As Detroit slips into a quagmire of its own creation, The Big 2.5 are busy flexing rapidly wasting political muscles. On Tuesday, the top brass met with President Bush to forestall discuss plans for greater fuel efficiency. The next day, Senator Debbie Stabenow (D-MI) introduced The Japanese Currency Act. Like her Motown home boys, Stabenow claims the Japanese government is manipulating their exchange rate to provide an inherent– and inherently unfair– “discount” over American-made products. Uh, I don’t think so.
There are plenty of reasons to dismiss this legislation as End of Days insanity. First, there’s the timing. If the yen – dollar exchange rate is such a pressing problem for Detroit automakers, why did Stabenow hang fire until after the recent elections? Indeed, The Big 2.5 has been losing ground to Japanese-owned automakers for decades. If [alleged] Japanese currency manipulation wasn’t a problem ten years ago, why should anyone believe it’s a problem now?
Second, the proposed bill directs the U.S. Department of Treasury to work with the Council of Economic Advisors and the Japanese government to devise a plan to draw down Japan's “excessive currency reserves." The Act is a patently ridiculous effort to interfere with one of America’s best trading partners and a key strategic ally. It’s an entirely theoretic maneuver that’s doomed to failure; the Japanese Finance Ministry is about as likely to embrace foreign dictates as the U.S. Federal Reserve Board.
Third, while government bodies can manipulate foreign exchange rates, there are obvious limits. Remember when the Euro came out and dived against the dollar? Nothing the Ministers could do helped stop the rot. In fact, any country with open capital markets can only slow currency valuation trends– not create, prevent or stop them.
Even if the Powers that Be conspired to set the Yen at a more Detroit friendly level, the impact on the U.S. car industry would be minimal. The Automotive Trade Policy Council– a Detroit political mouthpiece– says the exchange rate delivers a $4k to $10k per vehicle “windfall” to Japanese automakers. Even if you accept this logic (and forget about the cost of Japanese labor and transportation), we’re talking about a tiny slice of the Dai-san’s U.S. business.
Ironically enough, Japanese automakers moved most of their production overseas in the mid-‘90’s to head off the impact of the (then) strong Yen. Nowadays, only Toyota’s Lexus and Scion models are made exclusively in Japan. Honda’s CR-V is their last home-grown U.S. export– and they’re shifting production stateside. While a rate-based “discount” on transmissions and some electronics (the major imported components) may help, their competitive advantage is not what you’d call overwhelming.
And what of the reverse? While virtually all its factories are in Japan, Mazda has not been able to lift up Ford. If a Japanese production base gives foreign automakers such a large cost advantage, why did GM and DCX recently cut ties with their Japanese “little brothers”? If access to cheap Yen is truly a great advantage, why are Isuzu and Mitsubishi wallflowers at the automakers’ ball?
Abandoned by their foreign “partners”, these Japanese automakers have been unable to hook up with new partners– and it’s not for lack of trying. Suzuki has apparently decided to use whatever Yen-based “advantage” they possess to make a big push in the Japanese domestic market. When the one Japanese carmaker with no US manufacturing capacity makes its major market push outside the U.S., it tells us that the days when “made in Japan” meant cheap (in any sense of the word) are long gone.
So why does the Yen remain relatively weak, when the Euro and Pound are getting stronger? While most Japanese car and electronics makers are doing well (some more than others), the Japanese economy is in the same slump it’s been in for the last 15 years. Despite government rates that are a tenth of those of the US and Europe, Japanese banks are still “weak.” They’re still saddled with tens of billions of dollars worth of outstanding loans made during the economic “bubble” of the late ‘80’s. Loans they can’t afford to write-off.
Bottom line: Japanese banks aren’t lending much money. Japan’s economic growth is practically flat, with a shrinking and aging population. What’s good for Lexus– a booming Japanese economy– ain't happening.
If the The Japanese Currency Act is so wrong, so late and so feckless, why make the gesture now? The timing doesn’t match plant closings. It doesn’t smack of Big 2.5 Head-Honcho-dom; the Fat Cats only complain about exchange rates when they need a convenient excuse for lackluster sales.
Nope. The bill’s likeliest target are the people most in sync with its paranoid xenophobia: the United Auto Workers. To this receptive audience, Stebnow's Act makes it sound like “something is being done”. Which is true enough: precious time and energy are being wasted on an unimportant non-issue.
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Here’s a tip for the Not-so-big 2.5: Open factories in Japan and export to the US.
A real aid from Congress would be a single-payer healthcare bill. Removing the healthcare liability would help Detroit a helluva lot more than pointless, nationalistic fearmongering.
But it ain’t gonna happen with Republicans still in control.
This seems like a classic case of diversion in a magic act; too bad there isn’t a lovely assistant to watch.
Yeah just we all need a single payer to bailout the bloated pension and benefit legacy costs the UAW imposed on the 2.5
Another day, another red herring from Detroit. Sad to see the culture of “deflect and blame” leave a puddle of fecal matter on Stabenow’s doorstep. Maybe the Michigan voters will remember this weak minded, pointless finger pointing when Stabenow runs again.
I won’t hold my breath.
Doesn’t this remind you of a Simpsons episode where Homer did …
GREAT article Andrew!
Health care as well as education and energy are far to important to human well-being to let a Government take them over. This would be a fast-track to human economic suffering and deprivation. How much productive ambition would you have if the Gov’t took 70%-80% of your income to fund these things? Try to vote yourself something for nothing and you will end up with nothing for something. See Europe.
It will be interesting to see how much support the Japanese Currency Act will have. I doubt it will go anywhere though.
I’m not sure this article is that accurate. While the speculation that the timing and meaning of the proposed legislation by Senator Stabenow is more for political interests than economic interests seems reasonable, I don’t think the claim that Japan in not manipulating it’s currency is reasonable.
That’s not to say currency manipulation is a major reason why the Detroit automakers are doing poorly, as most would agree that’s due to years of Japanese carmakers producing more desirable cars.
Just because Detroit is throwing Japanese currency manipulation out as a lame excuse to cover their years of bad decisions, does not mean that there is no truth in there. It seems to me that most economists agree that Japan has engaged in some currency manipulation in recent years, even in articles and journals not related to the auto industry.
Once again, I’m not saying that currency manipulation is why Japanese automakers have an increasing market share in the US, while traditional American automakers are shrinking.
Also, this editorial makes it sound like almost all Toyotas and Hondas are now being made in the US, while the opposite is actually happening. In January and February of last year, Toyota produced 59.3% of it’s vehicles in the US, while only 51.5% for 2007. In fact, despite an increase in sales, less Toyota vehicles have been made in NA this year than last. A cynic might say that this is because the Yen is even weaker this year than it was last year against the dollar.
Wasn’t that the Simpsons episode where Lisa proclaimed “Prayer (= whining about currency manipulation.) The last refuge of a scoundrel (= Detroit automakers?)”
Is there some way we can blame the Japanese for the Sebring, Aztek and Freestar? What about the Compass — I here it has Mitsubishi blood in it.
Andrew, great editorial. Nice to see someone with some stones.
Sorry but I can’t let some canards about universal healthcare to go unanswered.
The U.S. despite having 47 million uninsured spends a greater % of GDP on healthcare than any other nation. One can argue that we get better health care results but the facts don’t support that argument. As the only industrialized nation without some form of universal healthcare too much of our healthcare expenditures go to insurance companies massive administrative expenditures to deny coverage or care.
No it would not take 70-80% of our income to provide what every other modern nation does. The most bloated estimates of providing universal healthcare are less than our annual expenditures for the Iraq war. I think I’ll take healthcare.
As far as ending up like Europe if we take this route that’s not such a bad thing. In general over the past 10 years their economies have been more productive and enjoyed equal or higher growth rates than ours. If you see the relative performance of European stock markets to the U.S over the last 10 years you’ll be sick as an American investor.
Finally I know of no one advocating an extension of healthcare that would lead to a bailout of past mistakes of American corporations. There is no need for the government to assume the past liabilites of GM to come up with a modern healthcare system. In fact most plans I’ve seen would continue to rely in some measure on private companies continuing to provide some support for health care plans. So, unfortunately for the big 2.5, relieving them of health care obligations is probably not in the cards. Which I guess means that they will have to rely on design and quality to compete.
Cowbell,
You are putting too much emphasis on 2 month’s worth of data. The trend you are extraploating has more to do what sales incentives Toyota happened to have in Jan/Feb.
The long term trend at Toyota and Honda has been to place manufacturing where sales are. The reasons are twofold. First, it protects them from currency fluctuations better than hedging ever could. Secondly, it reduces the political nonsense like the bill Andrew references.
The only reason the percentage of Toyotas built in the US is lower in the first 2 months of 2007 is that Toyota is selling so many cars right now that US factories can’t keep pace. As San Antonio comes on line and as Toyota continues to build new plants in North America, the % of US built cars will continue to rise.
The last thing we need is an extended government health plan–UAW or no UAW. We already have a safety net in the form of Medicaid. People say they can’t afford health insurance…well, the truth is that many can’t afford a $45K Yukon/Suburban, a second new car, a $250K house in a nice neighborhood *and* health insurance.
The most I’ve ever (foolishly) paid for a vehicle is $18K, I’ve only ever rented apartments or portions of houses, but I’ve *always* paid my health insurance. As an unmarried, childless, mortgage-interest-deductionless renter, by myself I pay more in taxes than most families. I refuse to pay *more* in taxes to pay for someone else’s health care…now if only I had a choice on my taxes…
The UAW is the 2.5’s problem, not mine.
Well said, Andrew. It is absurd to think that a country would sacrifice its entire economy in order to keep FX rates low and favorable for the benefit of only their auto industry.
Japan’s economy (and resultant weak Yen) is in the toilet because of suicidal (Seppuku) lending policies of the ‘80s and ‘90 that were enabled because of the collusion between Japanese businessmen and governmental leaders.
Besides, FX rate fluctuation is a double edged sword. The dollar has also been quite weak in recent years. How has that helped The Big 2.5?
poor overtaxed, oppressed NICKNICK. That’s right, most people without health insurance have simply decided that they would rather drive a big SUV, or live in a McMansion; They would rather live in luxury beyond their means than provide health care to their families.
I think you’ve made a couple key blunders here.
1) Currency manipulation: I won’t go into the macroeconomic NATREX diagrams, but to put it simply: An undervalued currency means exports are comparatively lucrative, as the foreign currency you bring home has greater purchasing power domestically. In order to decrease exchange rates, the government of the country must increase the supply of currency above the free market level by making that currency, in this case yen, more available relative to other currencies. To do so, Japan either prints more yen or sells off government assets domestically, and then converts that yen into foreign currency, building up large reserves.
Therefore, it is relatively easy to prove that a country is artificially holding its currency low; foreign reserve asset data are readily available. Indeed, according to the IMF (http://www.imf.org/external/np/sta/ir/jpn/eng/hstjpn.pdf), Japan’s foreign reserves now exceed $880 billion, and have steadily increased for some time. There is little imaginable reason for such a horde other than currency manipulation.
2) Alternate explanations for Japan’s weak currency: saying that Japanese banks simply aren’t lending is something of a fallacy. Japan has one of the highest savings rates in the world, and a very low demand for investment due partially to the extremely capital rich nature of its economy. If one were to seek capital in Japan, there would be little trouble in acquiring it; few people are, however. So, it is true to say that there is little lending activity taking place in Japan. That is not, however, due to any unwillingness on the part of banks.
Again referring to diagrams I cannot easily demonstrate, macroeconomic models indeed predict that as the difference between national savings and domestic investment rises (so, as the amount of excess savings becomes greater) the real exchange rate will fall (causing net exports to rise). However, savings and investment rates have not been very dynamic in Japan; they have been saving at or around the current rate and failing to invest significantly for some time (hence the 15 year slump). I do not therefore think this tells the whole story, especially that part concerned with currency reserves.
3: You also write off what difference this makes, which confuses me. First, I don’t see how $4-$10k per vehicle is at all trivial; in fact, that sounds something like the difference in profit per vehicle between Toyota and GM. Second, it may be much more than that; certain analysts (quoted here somewhat generally, and I will try to find a better source http://www.indiadaily.com/editorial/15473.asp) think that the amount of manipulation may be as high as a 50% reduction in the value of the yen, effectively doubling the return on Japanese goods sold in the US.
These types of activities are never infinitely sustainable, although China has been putting that to the test, with currency reserves now in excess of $1 trillion, and growing at an astounding rate. Since Japan could most likely engage in some seignorage (printing of money to finance government expenditures) due to their largely negative inflation rates of the past decade, they can most likely keep going for some time. Whether it is the place of US lawmakers to take strides towards changing this behavior, I cannot (or at least won’t attempt to) say.
There are a lot of complex issues at work here, and I think you have attempted to oversimplify. I certainly agree that it would be foolish to attempt to blame all of the US auto industry’s woes on Japan’s favoring of exports; however, you have taken that basic premise too far in trying to refute what is more or less the established fact of Japan’s currency manipulation regime.
More sources etc:
http://www.iht.com/articles/2006/06/22/opinion/edbowring.php
http://stefanmikarlsson.blogspot.com/2006/09/why-yen-is-most-undervalued-currency.html
If you have an Economist subscription:
http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348969&story_id=E1_SJSVDVG
It can’t be management’s fault, right?
It’s exchange rates or CAFÉ standards. It’s not gas prices (for rich people). It’s who has more political influence. It’s past quality issues. Or, it’s the media’s fault they’re hurting so.
To pick only on GM, some selected Bob Lutz quotes:
2003:
Why do you think the Japanese continue to gain market share in the U.S.? Is it simply product-related or does it go beyond that?
”Part of it is, of course, exchange rates. Adjusted for costs in the respective countries,
the yen is just too weak. And considering the cost of doing business in the United States in U.S. dollars, the Japanese still have a cost advantage of three to four thousand dollars per vehicle, which they can either use to pricing advantage or margin advantage or putting more equipment into a car at a given price.”
“And it doesn’t matter whether they produce the cars in the U.S. or not, because a lot of the content is still imported. People say, “Well, Toyotas are built in the United States now.” Yes, many are assembled in the United States, many are not assembled in the United States, and even the ones that are assembled in the U.S. contain a high percentage of Japanese or other offshore parts. The exchange rate issue is real.”
“The other thing is, I don’t think there is a real, measurable quality difference anymore.”
2006 regarding CAFE:
“For one thing, it puts us, the domestic manufacturers, at odds with the desires of most of our customers, namely larger vehicles. That effectively hands the truck and SUV market over to the imports, particularly the Japanese, who have earned years of accumulated credits from their fleets of formerly very small cars.”
2006, CAFE again:
Opposing government plans to increase the US Corporate Average Fuel Economy (CAFE) standards by 4% per annum, Lutz tries an analogy: “…forcing automakers to sell smaller cars to improve fuel economy with fighting the nation’s obesity problem by forcing clothing manufacturers to sell garments in only small sizes”. [Huh?]
2006, It pays to be rich:
When the new Tahoe SUV was released, reporters asked GM Car Czar Bob Lutz whether rising gas prices would discourage SUV buyers: ”Rich people don’t care about gas prices,” Lutz remarked.
2007, regarding political influence:
“Toyota outspends us. They have more congressmen and senators than we have,” Toyota has more clout in Washington than we do.” -and- “Japanese automakers as a whole have become more politically powerful.”
2005, regarding blogging:
What blogs do you read?
Which are your favorites, other than your own?
“I do a lot of my work on a Blackberry so I do not have time to read many blogs.
My staff is always emailing me interesting posts though, particularly from blogs that are writing about us. I think blogging is fantastic because it is creating a self-regulating media.”
“Recently, a negative article was published declaring one of our vehicles a flop. Within a few days a third-party blogger analyzed the article and discredited it with the facts.”
ope71:
Opressed? Not quite. While I do feel I pay a disproportionate tax burden, I have had the freedom to take the initiative to improve my situation through reeducation. Oddly, while that helps, it also increases one’s tax burden…
As for the McMansions–I wasn’t saying that those people sacrifice their health insurance to make the house payments–quite the contrary. The forclosure rate in nice neighborhoods (in this region anyway) has approximately doubled in the last couple of years. While it’s a small increase (i.e. not doubling from 25% to 50%), it is accompanied by chronic complaints of credit card debt and cries of “someone should do something about health care!” I am happy with the vehicles I own and with my home. I am not happy about having to help pick up the pieces for those that cannot be satisfied by living within their means.
Based on your reply, I get the impression that you think I was whining. I didn’t mean it to sound “poor me.” It was supposed to sound more redneck “don’t tread on me” but i see where you got that :)
Japan has been playing games with its currency whether you want to believe it or not, maybe there should be a look at the fair trading rules involving cars importing to the rising sun. if the US added the taxes on that the Japanese do then it would be more of a level playing field but this Us government doesn t have the balls to fight for its domestic industries. Does the same argument come in the future where China HAS been manipulating its currency for all aspects of export, surely that will have an effect on the future auto industry too?
Comments re: jdevault’s post…
I doubt most would agree with his comment that it would not be so bad if our economy ends up like that of Western (i.e., developed) Europe.
You must be kidding if you think European stock markets and/or economies have outperformed their U.S. counterparts over the past 10 years.
re: Ope71’s post…
It happens. Especially in LA, where bling is king, and one’s primary care physician is … the emergency room at UCLA Medical Center.
The low yen of course explains why “Japanese” cars, even ones designed and built here in Ohio, like the Accura TL command higher market prices, bigger market shares, and higher re-sale values than the Big 2.5’s plonk.
What I like about Socialized Medicine, besides unloading the burden from Detroit, is that poor people can get immunizations.
My mother nearly died when she caught Hepatitis B from one of her students. His parents never took him to a doctor because they simply couldn’t afford it.
Back to cars — wouldn’t it be great if buying an American car wasn’t a compromise? Wouldn’t it be awesome if you could walk into a Chevy dealer, confident that your new Malibu is better than Honda/Toyota in every measurable way?
That’s why people buy Hondas — they know they are getting the best car for the money (or even for a little more money) without compromise.
NoneMoreBlack said: “First, I don’t see how $4-$10k per vehicle is at all trivial;…”
Thing is, who says those numbers are even real?
Oh, The Automotive Trade Policy Council.
And the “ATPC is a Washington, D.C.- based non profit trade association that represents the common international economic, trade and investment interests of its member companies.”
Those member companies? DCX, Ford and GM.
No bias there, ya think?
FWIW: My ‘06 Civic was assembled in Canada.
Its North American Parts content is 85%.
(Ex. The engine was made in the U.S.A.)
The 15% from Japan? The transmission.
Yet Honda is building more transmissin-building capacity in the U.S.:
2004: A $100 million plant in Tallapoosa, Ga.,
to produce automatic transmissions.
2006: Honda plans to build a $550 million auto plant in Decatur County, Indiana.
5/2006: Honda celebrated the start of mass production of five-speed transmissions by announcing plans to expand production capabilities at its west Georgia facility.
1982: Russells Point, Ohio, started production of auto transmissions for Accord, Acura TL, Acura EL, Acura MDX, Odyssey, Civic, Pilot and Element.
And on and on…
Sorry, but it appears that NoneMoreBlack has pretty much torpedoed the gist of this article. And I’m no expert, but to me he sounds like he knows a bit more about the subject than most of us.
Also . . . Glenn Swanson, what exactly is your point? I suppose to some, reading all those quotes will make milk come out of their nose or something. But I don’t see anything blatently stupid or wrongheaded there, perhaps aside from the ‘rich don’t care about gas prices’ quote (though in reality most don’t, I guess).
The single biggest reason that Detroit is in trouble vis a vis the Japanese: Japanese auto executives are passionate about delighting the customer while American executives are passionate about Quarterly Reports. So long as our manufacturers care more about short-term financials than engineering excellence, they will continue to lose market share. Everything else is irrelevant by comparison. I don’t avoid the domestics because of price, but because they haven’t sweated the details in their product like the Japanese have.
Why don’t they just roll over and die like they should have 10 years ago insead of making our whole country look like a bunch of stupid whining babies.
Let me see if I understand this. When the US Treasury and/or the Federal Reserve medal in the markets this is management. If, and I mean if, the Japanese goverment agencies are medalling in the markets then this is “manipulation”.
If the Congress wishes to have all goverments stop attempting to influence exchange, credit and capital markets then it should start by stopping the US government from doing so.
The idea that the weak Japanese yen is the cause of american manufacturing going down the poverbial drain is nonsense.
To BostonTeaParty’s comment I can only say that several attempt to sell US made American branded cars into Japan have been made. The right hand drive Chevrolet Cavalier comes to mind. The problem was that almost nobody could be found to buy one. The Japanese consumer only buys an import brand if they feel it offers them something clearly better than the local brands, which is normal. What reasonable person living in Japan would rather have a Cavalier than a Corolla? Moving forward, absent any rooting for the home team, what mass market US brand car is clearly better than it’s Japanese competition? The last time I was in Tokyo I saw BMWs and Mercedes, but not one Cadillac. No surprise there!
Stimpy has summed it up; more than anything it seems to be an organization culture thing. About thirty years ago, when I first looked under the hood of a Toyota, I was delighted to see the craftsmanship in the quality of fasteners, the way wires and hoses were routed, the finish on parts, etc. What a contrast to Detroit’s cars! (And no, the UAW is NOT to blame for that.) A decade ago I bought the cheapest Honda lawnmower on the market. All the components, not just the engine, reflect craftsmanship and engineering competence. Plus, it started with an ease that put Briggs & Stratton to shame (and into bankruptcy, if I recall correctly). Another reason to trust Japan more.
Are the 2.5 unwilling — or unable — to design a four cylinder motor as smooth as Honda’s?
Can it be that our universities produce engineers who are incompetent or lack pride in what they design? Or is it just that the 2.5 stomp the energy and self-respect out of them? I’m baffled.
Of American Hondas and Japanese transmissions…
I had a 2001 Honda Accord EX V6. Only its auto transmission was imported from Japan. The rest (same 85% as G. Swanson’s Civic) was made in Ohio. After about 130K miles the transmission failed.
My Dad’s 1994 Acura Legend is still going strong, with almost double the mileage. Both V6’s have similar hp and tq. Made in Japan is no longer what it used to be.
Ya, what we really need is to ruin the best medical care in the world in order to save some of the worst auto makers in the world from going bankrupt.
Here is a bit of news for you: Fifty years from now there will be about one tenth of the auto manufacturing jobs in this country as there are now. Robots will be doing that work, for the most part. Get over it.
The UAW is just a few tech advances from complete obsolescence.
Currency Manipulation is redundant. It is the nature of a bogus fiat monetary system. One day in the future there will be a global currency (The USD being the defacto global currency right now) where it will only be manipu…errr…managed by one group of scoundrel…errr…managers. I think Zimbabwe should manage the global currency :)
“What reasonable person living in Japan would rather have a Cavalier than a Corolla?”
Americans dont even want Cavaliers…Why would the Japanese?
“I was delighted to see the craftsmanship in the quality of fasteners”
If you want to get a general idea of the quality of a car…Look at the fasteners.
“Can it be that our universities produce engineers who are incompetent or lack pride in what they design? Or is it just that the 2.5 stomp the energy and self-respect out of them? I’m baffled.”
A lot of Asian Engineers were/are trained in the US. After they earn their degrees and their Student Visa expires, they are booted back to their home country to create wealth. This is dumb.
Whether or not the Japanese manipulate their currency is something of a red herring. If they are doing so and think they profit by it then they will probably continue to do so; if they don’t then the whole quesiton is moot. It’s the responsbility of the management at the top of the 2.5 to deal with that reality and to effect strategic plans that combat what actually happens in their market place and not to run their business on the basis of the world they would like to see. Furthermore, this isn’t a malaise that can remotely be tagged an exclusively Japanese problem. The German manufacturers have suffered through a significant change in rates that should have made them less competitve over here now than compared to, say, two years ago. In parallel, their economy has had to absorb all the mess from reunification putting a real crimp on margins across their industrial landscape. And they still took market share from Detroit. As have the Koreans.
Oh, and if Detroit is scared of the impact “managed currencies” have on their domestic market, they’d better be very scared indeed of China who is fast catching up with its own car manufacturing. If Chrysler or GM think they can preserve the “cheap and cheerful”/rental market for long, forget it. Kia have already made inroads and the Chinese will decimate them.
National health care is the only way to save American manufacturing. Yes, manufacturing is important. One day, our massive trade deficits will lead to another great depression in the US. We can no longer pay for necessary imports, as we import goods that need to be manufactured here. There are three ways Detroit is screwed that is not their fault. One, we are the only industrialized nation without national health care. 2) Other countries rely value added taxes, which in Japan are rebated for exported goods (a direct subsidy from the government). 3) Japan uses interest rates to maintain a weak yen. Japan would go bankrupt if the yen stayed at 90 to the dollar. But wait – trade is beneficial if currencies are allowed to adjust based on trade deficits. Clearly Japan and China fix exchange rates to maintain their manufacturing base.
OK, I think the 2.5 also have screwed themselves with bad management and bad engineering, but even with good management, there is not a level playing field.
Only the brainwashed feel national healthcare is unaffordable.
Use national healthcare;value added tax in place of income tax, and rebate to manufacturers;and make our trade partners float their currencies until the trade deficit with Japan and China is eliminated.
Or face a great depression.
Does Detroit honestly think we’ll buy the currency manipulation concept? As others have mentioned, our government does it all the time, there’s simply no reason to think other countries aren’t justified and able to do it as well.
I love America…but I’m not even slightly interested in American cars any longer…at least not those under 35K. Everything that’s under 35K is subpar on the market compared to Japanese cars. And everything over 35K is decimated by the European market. (Just what I’m interested in that is.)
It’s more than just looks, reliability, etc. It’s all those things. I was lucky to find a 2006 Subaru Spec-B…for the dollar, fun factor, and reliability as well as all-wheel drive (which was major this past week!), what American car could have competed? Not many (if any). Heck, not even many Euro cars could compete…or other Japanese cars!
If Japan is making a killing through currency manipulation, then why isn’t the US doing the same?
dkulmacz: “Also . . . Glenn Swanson, what exactly is your point? …I don’t see anything blatently stupid or wrongheaded there, perhaps aside from the ‘rich don’t care about gas prices’ quote.”
You are right.
His comments matter not.
Results are what count, right?
It’s not CAFE standards.
Not manipulation of the Yen.
Nope, not “the exchange rate issue.”
Forget the Japanese “cost advantage.”
No need to “level the playing field.”
The number of congressmen and senators you “have” matters not.
No need to quote Mr. Lutz. The results from the Detroit auto makers speak volumes on their own.
They are certainly on the right path–to somewhere…
jdevault:
March 30th, 2007 at 2:05 pm
“Sorry but I can’t let some canards about universal healthcare to go unanswered.
The U.S. despite having 47 million uninsured spends a greater % of GDP on healthcare than any other nation.”
Ah yes the great unwashed, uh, I mean uninsured. 47 million strong and GR O W I N G. No, really, every year the number gets bigger. It’s like the proponents of socialized medicine are hoping that they will come up with a number that reaches some kind of critical mass like a nuclear reaction and everyone will slap their hands on their foreheads and say “OMG, we gotta have gubment healthcare!”
Let look closer at this number and see how they come up with it. First rule, when you want to skew numbers for your cause you go for anything that will make your numbers bigger, no matter how tenuous. In this case they count people who for wahtever reason lose their hobs that have health bennies. Well you say that makes sense. But wait, they never ask if their spouses have insurance that will cover them. And if they get another job before the calender year flips over? Gee, too bad bud, you have been health insuranceless for the whole year! Then they count all the poor people who are on welfare food stamps, etc., etc., as having no insurance even though they get – wait for it – government provided healthcare! Then they thorw in illegal immigrant (oops sorry, “undocumented workers”). Of course the country they came from probably didn’t give them insurance either but hey they’re in America now, and dammit, they have a right to healthcare (and signs and documents printed in their language and bi-lingual education and, well, you get the point).
Now we come to the rich, the people everyone loves to hate, unless they are from Hollywood, in which case we think they’re “experts” in everything from global warming to foreign policy (amazing what being able to look good and memorize a few lines does for your credibility and intelligence). The rich are counted in the 37 million too, even though they don’t need insurance. That’s right everyone from Rush Limbaugh to Alec Baldwin, from Rupert Murdoch to Bono are counted as “uninsured”.
Next we have young healthy Americans who are employed at good jobs that offer health benefits but refuse them. Why? Because they are young and healthy and choose not to have premiums deducted from their paychecks. Yes, they too are counted in with the other uninsured millions that are dangled in front of us to prove that we are in a health care “crises”. Hell, I hear that even the earth itself is sick. Al Gore told congress the other week that the earth “has a fever”. Too bad it doesn’t have the UAW’s health plan.
So how many are really, really uninsured? Meaning, how many want insurance but cannot afford it? Around 5 million, give or take a million. Is that good? Nope. Should we do something about it yep? But it would take a simple government assistance program, partnering with insurance and health care providers to give them the insurance that they need. What we don’t need is to give our healthcare away to the government. The politicians already control much of our retirement and use that to maintain their power. Imagine what they would do if they ran your healthcare like they ran Walter Reed Medical Center.
Here is my personal bottom line.
(I’m not speaking on behalf of anyone but me.)
All Detroit needs to do is, build a car for daily commuting and occasional weekend jaunts that:
- Provides a solid 10 years of relatively trouble-free ownership. (A worry-free experience.)
- Averages greater than 30 MPG for “in town” type of commuting / weekend driving.
- Is fun to drive (and we all know what that means, it’s really not all that subjective).
- Offers as many standard safety features as possible, no matter the price point.
- Offers a high level of fit and finish, inside and out. (Quality is not subjective.)
- Holds its own among its peers regarding value come trade-in time.
- And call me up after *every* visit (even after an oil change), to be sure I’m satisfied.
Then, and only then, will I even *begin* to consider possibly purchasing one of your cars.
Until then, I’ll keep buying cars made by Honda.
My ’06 Civic is averaging 31.27 MPG across 30 tanks of gas (or 11,251 miles). It’s safe, and cost $18.5K. There’s no reason to expect that it won’t serve me as well as my last Civic, a ’96, which I traded in at 160,000 miles.
A Honda will be my car of choice for as long as I need to get 20 miles to work each day, and back home, no worries. A Honda will be the car I put my cash into when I want an economical, reliable, fun to drive, car. (And yes, Honda calls me after each service.)
It’s a fine car for a working class guy like me. I’ve no need to impress anyone with my ride, I just need a solid daily driver. Honda provides that.
Make all of the excuses you want, Detroit.
Most folks just don’t care to hear them.
Don’t bother the consumer (via the press) with whining about this (CAFÉ) this or (you name it) that.
No one cares about the obscure behind-the-scenes reasons the cars you are offering are not appealing.
Yea, okay, you build good trucks and SUV’s. Note, however, that the price of oil is climbing–again.
Hunker down and engineer, build and back, a great car for a reasonable price, that the average person will want.
That is your business. Build a good car.
All else are simply distractions.
Stop the with the friggin’ excuses already.
Please.
[i]stimpy:
March 30th, 2007 at 4:25 pm
The single biggest reason that Detroit is in trouble vis a vis the Japanese: Japanese auto executives are passionate about delighting the customer while American executives are passionate about Quarterly Reports. So long as our manufacturers care more about short-term financials than engineering excellence, they will continue to lose market share. Everything else is irrelevant by comparison. I don’t avoid the domestics because of price, but because they haven’t sweated the details in their product like the Japanese have.[/i]
Very well put. I lived in Japan for three years. Your post defined the issue quite well.
I have had the freedom to take the initiative to improve my situation through reeducation. Oddly, while that helps, it also increases one’s tax burden…
All you need to educate (reeducation sounds a bit Orwellian) yourself is an Internet connection a library card and the WILL to learn. Or, as Isaac Asimov said:
Self-education is, I firmly believe, the only kind of education there is
James Cameron did not enroll in Film School. He simply went to the Film School library to LEARN on his own. Please think about it.
What I like about Socialized Medicine, besides unloading the burden from Detroit, is that poor people can get immunizations.
Please note that socialized Medicine is slavery: Slavery for the healthy person who has to pay other person heart bypass and slavery for the doctor who has to work for the State (the “single-payer”, so the only employer for doctors).
If socialized medicine would be such a good idea, “socialized everything” should also be a better option. Test drive a Lada or a Trabant to see how wrong this idea is, or get a visa to visit Cuba (Havana looks like London after the Blitz, really).
…it would not be so bad if our economy ends up like that of Western (i.e., developed) Europe.
Europe is a mortgaged bankrupt continent. European governments are making promises for the future (healthcare, retirements) they can not keep.
There are three ways Detroit is screwed that is not their fault. One, we are the only industrialized nation without national health care.
Well, British infamous National Health Service, stablished just after World War Two, did not help Austin-Morris-MG-Rover-Sunbeam-Triumph-Riley-Standard-Hillman…
National health care is the only way to save American manufacturing.
Oh, yes. And provoking a Nuclear Winter is the only way to avoid Global Warming.
Currency Manipulation is redundant. It is the nature of a bogus fiat monetary system.
You nailed it, Luther: Our “money” is not real money, and on the lonh run fiat money loses “fiat” (i.e., confidence -read “suckerism”-) and reaches his real worth: Zero.
Here’s a tip for the Not-so-big 2.5: Open factories in Japan and export to the US.
I almost spit my coffe on the screen. LOL. And a wickedly intelligent satire. Thank you, Paul.
If there is one tenet that has led me to success, it is to focus on whatI can control, and not worry about what I can’t.
The US government needs to focus on reducing the federal budget deficit — which is clearly linked to the trade deficit — and stop worrying about who to accuse of currency manipulation.
Likewise, Lutz et al need to worry about making the best automobiles, and let the finance guys take care of hedging currency risk and the lobbyists take care of governmental relations.
Duh.
BostonTeaParty said:
Japan has been playing games with its currency whether you want to believe it or not, maybe there should be a look at the fair trading rules involving cars importing to the rising sun
Here we are:
Case closed.
“The US government needs to focus on reducing the federal budget deficit — which is clearly linked to the trade deficit — and stop worrying about who to accuse of currency manipulation.”
Interestingly enough, the countries that really do manipulate their currencies do so by purchasing US dollars, artificially keeping that currency high – and what they do with all those dollars is buy US debt, keeping interest rates moderate which facilitates economic development in the USA and foreign investment from the USA (to places like China).
The problem with accusations of currency manipulation is that the current situation (which I’m not convinced involves Japan but may) is quite likely the lesser of two evils. Detroit should be careful what they ask for, selling their cars might be more difficult without help from zero percent financing and a growing economy.
Suppose I conquer an island and proclaim it the sovereign nation of Lutherland. I then setup a National Bank and peg my newly created currency 1:1 with the US dollar. I then write the number 1,000,000,000 on a napkin (My legal tender) and attempt to purchase 1,000,000,000 USD at a US bank. Does this sound absurd? Would I be accused of manipulating my currency? This is the real-world global monetary system in action.
When you are told to think that a country is manipulating their currency, by definition, you are being manipulated into thinking that.
kablamo:
we trade based on the Ricardo’s law – but for the mechanism to work, if their is a trade deficit, our currency must weaken, and Japan’s and Cina’s must strengthen. This has not happened, this can only not happen if there is manipulation. Yes, the reinvestment of China and Japan into US treasuries has kept our interest rates low. At some point, the $ will collapse. Other nations will not give us goods such as oil and cars for paper that can collapse overnight. China already is making plain they have all the US $ they want.
On national health care, by no measure is the US no 1. The Dutch are now growing much taller than the average American due to having better health care. What we really have is AMA unionized health care in the US.
Walter Reed is not a failure of socialized medicine, it is a measure of greed that an Administration favors tax cuts for the wealthy over funding health care for veterans.
Replying to William C Montgomery:
Besides, FX rate fluctuation is a double edged sword. The dollar has also been quite weak in recent years. How has that helped The Big 2.5?
Very good point! The USD is 30% lower vs. the EURO in the past 4 years. GM must have dominated the German auto market.
The fact is, the Japanese Yen, in the long run (1960~now), has gained 400% against the USD. Yet, Toyota and Honda have won the uphill battle.
I believe it’s also true for the Chinese Yuan. With global trading, governments can only delay a trend at most, according the originally poster.
The true problem is with the US government itself. It simply printed too much paper money and thus created a exchange rate pressure. If the US were to be more responsible and protect the value of USD by raising the interest rate back to the historic norm of 7%, such problem will simply dissappear. But then, Bush’s friends wouldn’t be as profitable.
There are many issues the big 2.5 have to deal with the competition does not. Currency may or may not be one of then, but to deny the below items would be to have a severe bias against American Companies, in my opinion.
Legacy costs: Whoever decided defined benefit plans were a good idea should be shot. Companies come and go with time; the big companies in 1950 were the railroads, in 1900 carriage makers. Tying ones retirement to a company’s long term solvency was stupid. We all know this now, no new companies offer defined benefits, but the government is still trying to save this system, and the big 2.5 are stuck with 100,000s of retirees.
Legacy cost again: In WW-II the auto companies had a labor shortage, but there were wage controls. In order to create demand for jobs (attract workers) the auto companies offered health benefits to get around the wage controls. The government winked so as to get guns and ammo. The unions expanded these benefits. Health care costs exploded due to new treatments. Now the big 2.5 pays health care for 100,000s of workers and retirees.
Health care again: Ever wonder how uninsured and indigents get health care in the U.S? Well it is free or heavily subsidized in nearly every hospital, sort of an unofficial national health care system. Who pays? Well those who have insurance or their employers. If the big 2.5 have many more people getting health care, including 100,000s of retirees, then they are paying a disproportionate share of the unofficial national health care bill compared to the foreign carmakers. There is a short term and a long term solution to this competitive disadvantage to the big 2.5. Short term, refund the bill to the big 2.5 from the national treasury; call it the “level manufacturing playing field w.r.t. health care costs act”. We’re talking billions here, by the way. That is, the (forced) charitable component of the big 2.5s health care bill is huge and not shared by the foreign companies. Long term, and this is a Reagan Republican speaking, national health care. I hate the thought, but studies show we are paying more than the rest of the western world and not getting much if anything for it, so let it be. This will go a long way to leveling the playing field between U.S. manufacturing and the rest of the world and my short term fix above will never fly due to the anti-big 2.5 sentiment in this country.
CAFÉ (Corporate Average Fuel Economy). This law, in existence since the 1970s, says a company must average a certain MPG for their sales weighted car fleet. A different standard applies to light trucks. This law has a disproportionate affect on the big 2.5, and it explains a lot of the big 2.5’s problems.
First, physics tells us that big cars and trucks get lower fuel economy (F=MA, where Force in a car is the force at the wheels which comes from gasoline. M is the mass of the vehicles). All the inventions in engine and transmission efficiency in the last 30 years, including hybrids, only nibbled at this basic formula.
The big 2.5 were coming from a fleet and customer base biased toward big cars and trucks. The Foreign carmakers from a base and customer base of small cars. The big 2.5 had to spend billions to meet the law, the Foreigners did not.
Some say if we “listened” to the CAFÉ law, and its proponents, we would not be in the mess we are in. Maybe true for the last year or two, but for the prior 28 the big 2.5 maximized their profit by “just” meeting CAFÉ. If you look at the data you will see that the big 2.5 CAFÉ numbers hover just below the limit. In reality we lost out on profits by not being able to sell the customer what he wanted. We inflated the cost of big cars to lower demand and sold small cars at a loss of 1000s each to meet this law. The cars we did sell have 100s of dollars of fuel saving technology that the customer will never get a return on. All of this while simply trying to sell to our strength to meet customer demand. The Foreigners did not have to do any of this because their base was in small cars.
What did the Foreigners do with this windfall? Stole our market for one. They were able to use this cost advantage, and the legacy costs, and the better labor attitude, to sell a better quality car for equal or lower price. There is no secret to quality; it costs money…and the big 2.5 had 1000s less to work with. And now what are the Foreigners doing? Building big cars and now going for the truck market. They have CAFÉ credits from their years of small cars that will allow them to exceed CAFÉ laws for years and steal that market. Thank you U.S. government for helping kill the U.S. auto industry. By the way, the other way to do this, which is done everywhere else in the western world, is by gasoline taxes. But the spineless U.S. government would rather use the CAFÉ blunt instrument, and hide the tax in the auto company’s sales prices, killing the big 2.5 as collateral damage. The big 2.5 has always advocated the high gas tax method. Not because we want to kill our large car market, but because at least this would be a level playing field.
Not convinced. Try this analogy. Would it make sense to ask Mack Trucks to meet the CAFÉ standards? Of course not. Yet some big 2.5 company’s has always made ½ or more of its sales, and a higher percent of its profits, on trucks, so why was it fair to apply the same standard to that company as to the Foreign company that made small cars?
One other item. I keep seeing it mentioned that the big 2.5 “gave” the unions their work rules, benefits, etc. Yes, like you give a thief your wallet with a pistol stuck down your throat.
Enough for now.
mike_i_n_mich, try this analogy:
GM is the top auto seller in China with lots of profit. I suppose everyone in the US would cheer about that.
But do you know why the state-owned Chinese auto companies failed? Poor management + legacy costs + no innovation. Sounds familiar? Do you feel remorse for them? Do you think that GM stole their market share?
I just finished reading all the comments.As an outsider it’s not my place to comment on US politics.
The US senator from Michigan is just being a politician trying [however percived]to look after her people,fair enough.
I think WINDWORDS post above says it all.
Here in Canada,we have “universal health care”and it’s a system thats far from perfect.
The good news is every body is covered for “free”LOL.The rich people hafta to fund it LOL.
The bad news is who is rich?Well lets see unionized blue collar worker with a middle management wife.Hell these folks are loaded,well tax the living crap out of em!
Middle aged guys doc says. ya need a triple bypass dude we will put ya on a waiting 18 monthes to 2 yrs that is if you don’t die in the meantime.Or take a second mortgage go down to Buffalo get a US doc to do it for a 100 grand.
Hey what happened to the free part?
Think long and hard my US friends.
Nothing is for free!