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Quick Hit: Cars


I think this Wall Street Journal editorial (shockingly!) understates the way that management captured the auto industry during the good times and milked it dry for its own benefit (the price of which was to allow the UAW unfettered access to the other teat). But it captures something about the collapse of both the auto and financial industries which we ought to take very seriously.
For more than 40 years, a 25% tariff has kept out foreign-built pickup trucks even as a studied loophole was created in fuel-economy regulations to let the Big Three develop a lucrative, protected niche in the "passenger truck" business.

This became the long-running unwritten deal. This was Washington's real auto policy.

For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs.
And that point - that the issue isn't too much regulation or too little regulation, but regulation that is captured by and for the regulated - is something we ought to be damn thoughtful about as we contemplate an immense expansion of regulatory authority in this country.



...but regulation that is captured by and for the regulated

The problem with government power in general is that it naturally attracts those it affects. And how could it be otherwise? It is the sensible thing. There are many reasons the tax code is so convoluted but I am sure various interests have something to do with it.

Very well put. Hopefully this is something that progressive and conservatives can agree on - that what regulation there is has to work. And, to work, it has to be applied with free(ish) market principles, by neutral parties, and not taken advantage of to line someone's pockets.

My proposed mantra is "Don't regulate more, regulate right."

I have to admit that's not the entire story.

The sedan issue had as much if not more to do with courting the rental car industry. Detroit got into a habit of producing bare-bones, uncomfortable sedans that they could produce and sell in mass to the rental companies.

What didn't occur to them is that not many people enjoy their rental car so much that they flock to it on the sales lot, in fact quite the opposite. Nobody wants a car they see 50,000 of at the airport, not to mention the disincentive to improve fuel economy since rental companies make a mint by reaming us on the return fill up. That was a major management blunder that handed the Japanese and Koreans a huge lead in the sedan markets.

Regardless of who's fault it was (and management, the union, and the government all played big parts), this solution is shocking. I never expected to see a nationalize followed by a handover of a MAJOR company to a preferred interest group in my lifetime in America. This is what you see in a banana republic.

Conservatives and libertarians, here is how to hone your message- government has gotten clever, the game has changed. Its not government vs business any more. Government and corporations are now indistinguishable in many cases. Its like the fifth columnists who have infiltrated the castle and thrown the gates open. We need to refine our rhetoric and ideas. Nationalization isnt about sending army troops to kick the doors down these days. There is an insipid relationship between government, corporations, unions, and the media. This handover of GM is appalling. It could never happen in bankruptcy court, but when the government is playing the Devil to Detroit's Faust, you knew this would come back to haunt them. The Piper is being paid now, and anyone that has taken a dime of government money has to be starting panic. That should help the economy.

OK, A.L., I realize your "shockingly!" comment, (a Casablanca reference, I assume) was intended to be humorous, you understate the case. The WSJ article assigns NO blame to corporate mis-management. It's right there in the text: there are "two parties" responsible for the mess: labor and the Feds. They are not "two of" the parties responsible; according to WSJ, they're IT.

. . . and that's the problem with the Republican mainstream at this point; it's "Who, US?" all the way.

Yeah, government policy benefited "The Big Three" , but "the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress's fuel economy rules to build"?!?! Don't think so.

GM stayed in the Dow, and management and Wall Street continued to rake it it, while the number of union UAW beneficiaries continued to dwindle. There used to be a union GM plant in Van Nuys; I worked for a firm that wound up the union pension fund's affairs there, back in the early 80's.

Toyota/Datsun/Honda got dominance in the US not with sportscars, or luxury cars but because they were turning out Corollas, Civics and B-210's, cheap, relaible fixable sedans/coupes, while Big Three gave us the Pinto and the Vega.

SB, I obviously agree - note my phrasing: captured the auto industry during the good times and milked it dry for its own benefit...

How is that in any way in opposition to what you said??

Finance and marketing people ran our car companies, engineers ran theirs.


Is it incorrect to say that the governments relationship to corporations should be adversarial, or something is terribly amiss?

The UAW really ought to split itself into two entirely distinct entities now, one to continue representing the workers, one to run the company. That would be the right thing to do. To do otherwise would be complete moral bankruptcy.

I wouldn't bet on it though, I suspect we'll instead see an even stronger push for the card check legislation. Mustn't give the rank and file a way to revolt against their Union management betters.

Also, Ford is now directly in competition with its own workforce and with the government. If I were Ford management, I'd wait about a year or so, and on the first adverse government regulation or UAW negotiation outcome, file an anti-trust lawsuit against the UAW and the government and push it all the way to the Supremes.

It'll be a spectacularly entertaining 3 ring circus if nothing else.

I would be fine, even entertained, with UAW running the company. The problem is with the governments explicit backing they have no reason to be profitable.

How exactly is Ford supposed to compete with companies run or backed by the government? They don't have to worry about profit margins or even making payrolls.

This is EXACTLY one of the big mistakes that got us into this financial mess. Quasi-government entities like Freddie and Fanny distort the marketplace. Competitors have to follow suit with their competition, and when the government is in the game, one of the actors can behave irrationally and fearlessly, which practically demands everyone else do the same or worse.

And then there are failures and the big government supporters say, 'see, the market is a failure, we need more government'. Its a feedback loop that has recently gone nuts. How does this lead to anything but outright command economies?

What happens when GM can't sell the cars the government demands they build and the UAW makes horrifically unaffordable? Assuredly GM dumps their pricing into the cellar (they don't need to be profitable) and the government drafts laws to punish other types of car manufacturers (jack up CAFE standards etc). Protectionism, I promise you, is next on the horizon to push the Asian cars out of the game. "Distorting the market" doesn't really do that justice, its killing the market. What we will end up with is 2 or 3 government directed manufacturers making cars we don't want (ultimately) for prices we won't want to pay. IE- the same thing that happens in every command economy.

The question is, does Obama and his braintrust not see this, or is it part of the plan? Lets just say we were all warned about Obama's philosophy and background. So nobody has the right to be shocked if this Cuban brand of business is exactly according to plan.

OK, A.L., I jumped the gun in terms of the slant you put on the WSJ piece, and I was inartful*; what I meant to say was that I felt you were letting the WSJ off the hook relatively gently, (to an extent to which I don't think you let another, less conservative source, off the hook) their obvious slant. As I said in my first, inarticulate ramblings, what most offended me about the WSJ piece was the complete absence of any suggestion that management (i.e., the boardroom guys who read the WSJ) had ANY part in the problem.

UAW somewhat at fault for GM crashing and burning? Yep, I'll buy that. Feds too? Yep. BUT the gorilla in the room for more than 30 years has been GM management, which as you note, and as I agree, was in the hands of finance and marketing guys, spending time and money figuring out, say, how to turn GMAC Finance into a home lender, etc., rather than figuring out how to make a passenger car auto tranny that would last more than 45,000 miles...

*it was early, I was not yet fully caffenated, and I'm experiencing some of the same "wrestling with life" issues that you allude to in your preceding post. BTW, in what time-zone are posts clock-stamped? My post was, IIRC, about 8 am this morning; it's time-stamped as 4 PM, which is about three hours from now...

I think we're on Zulu time (Greenwich Mean), and yeah, I get the caffeinated part...

It's the WSJ - what do you expect? When I read the Nation, I expect to hear about how bad management is and how noble the unions are. If only someone cared about reality.


From Mark's #3:

Its not government vs business any more. Government and corporations are now indistinguishable in many cases.

An acurate description of our times.

I think the Western world has developed structures, among them, central banking, intended to provide tools for counteracting any advancement of Communism. After it fell, those structures have nothing to balance them, freely pushing their interests forward occupying the center of the political arena.

Sez Mark B., at #3:

"Conservatives and libertarians, here is how to hone your message- government has gotten clever, the game has changed. It's not government vs business any more. Government and corporations are now indistinguishable in many cases."

With all due respect, with the WSJ, and the leadership of the Senate and House Republican Party as examples, don't those latter two (bolded) sentences demand that the first sentence be changed to ". . . it's time to COMPLETELY CHANGE your central economic message. It turns out that the "Feds" and "guvment" you've been publicly flogging for the last 100 days seem to have spent an inordinate amount of time and money in the last couple of decades covering the behinds, and bets, of their corporate/finance constituents"?

"It turns out that the "Feds" and "guvment" you've been publicly flogging for the last 100 days seem to have spent an inordinate amount of time and money in the last couple of decades covering the behinds, and bets, of their corporate/finance constituents"?"

And vice-versa, ie the campaign finance travesty we have in our nation. Like I said, indistinguishable.

Look, much of corporate America has made Faustian deals with the government to basically stifle regulation and competition in return for favors and government business. Now the fine print is coming into focus, as the tail begins to wag the dog. But in many instances, the government is making them a deal they can't refuse. The threat of audits have been flying publicly since the Fall, and I don't doubt that they've been hanging over companys for a long time now to play ball or face the big microscope of government.

Government is a many tentacled beast, and it almost never shrinks or gets weaker. Conservatives have argued about a slippery slope of government central control and micromanagement. Wrong. Its been a cliff.

Is big business just as much to blame? Sure. Who cares? If we were really practicing capitalism their companies would have been replaced by more prudent competitors and the actors would be out on their butts. Pointing fingers at business at this point is like shaking your fist at the campers that were feeding the bear that is coming for you. They're already paying their penalty digesting in the belly of the beast- i'd advise looking out for yourself before the rest of us become a meal.

The problem is this is the inevitable result of the government "doing too much". The more the government does, the more it is the interests of business to make darn sure government is on "their side".

It's a very simple public choice problem. Big business knows about and cares deeply about regulation affecting them - and which can be used as a barrier to entry - but the public knows little about it. The more regulation and "activism" in government, the more business will see a need to both defend itself and gain a competitive advantage by "interfering" with government.

There is no possible democratic machinery for defeating this. The only way to avoid it is to have a small, open, relatively non-activist government. (Or you can just destroy business entirely and go whole-hog Communist, but we've seen where that goes.)

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