Do we need an American automobile industry? And by American, I mean those manufacturers, suppliers, and associated vendors owned and operated by US citizens – red blooded, football-loving, meat and potato types. (Ok, that’s a stereotype, but you know who I’m talking about.) I submit that it’s in our national interest to keep it alive and moving forward. Farago disagrees completely (editorial to follow).
For now, we’re going to ignore the mechanics of rescuing Detroit. Or discussions about saving two of the companies and letting the third one go (back) to the dog(s). And we won’t even raise the question of how silly it might be to let Nancy Pelosi-– from San Francisco– to lead the charge to shovel your money to Detroit. So don’t go there; TTAC’s got that discussion covered already. Nope, this is a purely philosophical discussion about the merits of a home grown auto industry. So here goes…
Transportation provides the arterial network of moving people and goods around this country. It’s a darn big country, and most of it has been developed and organized around personal vehicles. Not trains, planes, or buses. The Unites States has more vehicles per capita than any other country in the world: 765 units per 1,000 population (from the United Nations Statistical Yearbook). England, by comparison, has only 426 per 1,000 pops. More new vehicles are sold in the United States than in any other country by millions. (China is the closest at 10 million units – but they’ve got four times the population of the USA.)
By any yardstick, the Unites States is the biggest and most prolific user of automobiles of any country in the world today.
It’s also the richest vehicle market in the world. American’s buy more “vehicles” (in terms of size, content, power, and fuel consumption) than anywhere else, too. While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions. The developing world gets vehicles lacking most safety innovations and creature comforts. We get the best vehicles, with the highest level of safety, amenities, and power. And big, powerful, personal trucks to do our hauling.
So not having a home-grown automotive industry to sell to this market just seems insanely stupid. Everyone else (mostly) seems to make money selling new cars. Toyota and Honda make more profits here than anywhere else. New car sales represent a $400b per year market here. Selling a fraction of this market means big revenues and a Gulfstream jet or three for the executives. Just think of the waterfall of those dollars trickling through the economy with every car sold. Do we really want to ship a big chunk of those dollars overseas to foreign companies, governments and their owners so they can live the high-life?
Sure, we do buy a lot of goods from overseas. But it’s mostly stuff we can’t manufacture here at the same cost as over there. When a seamstresses cost $8/day in China, with few benefits paid and no OSHA regulations, we benefit from the savings as consumers. It makes little sense to produce Walmart’s clothes here.
But guess what? The costs to manufacture a new vehicle in the United States are about as cheap as it gets for the level of car sold as anywhere in the world. The direct labor component of a car represents roughly $1,800 of its total cost. Believe it or not, the direct production cost differences among all US-based assembly facilities from any manufacturer are nominal.
What’s different: the profits of foreign-brand cars assembled or imported in the United States go back to their home countries. That means their countries benefit from reinvestment of those profit dollars into the next generation of vehicles. Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there– not from US ingenuity and skills. Do we really want to depend on Japan, Korea, and Germany (and soon China) for the future of our cars and related technology or do we want it grown here in the USA?
What’s most promising is that the future of personal vehicles lies not with traditional gasoline ICE, but with variants thereof such as HCCI, diesel, and hybrids and/or all-electric vehicles. Getting there requires a huge investment of dollars. New tech also delivers collateral benefits: software for engine management, ride control, transmissions, heat recovery systems, emissions, and improvements in safety systems. Investments in new technologies come directly from the profits generated from selling vehicles today. And they’re mostly made by suppliers looking for an edge. We simply can’t abandon our future to others.
We need an American auto industry. One that runs the table on the entire production and sales chain. There’s no cost basis reason not to produce vehicles here. We just need better run companies with forward thinking managements. You can argue how we get there, but not where we need to be.
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In principle I agree, but as with so many things, the devil’s in the details. If American automakers can or will not operate profitably and sustainably, then where’s the benefit to having ‘em? I think that even if all three Detroit firms go CH7 (worst case scenario) America has the know-how and entrepreneurial spirit to start up from scratch (or close to it).
The structural problems that nobody seems to be able to fix (dealer and labor bloat, “perception gap”) would go away if the D3 restructure or even disappear completely. The problem isn’t that people think “I won’t buy American, because we only make crap,” it’s that people have been burned by these three firms too many times. “Saving” the names and structures of these firms seems to invite only repetition of the last several decades.
Is an successful native automotive industry desirable? Yes. Is the only way to get one by helping existing firms escape the consequences of their mismanagement? Absolutely not.
The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.
Having just watched the latest Top Gear episode, it’s hard to say that it’d be okay to let America’s car industry go. I’m not a domestic car fan, but if they disappeared, it wouldn’t be the same.
If we were to let the domestic auto industry go belly up, what would be the ramifications of the transitional period? How long would it take before they can become even half of what they were in their best days? How far behind in technology would we be because of it? Just look at the struggles Tesla is having trying to become the 4th domestic auto maker, yes they are jumping on technology and that is a lot of their problems, but sooner or later these changes will be coming to the D3 anyways.
Either way you look at it, it’s by far not a optimistic outlook. One one hand we can risk bailing them out, and on the other hand we can let them crash and hope all goes well on a recovery.
I’m starting to lean towards bailing them out, with strict guidelines, limitations, and most importantly, change. Change in upper management, change in the UAW, and a change in the products they sell. If our government is willing to help out than it needs to help out in ways that the D3 is unable to its self.
Yes, we need American auto companies. Whenever I buy a car that turns out to be a lemon I like to know it was an American engineer that designed the parts wrong. When it comes time to screw me over at the dealership for refusing to honor the warranty, I like to know that it was an American company’s service manager doing it. When the factory hides product defects and destroys corporate documents to avoid costly recalls, I feel better knowing it was an American company putting people’s lives at risk. Whenever a part falls off my car because a bolt wasn’t tightened up to spec on the assembly line I like to know an American union worker was responsible. Even though Americans lose jobs when their cars are being assembled at the company’s Mexican assembly plants I feel great pride in the fact that those savings from that cheaper Mexican labor goes to line the pockets of overpaid AMERICAN auto executives, and NOT foreign ones !.
I’m PROUD to be an American, and to support my country’s auto industry. My dad was a mechanic for close to 40 years at a GM dealership, and thanks to General Motors quality products he was never without work or laid off in the entire time he worked there. That’s proof American products produce American jobs, and not just for class-action lawsuit lawyers either, but for the working man too !. God bless America.
miked:
Your point is well taken on the national security issue, but it’s not just the heavy “metal-bending” capacity that we need to consider, but also the industrial base for secure microcircuit technology. Without a source of IC chips that is totally trustworthy, the ability to run most any sophisticated machinery today without fear of tampering can be compromised.
As far as the domestic auto industry is concerned, I would also want it to be a viable draw for US kids who want to be scientists and engineers. Anything that can add to the “innovation base” helps us all in the long run. But I don’t claim to know if the approaches being discussed are the right ones.
Honestly I’m not sure how much overlap there would really be between a Abrams factory and a Silverado factory. My guess is so little that converting one to the other would only save on the cost of the building itself.
People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power. Bar none. The T-34, Panther, Tiger, hell the Mark IV were all vastly superior. I guess we had better tanks than the Japanese, but that wasn’t too relevant in that theater. You can’t just retool a civilian car factory and make quality weapons.
Anyways, there is no inherent reason we can’t have a domestic auto industry. It’s just that the Big 3 got fat and stupid during their heyday and never recovered.
I’ll accept a bailout if it comes with trimming all that fat. If it just tries to maintain the status quo, its a waste of time and money. It’d be a better use of the governments money to buy Hyundai or something.
I think it’s worth saving, but not with a cent of taxpayer money. GM, Ford, and Chrysler got themselves into this mess through years of building crap. They need to admit their mistakes, declare bankruptcy and move on from there. I’m pretty sure all of the 3 companies can build decent vehicles that actually hold their resale value, but not the way they’re structured now.
Bailout money is just going to make it so GM gets another 6 months to a year to continue sucking. Nothing will change until their rotten management is replaced with people that haven’t been exposed to the GM Kool-Aid for years.
The question is what is an automotive industry.
Which country the corporation is incorporated in and which country’s citizens own the most equity are overrated. Everyone talks about how amazing Toyota and Honda are – who’s buying their stock? Porsche SE makes more money trading than selling cars.
Of the worlds 20 most profitable companies only 1, Toyota, makes cars, they rest are in energy, finance or information technology: http://money.cnn.com/galleries/2008/fortune/0806/gallery.G500_biggest_profits.fortune/index.html
The most important thing is to have the automotive engineering, supplier and manufacturing jobs. If GM engineers its cars in Korea and makes them in Mexico it won’t be that important that their losses come from or razor thin profits go to the US.
The keys to the engineering and manufacturing jobs are well funded public and private Universities with very strong engineering and natural science programs, strong infrastructure, and (oh no) national healthcare. The solution is NOT bailing out failed companies.
Still, I would like to see GM and Ford remain domestically owned. While Ch. 11 is inevitable (the only question is how much government money comes first) there should be restrictions on foreign companies buying them out of Ch. 11 on the cheap. On the other hand I would prefer that a foreign company buy Chrysler out of Ch. 7, they’re more cursed than my local Chicago Cubs.
I haven’t seen the latest Top Gear, but based on statistical information available, UK manufactures no less cars within UK then it was when all/most facilities were British own. Actually, production is higher now. Who are the losers: investors who lost their shirts to domestic mismanagement. Who are the winners? Obviously folks manufacturing those vehicles, consumers who can afford to buy them. Another set of losers are probably garages that had much larger volume of work, since in the past quality of UK manufactured cars was second to Russian. Did Britain suffered throw this transition? Somewhat, but not as bad as during WWII. Germans own their factories, without dropping munitions on London and Coventry.
What about US? Lets be realistic: over 50% of cars & trucks sold in US are of foreign label. Majority of foreign label cars and trucks are made in US. Large chunk of US label cars and trucks are actually not made in US at all, and those that are made are of foreign content. Look on the new car sticker in Ford or GM lot vs. Honda/Toyota. Walk through the lot and view a couple of models for better representation.
Look at the articles in the press: majority of foreign manufacturers are planning to open assemblies in US, GM and Ford are investing in China, Russia, Brazil. None of domestics are planning to do anything in US in the future.
If those companies with current leadership, ownership and employees (unions) could not survive in the market that foreign manufacturers are prospering in, why anyone would think that investing 50 billions would change anything? Ford lost more then that alone in the past few years. And I doubt that even GM auditors have a handle on their bleeding, because they have judiciary responsibility to notify NYSE, Fed and share owners. I did not hear a sound last year (or 6 months ago). And in 4 weeks GM will be bankrupt.
Saving domestics is like helping junkie with better quality cocaine.
Ken: Do you have a source for the labor cost comparison?
(It’s not that I’m skeptical, it’s that I would really like to bludgeon certain people over the head with that fact.)
Better days are coming folks. America is famous for re-inventing itself especially after a crisis. No other country is able to do that (and if, only through the help of the US). I’m not American, nor do I currently live in that (I think still blessed) country, so I view things from the outside.
No doubt, mistakes have been made in the US automobile industry basically from day one. But Ford gave us wheels and a working middle class. The import market was underestimated by the US3 ever since the VW beetle has put its tires on US soil.
The European automotive industry is basically no better. Leave the US export market out for them and you will see what happens to Benz, BMW and Porsche. All manufactures are somehow tied together through their supplier chains. So if GM and Ford collapse, what will that do to their suppliers that also supply the rest of the industry? Well, no parts no cars.
We Europeans think we go the better products, in some cases that might be true, but look what we have to pay for them. If GM and especially Ford would not have perfected the way of manufacturing especially the Europeans would not be able to afford cars at all.
So even in this turmoil, I strongly believe that your industry will rebound, management systems will get replaced and you will pull out of the ditch. It will be costly, financially and on the head count side, but if you can’t do it- then Lord help us all.
The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.
If you don’t have a general manufacturing base, you can’t have a defense industry. You can’t just start up an assembly line. You need a supply chain.
Also, it matters who owns the plant. You think a company ultimately controlled by the Chinese government will build weapons for us?
Sadly, we’ve allowed most of our manufacturing base to disappear because we wanted cheap prices at Walmart.
Honestly I’m not sure how much overlap there would really be between a Abrams factory and a Silverado factory. My guess is so little that converting one to the other would only save on the cost of the building itself.
There wasn’t much overlap between steering knuckles and 50 caliber armor-piercing bullets or tank treads either, but my old Chrysler facility was converted from one to the other in a matter of months–with much of the same machinery.
People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power.
The Sherman (granted) wasn’t that great, but that’s just one example. Compare the Corsair with Zero, the P51 with the ME109, or the Jeep with the Hitler’s “Thing.” Most of what we built in that era was world class. Remember we did win.
From an earlier TTAC post citing a Booz & Co. report:
“While 83% of the automotive industry’s 2007 R&D spending came from three countries ―the U.S., Germany and Japan― just 60% of total R&D spending took place in those three home countries.”
“If we ever need the machines to make more tanks, then the assembly lines are here to do it.” -miked
Car assembly lines can not be easily converted to make the MRAP or JLTV. All the evidence you need can be found in the list of bidders for the Joint Light Tactical Vehicle http://en.wikipedia.org/wiki/JLTV
Not a single auto/light truck manufacturer. If there was ANY relationship between the war-time and civilian vehicles don’t you think that we’d see some level of involvement by the big 2.8? Further, if the Pentagon (the experts) felt like they might need to call on America’s auto manufacturers don’t you think they ask them to be involved in the R&D phase?
RE: secure microcircuit technology
What does this have to do with the price of rice in China. I mean seriously, you are extending this discussion well beyond its logical borders. The fall of the auto industry would mean squat to ability to source computing components for weapon systems.
RE: “innovation base”
Where do you think the Holden Monero Coupe was “innovated” into existence? How about the Opel Astra? The engineering heavy-lifting was all done overseas and any future GM would likely expand its overseas development of USDM vehicles. GM does nothing for our “innovation base.” Just seeing “GM” and “innovation base” in the same sentence makes me chuckle.
We Ontarians certainly do. In Southwestern Ontario, 1 in 5 people are employed directly or indirectly by the Big Three. It’s still something like 1 in 8 if you include the rest of the province.
I want to see America continue to have an auto industry, but not on my tax dollar which is already being pissed away in many ways. The auto industries made this mess, let them figure out how to get out of it. Remember this is the industry that has “job banks”, any industry that stupid may not either be worth saving or capable of being saved.
Those who concerned about domestic defense industry: we missed our boat. Our defense industry needs raw materials first: steal, alloys, bolts, nuts, etc. Very little percentage of it is manufactured on our soil. In the case of war (assume with Japan) all factories in US can be legally nationalized for war effort. GM factories in South Korea – literally gone.
If I recall correctly, when Chrysler was rescued in 80’s as a part of package production of Abrams Tank was spawned off and sold as a separate entity. Abrams was Chrysler project. I think Big 2.5 spawn all non-essential to auto businesses and country is not dependent on their contribution to DoD programs.
From the 2007 Harbour Report:
The difference between the most and least productive in terms of total (Assembly, Stamping and Powertrain) labor hours was 5.17 hours per vehicle (or about $300 per vehicle), down from 7.33 hours per vehicle in 2005, and less than one-third the 17.17 HPV gap in 1998.
This year, Honda’s showed the biggest improvement (2.7 percent) across this combined assembly, stamping and powertrain measure.
In overall productivity, four of the six companies with assembly, stamping and powertrain operations in North America – GM, Honda, Chrysler and Ford – showed improvement in 2006. Nissan Motor Company did not participate in this year’s report. Toyota’s total manufacturing hours per vehicle, while leading the way among the participating companies at 29.93 HPV, was not as strong as its 2005 performance of 29.40. Honda was second at 31.63 HPV.
Well, first I would like to say thanks to Farago for allowing opinions different than his to be heard and published.
Now back to this article. I don’t know where to start. There are so many things wrong with it that I don’t know which one to mention first: half truths, lots of statistics and the wrapping in the American flag. (I’ll use bullets since I’m an engineer):
- True. USA is the biggest consumer of high end automobiles. So what?! USA is also the biggest consumer of many other products which are not made in USA (e.g. tee shirts, shoes, etc. the list can go on and on). Is it more important to have auto factories and not to have shoes factories? Kinda’ tough to drive bare footed.
- We live in a global market. Calling GM American and Toyota Japanese has become inappropriate. How come, while loosing $2.4b in the last quarter and firing 2000 employees, GM goes ahead and buys some $500m car factory in Russia? Or China? What’s American in that? How come Hyundai builds, in the USA, the most technologically advanced car factory in the world? How come this article does not mention any of that? For me the profitable American Honda factory is more American than any of GM’s failed ventures oversees or bankrupt ventures within the USA.
- Why does the author compare an $8 product from China with the equivalent product made in USA saying that it is much cheaper but then goes ahead and says that there is no difference in cost between a car from any of the US-based assembly facilities from any manufacturer? Why not compare with the same car manufactures in China? And I don’t believe the difference is only $1800.
The price of a car has very little to do with it’s manufacturing costs (being labor or components). A specific market dictates the price of a car.
- We need an American profitable industry/economy! Not an auto industry necessarily. It does not matter that we produce cars or buttons as long as it is profitable. To get there we need good management, qualified work force, and to let the free market do its work. Anything else is just communism.
So to answer the question: No. It’s not worth saving something that’s rotten.
Take the $25 billions that’s needed instead and put it in schools and research. I’ll bet you there would be more and better return on that investment.
“The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.”
This is so wrong on so many levels. First, the differences between modern weapons and automobiles is much, much larger than it was in 1941. Second, modern defense is far less about quantity than qualtity. It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.
The problem isn’t that people think “I won’t buy American, because we only make crap,” it’s that people have been burned by these three firms too many times.
While they regularly replace unrepairable consumer electronics with a new model from the same company. Before I got an MP3 player this year for music on my bicycle, I treated portable cd players as essentially disposable. I think the last electronic devices I had repaired were a *conrad-johnson tube preamp for my audio system and my Sony ProWalkman I used for live recording back in my tape trading days.
You see comments here and on other blogs about ‘my dad had a Taurus back in ‘88 that was a piece of crap so I’ll never buy another American car again.’
Oddly, you never hear someone saying they won’t buy another Kenmore because their vacuum cleaner failed.
Cars are somehow different and it’s not just because a minivan is more expensive than a washing machine. People get emotional about cars. About as many American households have washing machines as they do cars but I don’t think there are many washing machine blogs.
Economists base their theories on people being rational actors, but so many consumer choices are completely irrational.
*conrad-johnson, btw, is a great company (and you don’t see them whoring themselves out like Mark Levinson). I bought the preamp used. When considering the purchase I called up c-j because I was weighing the merits of the used component vs a similarly priced new c-j model. They told me to buy the used one because it sounded better. That impressed me because the manufacturer doesn’t make a penny when folks buy used gear. When I sent it in for the above mentioned repair, a bad muting relay, they ended up also upgrading the unit to the latest revisions and replaced the nickel plated RCA jacks with gold plated connectors – at no charge.
“Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there – not from US ingenuity and skills. Do we really want to depend on Japan, Korea, and Germany (and soon China) for the future of our cars and related technology or do we want it grown here in the USA?”
When in the last 30 years have the D2.8 innovated anything?
An example. The Dual Clutch transmission was invented by Borg-Warner — an American company. How many of the D2.8 are using it? The D2.8 have been a drag on innovation.
Time to put them out of our misery.
Why should the Auto industry be more valued than America’s steel industry?
We let steel production almost completely disappear from the US landscape. My father-in-law was an engineer with Bethlehem Steel and I’ve heard all the stories.
Would the US be better off with a thriving steel industry? Maybe; but that question is irrelevant at this point.
We didn’t bail out the steel industries, why should we bail out the auto industries?
-ted
YES – we need this industry b/c for national security we need an industry that can produce equipment for our own defense. We’ve moved from agricultural based society to industrial now to service / technical – but we need to have a balance. We need to compete globally meaning we need to be competitive locally too!
Unfortunately we need to get over the fact that Detroit’s long in the tooth, overly bureaucratic structure, legacy costs all from horrible management these past 5 decades – they need to reorganize and do it under bankruptcy and cut out all the fat. Once GM and Ford restructure they will once again be competitive and lean in structure. Chrysler – throw it to the wolves or 3 headed dogs as it is a long time coming for this 3rd rate MFGR to listen to the fat lady singing.
It’s life…death and rebirth is required for almost everything. If we do not modernize and change for the better then we fail catastrophically.
Here is what needs to be done.
Fire the managers and directors who brought these companies to their knees. Shame on you Wagoner! Bring in truly independent boards with straight shooters like Warren Buffet. Make the unions stakeholders in trade for concessions. Make each division a profit center, competing not only with outside companies but each other. You win or lose by the decisions each makes.
Finally, deep within each company is someone who knows the ropes and most importantly, loves building great cars, Not merely adequate, but great. Hire him and people like him to manage. I’m truly tired of this penchant for hiring executives from failed companies outside of the industry.
Finally the American public and its government needs to let them know that this is your last chance. Good luck and don’t screw it up.
In its current state: no. I hate to say it because it would mean the loss of tens of thousands of jobs in the US, Canada and Mexico, but I think the only future for GM especially would be Chapter 11 and in the process or reorganizing kill everything except GMC, Chevrolet and Cadillac (sorry Buick, Saturn, Pontiac, Saab, etc). Perhaps they could keep Saab in Europe and just continue to sell rebadged Opels, but the brand has no use in N. America.
Until the American auto industry cuts the fat, operates profitably, and makes cars that consumers want to buy, they will never make a turn around and the government bailouts will never “pay off.”
We absolutely need an automobile industry.
First of all, the automobile is the most important product in the world. It is something which all rational people emotionally identify with and see as an extension of themselves.
Developing the greatest automobile should be a matter of national pride. We need the automobile industry to both develop and showcase our engineering prowess. We need that career path for
car obsessed engineersthe future leaders of our country.However, I don’t believe that we do need to keep the companies we currently have or should nationalize the industry or adopt protectionist trade policies. The car industry has enough potential for profit and enough inherent value to the country in terms of skilled and unskilled labor that it will remain without government intervention.
The headline and the article itself ask two different questions. Do we need an American auto industry? And is the American auto industry worth saving?
To the first question, I believe it’s valuable to have a healthy auto industry presence here: Among the benefits are the creation of a good number of reasonably-paying jobs. And the fact that a number of transplants continue to set up shop here suggest that domestic labor rates can be economically viable, at least when those rates aren’t artificially controlled by a monopoly. Is this worth preserving? Yes. I would hate to see the foreign automakers punished in some way for their significant investment in manufacturing capacity on our shores.
Does the existence of a healthy auto industry imply that the major players must be headquartered in the US? That’s where I disagree. As others have pointed out, the profits (or losses) flow back to the shareholders, whoever and wherever they may be. Want a piece of Toyota’s profits? Buy some of its stock. Also already pointed out–those profits are typically razor-thin anyway, meaning most of the proceeds from sales go to labor, suppliers, engineering, R&D, dealers, marketing, advertising, etc. In other words, a lot of the revenues stay in the local economy.
Now, I’m sure Honda and Toyota, to use some examples, do much of their R&D and engineering in Japan (but not all of it–I believe that the Accord, for example, is designed in the US). Sure, I’d like to see more of these jobs in the US. And of course, much of these companies’ management will reside in Japan, meaning some of the revenues will flow back to Japan to pay management salaries. And I actually prefer to see that money go to pay the relatively reasonable compensation of Japanese executives and managers than the exorbitant compensation of their American counterparts. (One need only look to Rick Wagoner’s compensation package as an example.)
Which brings me to the second question: Is the American auto industry (which I read as “Detroit” from the article’s context) worth saving? I would say yes again–but what it needs to be saved from is its current management.
I must wonder aloud: Will the US continue to be such a rich vehicle market? I suspect that much of this vehicle market has been propped up by easy credit for some time now. Obviously the pendulum has swung in the opposite direction recently, but when things stabilize, what will the size of the market be?
>People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power.
The Sherman (granted) wasn’t that great, but that’s just one example. Compare the Corsair with Zero, the P51 with the ME109, or the Jeep with the Hitler’s “Thing.” Most of what we built in that era was world class. Remember we did win.
Popular Mechanics’ site currently has a feature on the most deadly weapons of the modern era based on when they were introduced. The Zero made the list because it’s maneuverability was superior to anything the US had in the air at the time. In time, the Americans developed superior tactics (dogfighting at high altitudes where their horsepower had an advantage) and training (rotating experienced combat pilots back stateside to train new pilots with the latest tactics – also it took the Japanese about two years to train a pilot and they never recovered from the loss of over 400 aviators in the Midway battle). Also, the Hellcats and Corsairs and Mustangs used in the pacific theater were much more survivable and could sustain much greater damage than the Zeros which had no armor for the pilot. Still, the Zero gave the Japanese air superiority in the early stages of the war.
The Spitfire and P51 were great planes but the ME109 was a competent fighter. As I understand it, one reason why the Nazis lost the Battle of Britain is that the ME109 had limited range, allowing only about 20 minutes of fighter cover for the German bombers.
We won not just because of superior weaponry, but because we made fewer mistakes than the Axis.
That and the “arsenal of democracy”. Yes, the Sherman was a death trap, certainly the early models. It had no armor on the bottom (making them vulnerable when cresting the hedgerows in Normandy) and a smaller main gun than the German tanks. No question that the Tiger and Panther tanks were superior. However, Germany being fascist the government told corporations what to do and assigned tank manufacture to heavy equipment companies that were used to low production rates. The US took bids from general manufacturers like the auto companies. The Germans manufactured about 25,000 Tiger and Panther tanks. Chrysler built about 75,000 Shermans during the war.
The Zero faced the same issues, with some parts being handmade, while US planes rolled off mass production assembly lines.
The strategic question of quantity vs quality remains to this day. We ended up deciding to go with relatively few very expensive F-22 Raptors and a whole lot of much cheaper F-35 JSFs. If the other country can put up five planes to your one, that can possibly overcome superior performance and technology. OTOH, considering the incredibly high kill ratio for the F-15 and F-16 against comparable MiGs, they’d have an even greater success against cheaper planes.
Should we ever have a military conflict with Iran in the Gulf or Straights, Iranian strategy will be to used massive numbers of small, fast boats to try to penetrate the carrier battle group. All they need to do is get one suicide boat through.
Cars and trucks will continue to be built in America (assuming it can be done profitably).
Does that necessarily include the Detroit 3 tri-opoly?
Or should it be done by the best global companies such as Toyota and Honda that actually care about the US consumers?
Or should we have new American auto companies arising from the ashes of the Detroit 3 that have self destructed?
It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.
And without GM & Ford buying computers (pcs, mainframe and super) for their designers and managers and electronic components for their cars, there might not be domestic industries left to supply those things to Boeing and Lockheed.
“While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions.”
This is just not true. Maybe eastern europe buys cars without A/C, but that’s just because its so cold they only need a heater.
Equating size with value is partly what go us where we are today (e.g. SUV market crash killing big vehicle dependent big three), and I’m sad to see it being pushed on TTAC (though I applaud Robert for allowing differing views). Europeans buy smaller cars with smaller engines – but fully equipped with all if not more of the luxury features we demand in the US. Navigation, leather, HID headlamps, panoramic sunroofs – can all be had in B-segment cars. And Ford and GM make them in Europe. They are not imported because even with these features, unless they get a 250hp V-6 in their mid-size sedan, Americans feel cheated. When this nation fully embraces that good things come in four cylinder packages we will all be better off. I’m not saying there is no place for large cars, but they are not better because of the size of their shadow.
About manual transmissions: Europeans don’t buy them because they (themselves) are cheap, but because they enjoy driving and interacting with their cars! This too is changing as europeans are shifting (pardong the pun) to DCT transmissions. And in reality, I don’t believe automatics cost as much as they sell them for here in the US; if you know that 95% of the customers will choose the auto, why would not charge an extra $1000 for it – its free money!
Someone mentioned earlier how GM and Ford are buying and building factories in other countries whereas Toyota and Honda build here. Unlike the big 2.8, Toyohonda do not have blanket UAW contracts and thus can build in the us for a far cheaper labor rate than GM and Ford. Ford and GM have to go to Mexico to compete with a car Honda builds in Ohio. This is why I want the UAW to die – it encourages sending jobs out of this country. That is one good argument for bankruptcy – get rid of the UAW contracts. As long as the US industry is burdened with the UAW it will suffer a disadvantage (I’m not blaming all of the US auto industries problems on the UAW, that would be giving them too much credit).
I’m not sure what Farago’s stance is but here is mine: If the only way to have a US auto industry is a taxpayer owned and operated one, then I’m not for it. If, on the other hand, we can get the big 3 to declare bankruptcy, and potentially aid (as in short term loans that MUST be repayed) them AFTER bankrupcy and the UAW is dead, then I’m all for it. I won’t hold my breath for the latter. I do firmly believe we need manufacturing to remain a viable economy – service industry provides no value. And the auto industry was the backbone of our manufacturing for a century. I hope it stays that way, but tough decisions have to be made to make it happen.
An example. The Dual Clutch transmission was invented by Borg-Warner — an American company. How many of the D2.8 are using it? The D2.8 have been a drag on innovation.
Time to put them out of our misery.
It’s been a long time since Kettering invented the electric starter and all worldwide car companies have been relying on vendor innovation for decades.
It is, however, a symbiotic relationship.
Do you think B-W can survive the collapse the Detroit companies?
I hate to say it because it would mean the loss of tens of thousands of jobs in the US, Canada and Mexico,
Not tens of thousands, not hundreds of thousands, but millions.
Bozoer Rebbe :
Where’s the data?
@bunkie – “It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.”
I’m aware that the software is what makes our weapons so good. I write the stuff! But no matter how much software I write, without the physical tanks, planes, jeeps, etc to put it in it’s useless. You can’t have an autonomous HMMWV without the HMMWV to put the software in.
There are two separate questions here, and people – perhaps deliberately – get them confused.
One is, “Do we need an auto industry?” I would answer that with a “yes.”
But that question is a substitute for the more loaded question – “Do we need a domestic auto industry that consists of three major companies headquartered in Michigan, producing the same basic vehicle under various nameplates, and employing the UAW?”
That is a “no,” because we’ve already moved beyond that one with Toyota, Honda, Nissan, Hyundai, BMW and Mercedes setting up manufacturing facilities in the U.S.
miked–
“The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.”
The big 3 can’t even seem to retool themselves to build fuel efficient cars (the need for a $50B loan, right?) so how can they retool to make tanks?
given the amount of trouble rebels with old trucks, soda bottles, car batteries, and AKs give our forces, maybe we should just give the Big 3 a loan to retool to build the 1984 Toyota Hilux
toxicroach:
“You can’t just retool a civilian car factory and make quality weapons.”
Please read:
http://www.allpar.com/history/military/preparing.html
http://www.allpar.com/history/military/arsenal-of-democracy.html
http://www.allpar.com/history/military/b-29.html
for Ed S.
“RE: secure microcircuit technology
What does this have to do with the price of rice in China. I mean seriously, you are extending this discussion well beyond its logical borders. The fall of the auto industry would mean squat to ability to source computing components for weapon systems.”
I’m simply responding to a discussion point being raised, even if it does ‘expand’ the discussion. That’s allowed, I hope. In any case, I’m not convinced by your assertion that there’s absolutely no connection.
“RE: “innovation base”
“GM does nothing for our “innovation base.” Just seeing “GM” and “innovation base” in the same sentence makes me chuckle.”
Pardon me, but did we cite GM specifically? Read, please. But yes–I believe even American car companies are capable of innovation. Not every bit of engineering can or needs to be imported from overseas–there are supporting industries and companies that require it as well. If you disagree, fine.
“maybe we should just give the Big 3 a loan to retool to build the 1984 Toyota Hilux”
I’d buy ten!
I work in the US defense industry (USAF), and we don’t even make our own bolts and nuts in this country anymore. The loss of the Detroit 3 will not make any difference in US defense capacity. Times have changed drastically since the 1940’s, you cannot compare retooling an old-fashioned automaking plant (back in those days the still did everything in house, including toolmaking, forging, etc) to produce the very ‘primitive’ equipment of the day with that used on the modern battlefield. Today’s automobile and defense plants have very little in common.
I think this is a very well-written, sensible, article.
However. It is one thing to say “the US needs an auto industry”. That is pretty easy to say. It’s like saying “The US needs a space program”.
Life (and government) is about trade-offs. So let me ask you: What are you willing to give up in order to get what you want?
Here’s my opinion, for what it’s worth.
You can’t have an auto industry without universal health care (because privatized health care undermines the car makers’ cost structure). You can’t have an auto industry without an industrial policy. Laissez-faire doesn’t wash it in the global market. You can’t have an auto industry if you tolerate golden parachutes and multi-million salaries for management, because that erodes any common ground between management and workers, and kills your cost structure. You can’t have an auto industry without effective corporate governance. You can’t have an auto industry if you have a gas tax regime and a standards regime that differs from the rest of the world, because it prevents you from building competitive world cars.
All of these things are incompatible with the insular, exceptionalist, free-market ideology reigning in the US since Reagan. Milton Friedman wouldn’t have minded to see the auto industry go down. Are you, Ken, really willing to turn a new page?
Bozoer Rebbe :
Where’s the data?
Since you don’t think that Cole is impartial, tell us how many people you think will be unemployed by a complete collapse of the domestic auto industry and those companies in their supply chains that are dependent on them. Don’t forget to include those businesses that are dependent on the employees of all of those companies.
I hate the idea of the taxpayers bailing out the domestics but sometimes medicine doesn’t taste very good.
Please explain how the collapse of the domestics and their supply chain will not cause massive unemployment.
It’s OT, but there’s a worthwhile piece on the Cato Institutes’s site about how businesses, particularly big businesses, are not advocates of free markets and how they often welcome government intervention in industries and markets.
http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/
Frankly, I’d like to see the business tax rate go to zero. Profits should only be taxed after they are distributed to shareholders, replacing our current system which taxes corporate profits at least twice. It would make billions, perhaps trillions available for business expansion and new jobs, reverse offshoring and increase foreign investment. Foreign direct investment, I think, is a good measure of an economy’s strength.
The purpose of the economy is to organize resources so as to serve the needs of the consumer, not the producer. That’s not a trivial statement; it means that any analysis such as this that focuses on benefits to producers instead of benefits to consumers is likely to be flawed. Here are some ways that this post is flawed:
- We need domestic automakers to support the Gulfstream industry? In reality the U.S. will have its millionaires who buy or lease jets, regardless of whether some of them live in Detroit. The tall guys with executive hair and political skills will just be executives in some other industry.
- Sending profits “over there”? Here is how multinational corps work my friend. A company has subsidiaries in each country it operates in, and that local subsidiary generates profit (or not), and pays local taxes on its local profits. So Toyota North America recognizes profits and pays U.S. taxes. (Meanwhile GM records only losses and so does not pay income taxes, ha!) Companies have much discretion as to internal pricing, and hence where exactly the profits are recognized. Therefore they recognize profits in the region of the cheapest tax regime, inasmuch as possible. Clever huh? If the U.S. wants more corporate profits recognized on domestic soil, the U.S. should stop having the 2nd-highest corporate tax rates in the world.
- And since you mention reinvestment of profits, its funny you ignore the fact that Toyota and Honda and BMW and Hyundai ARE reinvesting their profits right here in the US of A. If you are looking for social good from corporate profits, there is your investment in plant and equipment and job creation in America, thanks to those foreigners.
- If your argument was “We need domestic automakers because only American producers understand what American consumers want and need” … that would be a lot more convincing — except that here in the real world, oddly enough, the opposite seems to be the case, and the Japanese do a better job sniffing out America’s emerging desires than do residents of Michigan.
The only substance to your argument is that we’re the USA, and we by God should have some good, competent automakers based in this country. Yes, we should. But we don’t. And that’s not my fault as a taxpayer. There you have it.
Martin Schwoerer: You can’t have an auto industry without universal health care (because privatized health care undermines the car makers’ cost structure).
The Honda, Toyota, Nissan, Hyundai, BMW and Mercedes plants in the U.S. appear to be operating quite well without government-sponsored universal health care.
Martin Schwoerer: You can’t have an auto industry if you have a gas tax regime and a standards regime that differs from the rest of the world, because it prevents you from building competitive world cars.
The Japanese and South Koreans appear to be doing just fine with their own set of regulations that differ from those in Europe and the U.S.
U.S. car makers have pursued a policy of buying local companies or setting up local subsidiaries to meet demand in that region or country. They aren’t going to export large numbers of vehicles from the U.S.
That has not been their policy for at least the last 50 years, and it won’t save them now.
GM and Ford build competitive cars in Europe and South America. They build distinct versions of vehicles for the U.S., but then so do Honda, Toyota, Nissan and Hyundai. The North American Accord differs from the one sold in Japan and Europe. Yet the North American Accord is just fine. The challenge is using the same basic platform to build vehicles tailored to different tastes – which is what the Japanese are doing.
Selling the same vehicle in many countries doesn’t work too well – ask VW, which loses money in the U.S., and doesn’t sell in very high volume over here.
the duke
Your comments in your last paragraph echo my sentiments exactly and have distilled the issue to its salient point. Well written. A government-owned and managed American auto industry is less desirable than a short-term future of no American domestic auto industry. Let the big 2.1 go out of business, and I would bet a year’s salary that within 3 years, some investors will be eyeing the “under-served” American market and bringing innovation and imagination to create a “new” American auto industry, with a functional business model and exciting, rational and world-class products. The genius will be that the fixed costs will be smaller….all the infra-structure being available (at pennies on the dollar), as well as the engineering and manufacturing talent. It will be great to see what an entreprenurial, hungry group of Americans, freed from the bureacracy entrenched in the Big 2.1 and released from the shackles of union labor and (hopefully) without any marketing people in the building, can do against the rest of the world. I might even license the name Pheonix Motors….in 3-7 years the American auto industry will be up from the ashes. Pull the plug on the old corpse. Harvest the organs that can be salvaged. Start a new domestic American auto industry. Now is a time for celebration of a bright future, not for a dirge for what is already dead.
So Toyota North America recognizes profits and pays U.S. taxes.
Except for the fact that while they operate assembly plants here, they still import a significant number of cars as well as a lot of high value components like engines and transmissions. Those cars and components are bought by the NA subsidiary providing an opportunity to operate Toyota NA at a break even point and move the profits back to the home country.
I’d be surprised if any of the captive importer/distributor/assembler subsidiaries turn a profit.
Since the US has some of the highest business tax rates in the developed world, it’s an incentive to move profits out of the US.
It reminds me of Jim Garner’s lawsuit over profit sharing on Rockford Files. The show was a huge success and is still in reruns but it never showed a paper profit. They’d do stuff like repairing the same gold Firebird over and over instead of buying a small fleet. Many successful films, even ones grossing hundreds of millions of dollars, never show a paper profit. That’s why actors, writers and directors with some leverage insist on a gross points, not a percentage of the net profit. Michael Keaton hasn’t had to work since the Batman movie.