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By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report
I don't know about you, but my jaw literally hit the floor when the chief executives of Detroit's "Big Three" begged for a taxpayer-funded bailout. Never mind that General Motors Corp (GM), Ford Motor Co. (F) and Chrysler LLC are now seeking an aggregate $34 billion - which is up 36% from the $25 billion the Big Three was seeking just two weeks ago - or that they "drove" to Capitol Hill in a caravan of new hybrids so shiny they could've made the Keystone Cops green with envy.
And now that negotiations are under way to "advance" the three U.S. automakers $15 billion from an existing loan program, I don't know whether to laugh ... or to cry, since the total amount actually needed may be north of $150 billion. [Click here for an update on the Big Three Bailout].
The bottom line: Detroit doesn't need a bailout.
It needs a shakeout.
How to Really Assess the Big Three's Health
Nothing drove that point home more than when Ford CEO Alan R. Mulally who, after admitting "big mistakes," attempted to sway Congressional members by saying that "we're really focused now."
I may not be the brightest bulb in the bunch here, but it seems to me I've heard this same mea culpa before - several times. Indeed, wasn't that what the Big Three said:
- Back in the 70s, after Japanese-made cars that were better made and more economical started grabbing huge swaths of U.S. market share.
- Back in the 80s when U.S. quality began to suffer badly.
- And again back in the 90s when they tossed their lot in with SUVs and trucks.
But I really have to question whether GM, Ford and Chrysler were "really focused" after supposedly beating back each of these challenges, since the Big Three has seen its market share drop from more than 70% then to less than 50% today.
They're so "focused" I can't stand it. And I can only wonder what they'll say when Chinese automakers hit our shores in the next few years, rolling out cars that sell for 30% less than it costs Detroit to make cars for.
Even at their new salaries of $1 a year, the Big Three's top leaders are overpaid in my book - but I digress.
The so-called Big Three are nowhere near the anchor of American industry that Detroit would have us believe. And the arguments they're using are superficial - at best. Maybe that's good enough to bamboozle some people, but I believe that the American public is smarter than that. I can't speak for our elected leaders who seem hell bent for leather on sticking band-aids on all our serious problems, but that, too, is another story for another time.
Essentially, the carmakers' case boils down to this: Each of the Big Three - GM, Ford and Chrysler - contribute billions of dollars to the U.S. economy, and directly or indirectly employ three million Americans. Thus, by allowing any or all of the automakers to fail, lawmakers would be making a major economic misstep.
That might be true, but not for the reasons the automakers have stated.
The Big Three are manufacturers. You don't measure their success or failure by how much they purchase. You measure it by how much they sell, whether their market share is rising or falling, and what customers are saying about the quality and functionality of the finished product.
Economics 101
That brings us to the basics of supply and demand. If you recall your freshman-level Economics 101 course, "supply" is the total amount of goods and services (in this case cars and related support services) available for purchase. Demand is the amount of a particular good or services that a consumer or consumers will want to purchase at a given price.
Demand curves are normally downward sloping because consumers typically buy less of an item as its price increases. Similarly, supply curves are upward sloping because producers are willing to supply increasing amounts of their wares at increasingly higher prices. A bit of an oversimplification, perhaps, but it makes the general point.
In their rush to portray their industry as an economic linchpin and supplier of key future technologies - not to mention as a "victim" of the worst financial crisis since The Great Depression - the U.S. automakers are forgetting that their failure will not bring about a total destruction of demand. History is literally littered with failed companies. Demand for cars won't fall off because the Big Three go under anymore than folks would stop buying beer if Annheuser-Busch Cos. Inc. (the maker of Budweiser that's now Annheuser-Busch InBev NV) were to collapse and disappear.
What's far more likely to happen is that Japan's Honda Motor Co. (ADR: HMC) and Toyota Motor Co. (ADR: TM), India's Tata Motors Ltd. (ADR: TTM), Germany's Daimler AG (DAI) and Bayerische Motoren Werke AG (BMW), China's Chery Automobile Co. Ltd. and Geely Automobile Holdings Ltd., and other companies from around the world will happily fill the void.
In fact, I'm certain that these companies will not only absorb key elements of the purchasing chain, but the workers, too. History shows that industry consolidation is actually a positive influence for the remaining companies and their workers. History also demonstrates that during periods of industry consolidation, there really isn't anything other than short-term loss in business activity.
In short, if the demand is there, other firms will move in.
What Detroit is actually seeking is a bailout that preserves the status quo, and that implicitly rewards 40 years of inept management, bad decisions and poor quality. But to my way thinking, it makes no sense whatsoever to throw $34 billion at businesses that are losing $6 billion a month.
Like the other federal bailouts that I've opposed (as a proponent of free markets and the Austrian school of economics, I believe that bailouts are fundamentally wrong), a taxpayer-funded bailout of the U.S. auto sector would do nothing to improve Detroit's competitive position. Instead, the capital would serve as little more than a punitive tax on such successful companies as Toyota and Honda, just to name two of the most obvious that would suffer. It would also allow Detroit to come back for more money after they blow through whatever we give them now. In the end, that will hurt both the consumer and the taxpayer - in most cases, one and the same.
Congressional sources are saying that that before the Big Three gets a cent, they would each have to make concessions similar to those extracted from the U.S. financial-services sector. Not only would the automakers have to eradicate their dividends and guarantee repayment, they'd also have to willingly submit to government control, just in case things didn't play out as planned.
Maybe I'm the only one who sees a problem with this but such a change would mean that the same people who have been running the U.S. Postal Service would now be in charge of both Wall Street and one of our major manufacturing industries.
No thank you.
There are still plenty of strong automobile companies operating in the U.S. market that are able to offer of successful products that range from ultra-plain utilitarian models to all sorts of luxury vehicles, with to large-scale trucks in between.
And if the Big Three were to fail, still more auto firms will come to the United States, as their many foreign predecessors did in the years before.
So here's to the natural order of things and, hopefully, a levelheaded Congress that will let the markets take their natural course and force a shakeout - and not a bailout.
News and Related Story Links:
- Money Morning News Analysis:
That $25 Billion in Loans America's "Big Three" Automakers Had Sought ... It's Now $34 Billion. - Wikipedia:
Supply and Demand
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.
Utterly, totally dumb article. And condescending. It won't matter if there are other car manufacturers – Americans won't be able to afford cars. America can't afford the $300 billion plus plus plus impact of losing the big three. A downward spiral will ensue that will turn America into a has-been great nation. America needs a strong, government-driven push to make cars that don't run on oil. No other solutoin is remotely possible. The big three are the only possible foundation on whihc such an outcome could be built soon enough. Fire the CEOs, stake a claim on future profits for the American taxpayer by all means, but it has to be done. Road Warrior ws a terrific movie, but would you really want to live in it?
Its strange that if you follow the trail of this bloodletting, you will end up at the fact that we have lifelong politicians that know that they are going to be reelected 99% of the time. If the govt. will not require term limits, the people can. Having said that, we all know that is not going to happen because the people know that if they keep voting their Politician (who doesn't give a damn about the people-the voters )and we keep voting the same scum bags back in office–Pelosi-Reid-Barney Frank, who know that all they have to so is keep throwing a few crumbs the peoples way, or throw untold sums of money to certain groups of people,then they can continue to build their entrenched power base, and let the working class pay the bill. Sadly, we are on the verge of everyone having to suffer except the ones in charge who have already lined their pockets.
Typical financial media reaction. Give $700 billion to a bunch of crooks on Wall Street and insurance companies, but let an industry that provides jobs for 1 in 5 of the common people in this country go down. Sure, let them file Chapter 11. Then watch the suppliers, trucking companies, restaurants, retail and grocery stores, raw material suppliers, and all the other businesses these workers support go down too. Depression, mentioned in an earlier comment, is not the word. Try complete and utter disaster. Who is going to pay the health care and pension benefits of the retirees? The American taxpayer? Doesn't it make sense to loan them money and hope they can pay it back rather than just letting them fail?
Other countries (Japan, Germany, Korea, France, etc.) subsidize and support their automotive manufacturers. Why? Because they provide jobs, not just for the OEM's but for all the related businesses. Wake up, Mr. Fitz-Gerald. I hope you're very well paid, because the tax burden and implications of what you suggest in your article may be too much for even you to bear.
Obviously, there are problems and issues at the Big Three. But to summarily dismiss them to bankruptcy and failure is as short-sighted as giving $700 billion to another failed group (with no strings attached and no oversight). Those institutions employ a lot less people and produce nothing tangible except paper profits (or losses as has been the case lately). They fail to do due diligence on loans, give money to anyone with a pulse and don't require verification of employment or anything else, and the Treasury Secretary (who happened to be one of them not that long ago) gives them taxpayer money like it's going out of style. Doesn't anyone else see the double standard here, or am I just naive?
They spell the washington play and the auto executives plea wrong it's spelled with a capitol F:
Fail-out not bail-
George E. Langevin
Folks in the government and Wall Street seem all to willing to export jobs, pretending this helps here at home. I believe that there would be less enthusiasm for outsourcing if their jobs were at stake. I am sure the White House staff could be well supported through an Indian firm or call center at a much lower cost. Maybe congress should be relocated to China to make to more competitive.
We are rapidly seeing a non competitive government structure thrive while killing off the private sector. The car companies provide good jobs with benefits that all Americans want. Rather than shut down this model we should be trying to strengthen it. I do believe they need new management but the basic car building structure is there. Lets fix it not kill it.
It takes no smarts to shut something down, Americans are smart and we can make it work and should.
Your article brings several questions to mind. Why do we allow unfettered access to our markets when U.S. companies in China have to have a Chinese partner? Are the U.S. auto companies allowed to manufacturer, cars or trucks in Japan? Are the tariffs, taxes, import quotas, and customs regulations the same going both ways? I think when you find the answer to these few questions you will find another part of the big three's problem that no one wants to address.
To Z: I think you about 'nailed it". [But if we’re going to have a GMC Truck, then why is Chevy still making trucks? If we’re going to have Saturn, why is Chevy still making Cobalts and Malibus? If we’re going to have Lucernes, why is Chevy still making Impalas? Tradition? Malibu, Impala and Corvette have an appeal to the nostalgic. Pontiac has started naming its cars with numbers rather than words to give it a sportier appeal.
One thing to add it that
I would BET in several months the "broke three" will be at the door again with their tin cups and our wonderful gov will again give them more money for the black hole. It will certainly be difficult for them to forgo those cushy million dollar bonus'. Noting the list of congressmen that own stock in these companys, do you really figure that the RIGHT thing will be done?
F
"….Shakeout Not a Bailout" is an excellent article based on rational economic theory. It makes complete sense; however, there's another side to this story involving the political clout of the automakers and UAW that disrupts and undermines successful economic practice.
The Big 3 continue to pour millions into lobbying congress for legislation that promotes short term profits under an old, obsolete, and foundering business model. Moreover, the political clout of the UAW influences the likes of Nancy Pelosi, Harry Reid, and Barney Frank.
Washington DC remains complicit by interfering in the economic cycle in exchange for political support of labor, which desires protection from economic forces.
Any analysis of the automaker bailout should include study of the political quid pro quo process. Reaganomics contributed to the financial crash and New Deal doctrine is affecting the automaker bailout.
God save us from ourselves.
[…] You can read Keith Fitz-Gerald's article Here. […]
The shakeout path you prefer will mean:
GM in bankruptcy by 1/1/09. Chrysler to follow rapidly, Ford 3 mos later.
The supplier Industry has already undergone significant bankruptcy. I worked for one of them. Hundreds of companies will simply close almost immediately as they are already on the brink.
Who will build tanks/trucks/planes when we need them – Japanese & Chinese companies in US ??
Your "shakeout" will plunge our economy into depression.
Probably the best analysis I've read on the sick car situation. Don't think it'll do any good in Washington (and elsewhere too, probably), but you said what needs to be said…..
Audi had a 75 MPG Diesel 7 or 8 years ago in Europe; Ford has a good, similar high-milage diesel as well (among others I haven't heard of) — but the Greenies hate diesel with a passion! Perhaps they should also suffer some slings and arrows as well, they deserve it.
Good work.
I just posted something to my Blog on this, since I used to work for a Saturn dealership. I saw the car company that was designed to fight the imports and jump-start the American auto industry be sucked into the typical GM mentality because it didn't make a profit (or, at least the profit that the shareholders wanted).
Which started me thinking…who are these shareholders? When company executives start taking their bonuses a "profit sharing," it means they recieve stock in the company. Sure, it's not cash – it's MORE than cash – AND it's a conflict of interest. The shareholders approve the board who approve the excutives who are – shareholders.
If these were non-profit corporations, this kind of stuff would never happen. Bonuses, sure. Conflicts of interest – punishable.
Chrysler has shown itself to be fiscally responsible, in the past, so their request should be heard. Their problem is that they're going to the table with Ford and GM. Ford is at least trying to put some innovations out there now. But what's innovative about GM? OnStar?
I recently drove a Lucerne – it's a nice car – but where does that stand in the competitive mindset of the American public? The Buick is the new Oldsmobile. It's the car to buy when you can't afford a Cadillac, and don't want a Chevy anymore. GM has tried to downsize in the past, and has tried to differentiate its product line.
But if we're going to have a GMC Truck, then why is Chevy still making trucks? If we're going to have Saturn, why is Chevy still making Cobalts and Malibus? If we're going to have Lucernes, why is Chevy still making Impalas? Tradition? Malibu, Impala and Corvette have an appeal to the nostalgic. Pontiac has started naming its cars with numbers rather than words to give it a sportier appeal.
Since the governemnt made AT&T break up, maybe one of the deals should be making GM break up, and let's see where they go on their own. Smaller companies, separate worker contracts, ability to fight Japanese, Korean and soon Chinese imports (when Warren Buffet is investing in Chinese cars, you know they'll be here soon – heck…they make all our Christmas lights and don't even celebrate Christmas!).
Expansion is the key to growth. New ideas that are put into action are what is necessary at this time. If anyone wants to be motivated to do that, watch the movie "Accepted." If anyone wants to revel in the "we're American and you have to accept our American ways" mindset that got us to this point in time, watch the movie "Gung Ho." It's supposed to be funny…but it's oddly disturbing.
Z
Keith,
I agree with most of your sentiment, but the one place you are off base is the employees. Those companies will not absorb our workers, because the demand they fill will largely be produced overseas, where they are able to keep ee costs LOW. Therein lies the problem, because now those wages are being spent in a foreign country, and the profits are going to a foreign country. And while in principle, theory, and soap box I agree with you, my livelihood is in Detroit, and I need those workers to have jobs to have money to spend in my business…..solve that.
Rob
Kudos to steve duncan. Great points!
My Colleague, This is a very incisive analysis. The laws of basic Economics must take its course in a free market Economy. Let me remind readers that the American Capitalist system was founded on the Economic philosophy of Adam Smith, the great proponent of "laissez faire" economics. We owe not our existence to the benevolence of the butcher, the baker nor the brewer, but to the preservation of their own self interest. In other words, if GM, Crysler, and Ford failed in the exercise of their own self interest, why should tax payer money bail them out. There is no room for charity.These are the casualties of the free market paradigm.The bastion of Capitalism,(The USA) is setting a precedent that will go down in History as the greatest transfer of wealth from the poor to the rich. Even if the Big 3 gets 1Trillion each, this still will not help them, the other side of the formula is, in this current credit squeeze and joblessness, who is going to buy their vehicles. I do not hear much from the Chicago school boys and the Milton Friedmans, staunch advocates of the free market system. Food for thought.
Is auto competition fair around the world?
Just an observation:
I visited Japan and I do not see American cars.
I visited Europe (London, Paris, Lucerne, Florence and Rome) and I hardly see American cars.
All I see is vehicles made by each respective country. By the cars on the road, you know what country you're in.
I live in the U.S.A. and I see more Toyotas, Hondas, Kias, Volkswagens, Mercedes, etc. on the road than our own American cars. I can't tell what country I'm in by the cars on the road (exaggeration, but do you get the point?)
Is this fair? All the other countries must have set up some kind of trade barriers to lessen competition in trying to keep our American cars out while they freely export their own vehicles to our country.
It is not a two way street. Talking about competition… and Austrian economics. I am curious. Does Austrian economics take into consideration unfair competition? This is what's going on in the REAL WORLD.
This is what our U.S. auto industry is up against.
Aside from mismanagement, etc, it is no wonder our auto industry is up against the wall. It does not get the support of our country. For one thing, the Bush administration didn"t! It was all for trade with China, etc. I hope the Obama administration wises up to what is going on around the world and act accordingly to help our auto industry, first in a bail-out and then create a more level playing field where our industry can compete against the rest of the world.
Buy U. S. cars. I do. Other Americans should. They are the best as far as I am concerned. That would keep our auto industry in business and avoid future bail-outs.
The impending collapse of the American auto industry literally gives me chills down my spine. As a bit of a student of history, I will remind those who feel we would be better off without Detroit, that it was the ability of the American auto and other industries that kept a continent free from the Nazi's in WW 2. The problem with the "Big Three" can be summed up quite simply, UAW. This situation that the US auto industry faces has been festering for years. As market share fell the unions still demanded more, now it's time to pay the piper. There is talk about simple economics, having run a small business I know that I cannot compete if my labor cost's were twice that of my competition. Was Maryville, Ohio a thriving place before Honda opened a motorcycle plant there? Can you imagine if GM were to lay off all the Detroit employees follow the path of the imports. They open plants in areas where jobs are scarce and $15-20/hr is a gift from God. I'll bet there would be Congressional hearing's telling the CEO's they would have to stay put. Probably the government would offer monies for that. Assembly line work is essentially unskilled labor, yet UAW members have demanded wages that many college graduates cannot earn. Does the industry need an overhaul? You better believe it. Will it happen, I doubt it. There is no short term fix here. Pumping taxpayer dollars is only buying time. The US auto industry as we know it, is finished. God help us all when the "trickle down effect" hit's.
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In regards to "The Big Three Need a Shakeout, Not a Bailout
By Keith Fitz-Gerald, Investment Director", I was very surprised to find his comments expounding on his ignorance.
It is one thing to be ignorant; it is entirely another thing when you propel it to a podium. But for that effort Keith, well done! You have succeeded.
I quote your first spelling mistake that changes the whole meaning of this sentence. "…the same people who have been running the U.S. Postal Service would not be in charge of both Wall Street and one of our major manufacturing industries." What you meant to say was "NOW" instead of "not" in that sentence. We understand your mistake; it seems everyone is not impervious to them, even yourself. Yet you seem to think everyone should pay themselves for their mistakes. And that GM, Ford, And Chrysler should go into the dust so that you can drive your import. (Please acknowledge your current car model to the group; I find your thinking is typical of the preppy import buyers that have not actually looked at an equivalent domestic made car in the last 5 yrs.)
Yes on the onset your idea of survival of the fittest is a good one. It would make your import companies more profitable from the increased markets. but you (an investment director??? hmm) fail to see that your country will not have any of the high level jobs for your kids, the engineering and other executive positions will all be in another country. If you are lucky your children might be able to put a grill into your soon-to-be-purchased, beloved import, before you get to drive it home.
Yes those first couple years will be wonderful for you and your other import driving friends. It will seem wonderful until the economic ramifications start to bite your lifestyle around you.
Then you will realize to late the impact of the Big Three in your country.
You fail to mention that the GM Malibu is the best quality car in its class, bar none!!! You also fail to mention that GM has 18 models that get over 30mpg, more than ANY other manufacturer.
You fail to mention that GM has more Hybrid models than any other.
You also fail to realize that the other countries like Japan that sell into US and Canada do NOT allow our Big Three to sell into their borders. Yes they get profits from Japan and your country but your car companies are barred from their markets.
You also failed to realize that GM is making a profit selling into China in the last few years. Too bad the Japan automakers get an unfair advantage. And you tote that as survival of the fittest??? Come on! Learn the facts before you step on your podium Keith!
If you get your wish to save American taxpayers all that money, I hope you live to see the day you remember you were supporting the decline of your civilization as we know it.
May you live forever Keith, and may you grow in wisdom that whole time. And I mean that sincerely.
Kev
I also agree with almost all the things that you said in the article and I also think that the automakers need to be responsible of their acts. There were a lot of mistakes when the CEOs of Detroit´s big three were leading these companies to this complicated situation. But In my opinion there will be a lot of problems of unemployment, without mentioning commercial disequilibrium if the automobile industry is not helped to reorganize.
From my point of view Detroit´s big three need to be safe, because that industry has a lot of incidence in the GDP without missing that automaker´s employees are also consumers of goods and services and I would like to remind you that at leas 3 million consumers will stop buying stuff because of the failure of GM, Ford and Chrysler. Obviously this is going to affect much more business than the three automakers.
Finally this recession could lead us into a deflation because everyone will try to save money and protect their real situation, thinking that something worse will come.
Good luck,
Nelson.
Things are very bad now in the encomony.jobs are being cut and people are loosing their jobs. We do not need people like you. Get rid of your job permantly. tell your subscribers your company doesn't need you any more you are bankrupting the company with your salary. You are making to much money . News letters are a dime a dozen, We don't need your philosophy . misery needs company. My jaw almost fell to the floor when I read your letter . There is no room for charty . We cannot give our money away. We do not need your News letters. Give this letter to your producer or maybe you are in business for your self riping the middle class out of their money.
My wife was recently tutoring a Japanese student in English. He talked about how everyone in Japan used to think that the greatest purpose in life was to die for the emperor. Now he says all Japanese laugh at such silly, old-fashioned ideas. He saw parallels in the quaint, silly ideas of Americans. If you take the time to read what Adam Smith said, or if you stayed awake in Econ 101, you will see that the free market system rests on arguments to the effect that it is a very good mechanism for allocating resources to producing goods for which there is the most present demand. It contains no mechanism (other than interest rates) for substituting future needs for present needs. It takes no account of the costs of transformation in getting from a less efficient situation to a more efficient one. As such, it is the best system for a nation or a world where resources are plentiful and the priority is exploiting them as effectively as possible. Put another way, the free market system is the best one for when the sea is calm; it’s not good at dealing with high waves and storms, which require a hand on the tiller. Rote memorization and mindless application of any dogma sooner or later leads to the fate of the Japanese emperor-worshippers.
[…] The Big Three Need a Shakeout, Not a Bailout […]
To keep every body employed in the old Soviet Union the "state" sponsored manufacturing things (supply) which did not have any demand.
When the auto manufacturers make automobiles that people want and will purchase plenty of privite investment will be available.
Why not bail out the 'auto suppliers' to save them and let the car mfgs do their own house cleaning. The last I read the Union seems to be one of the big problems that bankruptcy would take care of.
Why is it not recognized the GM and Chrysler can't be saved; failure or viability having occurred many months ago? Demand (revenue) for their products has been deficient for years and costs were not brought under control. The market place revealed the ignored and/or failed responsiveness.
Also, why can't we distinguish the difference between a "bailout" and a subsidy? Subsidizing failed industries benefits no one and continues waste and responsiveness to market realities. Command economies have proven this !00% of the time.
Why do we feel compelled to solve complex and demanding business and financial issues in the political arena? Why don't we commit to augmenting, if required, city and state funds to provide unemployment, food, retraining, medical and relocation assistance with federal funds? Government performs well in those areas and the need is, and certainly will be, there. Why let failed business entities drag Detroit and the nation down further just because they are large and make a limited number of profitable cars? The time for denial and perseveration has expired.
Comment by Rob Shippy on 9 December 2008:
Keith,
I agree with most of your sentiment, but the one place you are off base is the employees. Those companies will not absorb our workers, because the demand they fill will largely be produced overseas, where they are able to keep ee costs LOW. Therein lies the problem, because now those wages are being spent in a foreign country, and the profits are going to a foreign country. And while in principle, theory, and soap box I agree with you, my livelihood is in Detroit, and I need those workers to have jobs to have money to spend in my business…..solve that.
Thanks for the kind words, Rob. Unfortunately, I’m not in charge. And neither are the guys in Washington, despite what they’d like to believe. The markets are. As long as consumers prefer Hondas and Toyotas, no amount of bailout funding is going to do anything other than perpetuate the inevitable. Which is why a Big Three shakeout that may kill Detroit could ultimately be good for the Carolinas, Alabama, Georgia and Mississippi where VW, Toyota, and Kia are all in the process of completing new factories right now – despite the downturn – thanks to more than $1 billion in Southern legislative incentives. Incentives, I might add, that Michigan could pass if it wanted to more directly help businesses like yours, like Southern representatives are helping their constituents.
Keith Fitz-Gerald
Comment by Jerry Haywood on 9 December 2008:
Your article brings several questions to mind. Why do we allow unfettered access to our markets when U.S. companies in China have to have a Chinese partner? Are the U.S. auto companies allowed to manufacturer, cars or trucks in Japan? Are the tariffs, taxes, import quotas, and customs regulations the same going both ways? I think when you find the answer to these few questions you will find another part of the big three’s problem that no one wants to address.
~~~~~~~~~~
I couldn’t agree more, Jerry, but maybe not for the reasons you expect. The bottom line is that if Detroit truly made the best cars in the world as they insist they do, consumers would be beating a path to their door and voting with their wallets – high production costs and all. But, they’re not and that’s what I suspect is so hard to swallow here…pride.
History shows that protectionist policies ultimately undermine the very businesses they’re intended to help. So the last thing we want to do is to play tit for tat. China, Japan and Korea will ultimately pay their bill in this regard and, in fact, several of their industries already are. Which is why I have no doubt that Detroit, after getting totally boxed in by its own avarice, will rise to the occasion, though probably not in any form that the current crop of executives is capable of imagining.
Keith Fitz-Gerald
Investment Director
Money Morning
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