I usually read this page on my phone, which doesn't make for very easy replies, so I've been chomping at the bit to reply to this thread. First of all, I want to say it's good to be in the company of other employees (past or present). I wonder if there are any other C-body fans drawing checks with a pentastar on them? (Yes, the checks still have a pentastar... I wonder how much longer that will last? I figure since I'm one of .03% of employees still drawing an actual paper check, they hopefully never get around to updating the checks.)
Anyways, thanks for the link to the academic paper. I've only read about 10 pages into it and that was to see if it was the usual glossing-over of the problems surrounding US manufacturing. I use the term
manufacturing because the problems aren't limited to just the auto industry, although the auto industry is certainly the largest
manufacturing segment. The paper does not surprise me. It lays out a cursory "economics 101" explanation of the problems facing the Detroit Three (D3). If the remaining pages I haven't read touch upon the issues I am about to lay out, I promise to come back, apologize and eat my tin-foil hat.
From what I've seen the paper makes several familiar arguments which I'll refute briefly. I could go into book-level detail about each one, but I'll keep it simple since this is just an internet posting. (In my spare time I actually am working on a related book.)
- Foreign cars good, US cars bad: If it were this simple, I would not have owned three fairly modern Mopars with 200k+ miles on them without major repairs before two were stolen and one was sold. A forth is in my driveway with 232,000 miles. A friend has a Corolla that just lost 1/2 its compression after 112k miles. Honda/Acura transmissions. Nissan Titan. Mazda rotary engines. Additionally, many foreign products simply miss their mark. Scion. Toyota Echo. Nissan Cube. Honda Crosstour. However, US manufacturers share of the US market continues to drop like a rock. Although the real reason is very complex, this is a simple truth that cannot be ignored.
- US manufacturers too dependent upon Trucks/SUVs: True statement, but again too simplistic. The US is the only nation in the world that requires all manufactures who sell more than 400,000 vehicles to comply with an arbitrary Corporate Average Fuel Economy (CAFE) standard. You want to build a 12 mpg car in Germany? Have at it... In fact, there are some examples. However their sales will be limited by the market's willingness to buy them if fuel is taxed-up to $9 per gallon. (Feel free to import them to the US since no German manufacturer sells over 300,000 units annually.) Only in the US do we require our companies to build high MPG cars on US soil, regardless of demand, while fuel is the cheapest in the world. That's like telling McDonald's that 70% of their sales must be broccoli. The loophole has always been trucks acting as surrogates for the large cars people actually want to purchase. This is a market interference the US government created 40-years ago, and refuses to address on the demand side because it is politically unpopular.
- US unionized labor costs are too high: This one would actually be funny if people knew the truth. If you think labor is expensive in the US, I suggest you hire someone from a western European nation to build your cars... Then you'll know the meaning of expensive + a 6 week vacation. I have a cousin who manages workers in the US and Europe. He complains that his US employees always want overtime, but no matter how much money they offer, the European arm of the company refuses to work overtime, so they have to take on the larger cost of additional hires. European labor unions carry clout that the UAW could only dream about. Korean unions take managers/management physically hostage! Japan is so heavily socialized (lifetime employment) that there scarcely exists a need for unions, although they do exist. The best deal on labor is to pay US workers nearly the same wage unionized US workers, but offer very little in heath/retirement benefits. This is another government interference in the market dating back to President Truman's post-WWII wage/price controls, when unions could only bargain for benefits rather than wages.
So now that I've offered my thoughts on the explanations given by the authors of the paper, what do I feel they missed? Only the elephant in the room which remains unaddressed and will likely never be addressed. It is:
US companies can only effectively compete with each other; on the North American Continent (NAFTA). They are disadvantaged at home and abroad when competing with manufacturers from other nations. Here are three manifestations that come to mind...
- Outright prohibitions on direct imports such as in China. The Chinese government requires Chinese-majority partnerships with foreign companies to sell in any meaningful numbers in China. As was mentioned earlier, ignoring the Chinese market is a fatal mistake. However, the double-edged sword is creating Chinese manufacturers who will become on-par with their partner companies in very short order. Of course the US could mitigate this problem by refusing access to the wealthiest market on Earth (for now) unless the Chinese eliminate such protectionist policies.
- Red-tape restrictions on NAFTA market imports, as are often practiced in Asian democracies. Examples: Threatened income tax audits for Koreans who purchase foreign cars on the basis they are an "excessive luxury". The Japanese practice of requiring individual inspections of individual imported vehicles in the port, even when delivered directly from the OEM (adding great expense). Rejection of these vehicles for cosmetic items, such as a paint scratch. Denial of otherwise public information, such as registration info, to foreign firms for marketing purposes on the basis of "identity theft" by foreigners. Requirements that OEMs own interests in individual Japanese dealerships. There are further examples. BTW, those restrictions don't just keep out US companies... Korean imports to Japan and vis-versa are less than 1000 units per year despite their similar markets and physical proximity.
- Taxation restrictions more common in European nations, either as simple as massive duties on US-made cars under 30-years old, or more complex like establishing Value Added Taxes on top of the US sticker price which includes the cost of all US taxes (labor, property, etc.). For example, in 2010 a German-made VW Tiguan (small SUV) was $23,200-$33,215. In the US. A Jeep Liberty was $23,760-$28,475. Now compare those models sales prices in Germany... $38,814-$42,275 for the VW. For the Jeep, try $47,665-$57,350! I laugh when people criticize the D3 for not trying to sell more US-made vehicles in Europe... It's a wonder they sell ANYTHING in Europe. *keep in mind that GM/Ford have long-established but entirely separate companies in Europe, so Chrysler is especially hampered overseas.
OK, but how can any of this affect a US company's ability to compete against let's say, a Honda Civic, in the US? Simple. Economies of scale. Until fairly recently, (2011-ish?) a Honda Civic was not one of the products that Honda built in the US, such as the larger Accord. That means that Honda can sell and build the Civic in Japan, where high gas prices will always cause demand. When prices spike in the US, usually short-term, they can simply up the imports without any of the fixed costs incurred by a company like Chrysler which was building Neons in the US while gas was $1.10 a gallon and no one wanted them.
That means more profit on a Honda Civic and a loss on a Neon. That manifests itself in two ways... Either Honda can keep the extra profit, or it can forgo some of the profit and add more content. The Neon must be built to-a-price, and the challenges (not often met) is keeping the consumer from noticing. Now apply this basic formula and change the names to Nissan Sentra, Mazda 3, etc. and Ford Focus, Chevy Cobalt, etc. Consider that the "transplants" built in the US are always the larger, more fuel-thirsty vehicles offer by the Asian companies... US-only Sedans, Minivans and Trucks...The US Camry is larger than any other version in fact. They aren't stupid, they have their fixed costs and lower volumes on the same types of products where the D3 make their money,
BUT they can adjust their small car volumes without fixed costs and spread costs across two large markets.
Even if I'm full of it, you know there is at least a grain of truth in what I've said. Have you ever heard this theory expressed in the mainstream, or even by the so-called experts who decide the fate of our manufacturing companies? Ever wonder what happened to the American consumer electronics industry? (I've got a whole chapter on that subject)
Ever wonder what's going on right now in Home Appliances?
Whenever you hear a politician start to cover this ground, make sure you get a good look because he won't be around very long... i.e. Ross Perot.
