulation on autos will do much less than reasonable regulation on power plants and factories that spew tons and tons of particulates into the air.

Follow up note - I was a bit American-centric in my posting and failed to consider how auto pollution effects other countries, especially those without strong regulations. I remember now the pictures of the Beijing skyline before the Olympics, due largely to the number of cars. Also LA is pretty smoggy, so perhaps I underestimate the impact of auto pollution.

Comment on the Automotive "Bail out"

First, I hate the term "Bail-Out" here. The automakers have been asking for a government loan from day one, not free money. My issue is that it is misleading and makes people think that the automakers are asking for free money.

I've heard good arguments on both sides of this debate from car pundits (Carolla, Leno, Clarkson)who have a bit to loose but not as much as the automakers (I mean the men and women on the line) and the many businesses that support the automakers by manufacturing parts or providing services for the businesses and workers.

Do I think Ford, GM and Chrysler are all going to get their acts together and become new and great manufacturers? No, I don't. I honestly believe that there will be some terrible failures to readjust and one will fail or have to strip down so much that it will be a shadow of it's current state.

The 'Big 3' have dropped the ball and ignored the changes in the world economy. I've heard some suggest that the auto industry take some queues from the computer industry. So you have a few companies that make great engines. Some that make great transmissions. And then Ford just designs a nice shell for all those parts to go into. The past trend was to own or control as many steps in the chain as possible. Maybe that needs to change. The whole automotive world could be forever changed by what happens to the Big 3 in the next couple of years.

The problem isn't all the automakers. We had very fuel efficient cars in the 80's and into the 90s, but then everyone wanted giant SUVs with terrible mileage. The GEO Metro got nearly the same mileage as the Prius.* Sure it's a crap car but most people only need to commute from Point A to Point B. The Metro was considerable more affordable to produce with a simple and small 3 cylinder engine.**


However, you can't keep up with (in terms of image) the other Soccer moms driving giant SUVs or keep up with your sales rival driving the new BMW in your little fuel efficient GEO Metro. The only reason the Prius is acceptable in that regard is because "Green" is hip and cool right now. Even with it's greenness, maybe people still frown on it's looks.

The auto makers have plenty to be held accountable for, but us drivers are just as much to blame. We demand, they supply. Simple as that.

Two things need to happen. No necessarily both, but at least one or the other. 1) Oil burning vehicles need to become cost prohibitive to the mass majority. 2) Alternative fuel vehicles need to be affordable and exciting. Exciting is important. Top selling cars and trucks aren't top selling because they are boring. (I'm talking to you Prius.)

* - My research on the GEO Metro MPG varied greatly, but was in, on average, the 40-50 MPG range. The Prius is right on par with that MPG.
** - It should be noted that while the Metro was cheaper to make it also was lacking most of the safety features of today. It's unlikely that GM could make a Metro now at the same price and mileage due to those requirements.