The Auto Industry: North Versus South

As the big three continue to beg for free money, people continue to talk about how much foreign automakers have invested into America. In many cases, foreign plants build factories to avoid transactions costs, tariffs, and relative to Japan land is cheaper. Here is a good Slate Magazine article on the auto bailout when compared to foriegn investment.

“Time was, the Big Three were the U.S. auto industry. No longer. Over the past two decades, enticed by cheap labor and massive incentives, a second auto industry has emerged: nonunion, Southern-based, and foreign-owned. Large plants, with names of Asian and European carmakers emblazoned upon them, now dot the Southern landscape. By moving aggressively into Kentucky, Tennessee, Alabama, Mississippi, South Carolina, Georgia, and Texas, foreign manufacturers—call them the “Little Eight”—have transformed the economic geography of the nation’s auto industry and the political debate surrounding its future.

To hear the rhetoric wafting down from Capitol Hill of late, you’d think that Toyota, Hyundai, BMW, and the rest are as all-American as Mom and apple pie. And in many ways, they now are. Sen. Mitch McConnell of Kentucky made an impassioned plea on the Senate floor for his colleagues to oppose the $15 billion aid package the House of Representatives had approved for General Motors, Ford, and Chrysler. “Labor costs need to be brought on par with companies like Nissan, Toyota, and Honda—not tomorrow, but immediately,” he said. By the weekend, McConnell and fellow anti-bailout Republicans like Richard Shelby of Alabama and Bob Corker of Tennessee had stopped the bailout bill in the Senate.

The Southerners seem to have chosen an especially precipitous time to pick their fight with the Detroit Yankees: Without the money, General Motors and Chrysler have warned that they might be forced to file for bankruptcy protection. Harley Shaiken, a labor economist at the University of California-Berkeley, says a Detroit meltdown, on the eve of Christmas and in the midst of the worst job market in modern memory, “would be a devastating anti-stimulus package.”

The south has picked to not be unionized and side with foreign producers that have created jobs. The north is still stuck with unionized inefficient companies. So is this auto bailout simply the North versus the South?

The rest is here.


Published in: on December 16, 2008 at 12:35 am  Leave a Comment  
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The Big Three Losers



Published in: on December 6, 2008 at 11:16 am  Leave a Comment  
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Steel vs. Auto: Let them fail and they will succeed…

For years, the steel industry has been struggling without government help to stay afloat against a foreign competitor that is more efficient. In order for a company to survive they must reorganize and become efficient. This is what the auto industry needs to do. Here is more information from the International Herald Tribune:

“If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

The Detroit automakers are using the same argument as they seek a $25 billion bailout from Congress. “What happens in the automotive industry affects each and every one of us,” a General Motors Web site declares, warning that the consequences of a shutdown would be “devastating.”

The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the 1870s.

Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history.

So was most of the government’s money.

Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.

It was never enough, particularly after the rise of low-cost mini-mills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports, pressure on other countries to reduce their steel-making capacity, and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.

They got a temporary tariff from President George W. Bush, but not much more. And so the steel industry – what was left of it – shuddered and collapsed.”

This example is an important read through of what could happen and what will probably happen if we bail out these auto companies. Now, without government help, the steel industry is back. Taxpayers do not need to throw money for companies that are going to fail just because there are a lot of jobs.

Companies can only survive downturns only by changing and restructuring. They must become more competitive to be efficient. Free money doesn’t make anyone efficient. It won’t make your teenager efficient and it won’t make a business efficient.

The rest is here.


Making the Automakers…

As everyone has heard, the big three, GM Ford and Chrysler, have came out and begged the U.S. Congress to give them bailout money. Most of America and Congress rejects it. The Speaker even told them to come back with a plan. Here are some interesting facts from their begging found in the WSJ:

“General Motors Corp., Ford Motor Co. and Chrysler LLC may go back to Washington and urge Congress to take measures to spur consumer demand, in addition to providing the $25 billion in loans the auto companies seek.

“There is no way any car company can make money at the current demand level,” said a key executive at a Big Three auto maker. “The government has to get credit flowing so that the market goes back to at least 14 million to 15 million [vehicles]…. We can figure out how to survive at that level.”

On Monday, Sen. Charles Schumer (D., N.Y.) plans to send a letter urging the Federal Reserve to make financing available for the auto companies’ lending arms, which would allow them to offer more auto loans, a spokesman for the senator said. The letter will also ask the Treasury to speed approval of GMAC LLC’s request to become a bank holding company.”

There is no way any car company can make money at the current demand level is the dumbest thing I have ever heard. If this was true that means no one would be demanding a new car. That is obviously not true so they are obviously pulling it out of their behind. They basically want the taxpayers to feed the money to make them buy their cars. Toyota seems to be doing fine.

The worse part is the last paragraph, where it says that they want to be a bank holding company. Other than getting free bailout out money, why does a car company need to be a bank holding company? PCCapitalist’s joke of giving every person a car and having them pay for it through taxes is becoming true.

It is a scary day in America.


Published in: on November 28, 2008 at 1:37 pm  Leave a Comment  
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Detroit vs. Japan: Automotive Industry


So what is really the problem with the car companies? First, the quality of foreign cars have continued to rise while domestic cars have stagnated. Second, the United States allows unions to have monopoly power in many states. This means that you can not be hired unless you are in the union and also you can not be fired for being in the union.

Instead of begging for money, they should be begging for the government to release the union monopolization. There is nothing wrong with people coming together to collectively bargain. The problem is when the government gives them a monopoly on that job. The free market will bring peoples’ wages up according to their productivity and how good they are at helping their companies create cheap and quality products.


Published in: on November 23, 2008 at 4:37 pm  Leave a Comment  
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Mitt Romney on the Auto Industry Bailout

Former Governor and Presidential candidate Mitt Romney, who was also a son of an auto executive, gives his opinion on the auto industry bailout. From The New York Times:

“IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

The rest can be found here.

This is a very good opinion piece from someone who is in politics but keeps a business mind in it. I couldn’t agree more. He also mentioned that this is what his father did when their company was in trouble.

This is not a profound finding! Every company that is successful offers new and innovative things. If they do not someone will come in and make something newer and more innovative. Some examples are Apple and their iPod, before this they were struggling due to the powerhouse Microsoft. McDonald’s at first only offered burgers and you couldn’t change anything. They soon offered a choice for you to have whatever you want on your burger. Now they are innovating with new coffee and healthy choices. Without these innovations both Apple and McDonald’s would have gone out of business.

Why should the auto industry be treated any different? I would imagine there would be a lot of jobs lost if these companies failed too.


Thanks to a loyal reader for this story.
Published in: on November 19, 2008 at 5:59 pm  Leave a Comment  
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Americanism in One Country!

This is a satirical piece I wrote for NetRightNation:

When the founding fathers got together to write the Declaration of Independence, they believed that there were some inalienable rights that were being infringed upon. These are life, liberty, and the pursuit of happiness, which was originally property. Americans are now faced with losing their homes and their beloved car companies that have brought them car classics like the Mustang and Corvette. The American way of living is dying and so are the rights our founding fathers fought for. What is the good of life and liberty, if you do not have property?

The action of the government in assuring and renegotiating mortgages and giving direct money to the car companies are not enough. This only assures short-term growth and short-term happiness. We instead should show Americans, that the best car is one that is made by Americans. We must assure that the taxpayers get what they are investing in and we should assure that every household owns one American car.

We shall have this like our future health insurance and our current social security just factored into our pay checks. One car per household. That way there will be around 2-5 people working for this car, depending on how many kids.  Of course, with our current deficit we should try to make the cars as cheap and affordable as possible. We should offer one color and three types. The first type would be for the larger family and they would be mini-vans. The second type would be a pick-up truck for laborers and the last would be a small efficiency car for others. We shall also institute voting for the leaders of our glorious car industry. This will be democracy to the corporate system and we can assure that they will look out for our interests as Americans.

This would surely restore the rights of Americans that the founding fathers put forth in the Declaration of our Independence. Independence from foreigners trying to destroy our competitive market and ruining the American Dream the great leader Henry Ford created. We should in fact consider banning the companies from building their factories in our country. You may say that the other companies are giving us American jobs, but in fact they are avoiding are tariffs to keep our American companies strong. Why should we allow the Japanese business men get the profits from American labor. The CEO’s do not pay taxes in American and do nothing but suck the wealth from our country.

This is why I am proposing “Americanism in one country.” If we follow these principles I have laid out we can continue to save the American Dream and our glorious industries. Those crazies who do not believe that this is the right should be cast out and thrown in jail so that they can be useful to our government and make license plates for the massive amounts of wonderful cars that will be issued to our people.

This is life, liberty, and the assuring of property/happiness in the 21st Century that we should expect from an Obama Administration.


Published in: on November 17, 2008 at 7:46 pm  Leave a Comment  
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Do we need automobiles to be manufactured in the U.S.?

Since Henry Ford made the first automotive affordable to everyone, we as Americans use him as a pure golden entrepreneur. He is what a true entrepreneur does. He takes a certain item and makes it easy for everyone else to incorporate it into their daily life. A modern day version of this is Bill Gates and Microsoft.

Henry Ford, as messed up politically as he was, lived the American dream. He was Depression proof. The only time that he found trouble was then he wouldn’t offer anything new. His famous quote was that you could have the Ford Model T in any color that you want as long as it was black. Other car companies with their own entrepreneurship saw this as an opening and offered different colors and variations. This is how the market works, a consumer demands something the consumer gets something. Henry Ford soon learned his lesson and created the Model A.

Fast forward to today, the United States car industry as a whole is in major trouble. The government is considering a bailout to save them. Even though Henry Ford was a true believer in “corporate welfarism” and the socialist/fascist tendencies of Hitler, he never received a dime from the government. He innovated and brought a new competitive model to the forefront. He knew if he did this he would fail.

Bailing out the automotive industry in the United States is not an argument that our economy would collapse without them. It is an argument to save the American dream that Henry Ford created. This is false. The American dream is about innovation and competition. You make a product that everyone wants and the sky is your limit. The current automotive industry has not made what a lot of people want. They have not offered the best affordable quality car. Other countries are beating them by far and it is finally wearing on them.

If we want these companies to truly be the entrepreneurial American dream genius it once was, we must make them innovate on their own. When you give government funds to one company (who are domestic) and not to their others (which are foreign), you distort the market.

These companies will not innovate, they will continue to suck from the government. Nothing is better than free money. That is exactly what we are offering them. In fact, we are rewarding them for not creating a competitive product in the market. We are telling Toyota, Honda, and others that they are being too efficient.

What the automotive industry in America needs to do is innovate or die. This is what Henry Ford faced and this is what they should face today. This will bring a re-rise to Ford.

Is it possible that this will not happen? Absolutely, but they should not be treated different than any other industry in America. If you make poor decisions, you must fail. If there is a market and a possibility for a affordable efficient quality American car. Someone will come along and make it like GM and Chrysler did before. If their isn’t then we should use those resources and man power to produce something else great.

This is how the free market works and it is not a bad thing. It is the reason why these companies ever existed at all. The fact that these companies are holding their hands out to the government and taxpayers for help instead of providing them a quality good is a disgrace to the American Dream.


GM and Ford in trouble

Bloomberg is reporting that booth GM and Ford could be on the verge of going bankrupt. Here is the information:

General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University’s Stern School of Business.

The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn’t posted a profit since 2004. The scores are based on the companies’ finances at the end of the first quarter.”

Is this really because of mismanagement of GM and Ford? or is it because they have been protected for years by tariffs and now can no longer be protected?


Published in: on July 28, 2008 at 12:29 pm  Leave a Comment  
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