Will We Have a Rescue or a Miscue?

February 24th, 2009

ford_c-max_lineThe more I read about the automakers’ problems, the more I conclude that government has to force their hand. What that would mean is a complete makeover of the industry, which would accomplish two things:

  • Reduce the overcapacity and oversupply problems
  • Get the carmakers in sync with building cars the public now demands.

The overcapacity problem, building for years, is at the root of many others. In effect, the industry has killed off, or saturated, its market. One blogger says:

In 1968, the US had 100 million cars for 199 million Americans. In 2006, by contrast, the population of 225 million Americans over the age of 18 was outweighed by an automobile population of 234 million passenger vehicles. Obviously, people will continue to buy replacement autos as their cars age, but there does seem to be a limit to how many cars the country can consume.

You bet there is, and the recent economic recession has weakened demand to a trickle. What do you do about that? The auto companies do not want to bite this bullet because it will mean a complete restructuring of their business model. The government hesitates to force the issue because it will raise the prospect of “social engineering,” “nationalizing,” and—the biggest scare word of all—“socialism.”

But there seems no alternative to finally building cars the public and the times require, plus addressing the energy dependence, pollution, and basic transportation issues the country faces. These require massive efforts and resources. Small, innovative startups are great, but won’t get us there.

houston-light-railPractically, what it means is converting the overcapacity of the carmakers into making socially beneficial things like light rail, efficient buses, high-speed rail . . . and energy-efficient cars. Do we have the political will to do this stuff, or are we going to squabble about it? Most likely, we’ll squabble for a while, then do it.

Instead of firing people and closing plants, the Big Three should be thinking about retraining, conversion, and retooling. I am betting they will go that route if the government pays part of the freight and puts seed money into these efforts. If that does happen, private money will follow. Paradoxically, the Big Three could be the vanguard instead of the laggard.

A columnist from Toronto put it this way:

The Obama task force, in protecting the total $30 billion of taxpayer funds that GM has received and is seeking, would impose on GM a more rapid resolution of those issues. There has long been no cachet in owning a vehicle made by a North American-based firm. That could change if the Obama administration uses its bailout leverage to force a transformation of Motown’s mission.

GM—and Detroit—could re-emerge as a global leader in fuel-efficient vehicle technology if Obama’s task force clears out its senior and much of its nostalgia-enslaved middle management. The precedent was set when FDR threatened a Detroit reluctant to convert to war production with nationalization unless it did his bidding.

Once again, the heavy hand of outside intervention is Detroit’s best, and perhaps only, hope of salvation.

Tell us what you think Detroit will look like in five years.

—jgoods

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  1. Panayoti
    February 24th, 2009 at 16:11 | #1

    @author

    I guess there’s not much doubt about your inbred hostility to market driven solutions to many of the problems of the auto industry. You seem to espouse the far left solution to the industry’s problems, where I am more center left. Your writings recently seem to reflect an attitude of “it would be a shame to waste a crisis” with most of your proposed solutions such as imposing presumed environmental solutions when the industry is on its knees. Please don’t view my diatribe as personal attacks on you, but rather as an alternative to what I believe is more viable in the current economic malaise that has befallen our economy.

    While I agree that we have a worldwide capacity and inventory issue, I totally disagree with your call to “Get the carmakers in sync with building cars the public now demands”. As I mentioned earlier in another piece, you are kicking the automakers in the nuts while they are helpless. They WERE giving the public what they wanted, ie, big, gas guzzling, cars, trucks and SUVs. You can’t argue with that, can you? Lo and behold here comes the credit, banking and housing messes that has damned near brought the entire economy to its knees and while we are wretching with this, you want us to drive sardine cans that get 35 mpg!! Dear author, no one wants to drive these kinds of cars!! They are simply too expensive and impractical, but you want to use this crisis to take the government medicine now so that you will be better later. You have said that this conversion to sardine cans would be unpopular, but because of this crisis, government should not waste it and should force the automakers to build cars that, given a choice, no one would buy. That just doesn’t make sense!! I also cringe when you say that the automakers should get in “sync” with public demands. There sure as hell is no demand for sardine cans, except in your eyes. So I am assuming that you are using political solutions to a market problem and so my response is much more political than I would care to admit.

    You seem to be in line with my line of thinking when you said “But there seems no alternative to finally building cars the public and the times require, plus addressing the energy dependence, pollution, and basic transportation issues the country faces. These require massive efforts and resources. Small, innovative startups are great, but won’t get us there”. But then, in response to your own rhetoric, you say that we should make “socially beneficial” things. Light rail, subways, els, maglev projects are fine in New York, LA, Chicago, Atlanta, Houston, etc, but, they sure as hell aren’t very useful where I live and enjoy the mountains and majesty of West Virginia. Why should I want the government to help urban areas and their problems, when I would far prefer clean coal technology and support to shale oil conversions rather than solar powered sardine cans or cigar canisters??
    I bet ‘ya the farmers of Kansas, the miners in Wyoming, the horsemen of Montana and fishermen of Maine are on my side as well.

    To your credit you do mention private money coming in, but once again you use your “government intervention” as the means to attract that private money. You seem to be hell bent on using the government teat to achieve your desired ends and as one who doesn’t see the government as a tool for social policy, I must protest at every mention of that vehicle as a means to solving an industrial policy issue. In answer to your sign off question, I see Detroit as smaller, more focused, and hopefully free of as much government meddling and social engineering that you seem to espouse. Unfortunately, I believe that your views will prevail and then we will have to struggle with your original opening line of massive inventories of unsold and unwanted vehicles, at which time the government will again have to make yet another decision about which direction Detroit will have to take. Sad! Truly sad!!

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