Well, it looks like the American version of cash-for-clunkers is going to get past Capitol Hill, and I find myself conflicted. On the one hand, I’m getting a little sick and extra wary of more money going to prop up auto sales (I figure there is going to have to be a real reckoning before things can get better, and I’m leaning toward letting it happen). On the other hand, considering what it is (actual law-to-be and not an academic case study) this is about as good a clear-the-clunkers bill as we’re going to get. The New York Times Freakonomics blogger Steven Levitt looked at this one on Friday (I went over Germany’s version in February). Just about everything he says is true, but there is one point he missed (and was nice enough to call attention to) that throws the whole argument in opposition out of whack. We’ll get there, but first, what’s right about it?
Posts By: Andrew Dederer
Here’s a surprise: American cars hold their value much better than other major markets, including Japan and Europe. Cost of ownership is the culprit. In the US, owning a car generates relatively little in the way of year-to-year expenses. Registration is usually about $30. Inspections are infrequent and rarely costly. While the repairs required to keep a “beater” on the road can reach four figures, they rarely exceed the value of the vehicle itself. As a result, it’s unusual to see a used vehicle in America (even “heaps”) listed below $1k. Also as a result, the cash for clunkers proposals, as envisioned, are a horrible idea.
The current recession has done a fair job of turning the world upside down. Instead seeing tragedy repeated as farce, we get a mega-dose of farce with the tragedy hanging over it all. Exhibit A: FIAT is in talks to take a stake in Chrysler, for nothing. Never mind the lack of palpable “investment.” As Justin pointed out yesterday, this is the sort of development that would be laughed out of a producer’s office. Bringing in small cars from FIAT is somehow going to rescue Chrysler? How? Making money off of small cars is not impossible in North America, but it isn’t easy. More importantly, how are 150k cute little Italian job MINI’s going to prop up a company with a 1.5m vehicle market footprint?
One of the uncomfortable facts about the automobile industry: its pay rates have been exceptionally high almost from day one. That said, just how much of a factor worker wages (and the cost differences that go with them) have to do with Motown’s meltdown is debatable. One thing’s for sure: the United Auto Workers (UAW) refusal to re-negotiate their current contract– repeated within two hours of the President’s cramdown conditional bailout bonanza– puts it squarely in the firing line for both sides of the “debate.” When trying to understand their seemingly suicidal recalcitrance, history is our guide.
“Since around the beginning of this month, Nissan has stopped taking orders for the GT-R; the production line has been stopped. Various car magazines have suggested that the halt is tied to a price increase, a reaction to the economic crisis and the increased cost of North American production. On the other hand, Chief Vehicle Engineer Mizuno said that the GT-R would evolve; it’s been just about a year since the GT-R was first offered for sale. Nissan may be proceeding with an in-year specification change. In other words, the rumored line-stop is actually a planned line re-tooling. In any event, Nissan will not say when produciton will resume or when they’ll re-open the GT-R’s order books.”
Whatever the qualifications and diplomas accumulated by auto executives, it’s a pretty safe bet that they failed mythology. Automobile names are a silly subject already, bring in some of the poorer choices, and you have the makings of high comedy.The assorted Zodiac names are harmless, if a bit silly. I’ll accept that no one at Chevy realized that Cobalt is a poisonous metal named for a demonic imp. But really, who green-lighted “Gremlin” back in the day? Odyssey is a cool-sounding name, but really, shouldn’t it be some sort of mid-life-crisis car? Well, maybe it’s a car for a “homer”. What would Oedipus drive? That’s easy: a black 300 with tinted windows cause he’s one baaad.. OK, I’ll stop. But mentioning the poster boy for tragic screw-ups reminds us of something that does have relevance for today’s auto market, the riddle of the Sphinx.
During the Civil War, General George McClellan headed the largest army in the North. McClellan was an astounding capable soldier– except for the part about fighting and winning a war. He was also insubordinate, rude and a potential political rival for President Lincoln. The president’s Cabinet recommended McClellan’s dismissal. “Who should replace him?” Lincoln asked. “Anybody!” they replied. “I can’t give the job to ‘anybody,’” Lincoln argued. “It will have to be a “somebody.” In the same sense, who can replace GM CEO Rick Wagoner?
Montagues vs. Capulets. Crips vs. Bloods. ‘Vette vs. Porsche. How do I plead? Nolo contendere. While I technically qualify as an "auto journalist," I'm a lot more interested in the companies that build the cars than in the cars themselves. I just don't have quite the same level of fire as some of my fellow writers, so it's pretty impossible for me to be much of a "car snob". Beer is a different matter.
With Chrysler’s slide well underway, it’s only a matter of time before Honda becomes America’s fourth largest automaker (behind Toyota, GM and Ford). Honda will then hold the same rank stateside as it occupies in Japan– behind Toyota, Nissan, and Suzuki. While Honda’s relative success in its home territory may surprise some American industry watchers, the automaker’s contrasting strategy in the Japanese Domestic Market (JDM) reveals a hidden “secret” to their U.S. success.
With the odds of at least one of The Big 2.8 filing for Chapter 11 rising, the analogists are crawling out of the woodwork. While the multiple and varied demises of the [now deceased] British Motor Industry make for interesting reading and some neat analogies, the truth is that such any such comparison is apples to oranges, or, more accurately, chalk and cheese. The first major point of divergence is the level of failure. Relatively speaking, the boys from Detroit haven't even BEGUN to fail.
Oil shock version three-point-something is roiling the global economy. SUVs are doing a fair imitation of the dinosaurs in Fantasia. As the U.S. auto industry undergoes a rapid, convulsive, paradigm product shift, I feel a slight pang for T-Rex: the Chevrolet Suburban. I hope this example of the species pulls through. The SUV segment appears to be history, but the Suburban IS history.
Since this summer's sales slump, Detroit's stopped bitching about the so-called "perception gap." That's the alleged difference between consumers' idea of their vehicles' quality– relative to their Asian rivals– and "the reality." Suddenly, the concept is a lot less important than finding something, anything fuel-efficient to sell. Besides, there's a far more catastrophic "gap" in play, one that threatens Motown's very survival: the "gap" between what a SUV is worth new and its value come trade-in time.
Things are bad for Chrysler, Ford and GM. The Big 2.8 are burning precious cash, shedding valuable market share, choking on unwanted trucks, attempting to nurture (or excise) damaged brands and outmoded models, and struggling to bring relevant products to market. Bankruptcy looms large. And yet, there’s a silver lining to the recent, calamitous downturn in the U.S. new car market. But before we reveal the sliver of hope, let’s check in with the main engines of their destruction: Honda, Nissan and Toyota…
Back in 1783, Paris was all abuzz with the exploits of the Montgolfier brothers’ balloons. Using a simple bag and a lot of hot air, men (and sheep) were able to fly (or at least float). One of the observers was none other than Ben Franklin, who was fascinated by the display. An onlooker was less impressed “What use is it?” America’s founding dirty-old-man smiled and replied, “Of what use is a newborn baby?"
May’s new car sales numbers are in and things are looking bleak for The Big 2.8. Their corporate Spinmeisters can blame a down economy and sky-high gas prices all they like, but sales drops well into the double digits are never good news. Market share declines aren’t exactly glad tidings, either. That said, truth be told, Black Tuesday is actually a good sign. It shows that the domestic automakers have finally “accepted” the market. Whether they’re too late is another question entirely.