Do we need an American automobile industry? And by American, I mean those manufacturers, suppliers, and associated vendors owned and operated by US citizens – red blooded, football-loving, meat and potato types. (Ok, that’s a stereotype, but you know who I’m talking about.) I submit that it’s in our national interest to keep it alive and moving forward. Farago disagrees completely (editorial to follow).
For now, we’re going to ignore the mechanics of rescuing Detroit. Or discussions about saving two of the companies and letting the third one go (back) to the dog(s). And we won’t even raise the question of how silly it might be to let Nancy Pelosi-– from San Francisco– to lead the charge to shovel your money to Detroit. So don’t go there; TTAC’s got that discussion covered already. Nope, this is a purely philosophical discussion about the merits of a home grown auto industry. So here goes…
Transportation provides the arterial network of moving people and goods around this country. It’s a darn big country, and most of it has been developed and organized around personal vehicles. Not trains, planes, or buses. The Unites States has more vehicles per capita than any other country in the world: 765 units per 1,000 population (from the United Nations Statistical Yearbook). England, by comparison, has only 426 per 1,000 pops. More new vehicles are sold in the United States than in any other country by millions. (China is the closest at 10 million units – but they’ve got four times the population of the USA.)
By any yardstick, the Unites States is the biggest and most prolific user of automobiles of any country in the world today.
It’s also the richest vehicle market in the world. American’s buy more “vehicles” (in terms of size, content, power, and fuel consumption) than anywhere else, too. While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions. The developing world gets vehicles lacking most safety innovations and creature comforts. We get the best vehicles, with the highest level of safety, amenities, and power. And big, powerful, personal trucks to do our hauling.
So not having a home-grown automotive industry to sell to this market just seems insanely stupid. Everyone else (mostly) seems to make money selling new cars. Toyota and Honda make more profits here than anywhere else. New car sales represent a $400b per year market here. Selling a fraction of this market means big revenues and a Gulfstream jet or three for the executives. Just think of the waterfall of those dollars trickling through the economy with every car sold. Do we really want to ship a big chunk of those dollars overseas to foreign companies, governments and their owners so they can live the high-life?
Sure, we do buy a lot of goods from overseas. But it’s mostly stuff we can’t manufacture here at the same cost as over there. When a seamstresses cost $8/day in China, with few benefits paid and no OSHA regulations, we benefit from the savings as consumers. It makes little sense to produce Walmart’s clothes here.
But guess what? The costs to manufacture a new vehicle in the United States are about as cheap as it gets for the level of car sold as anywhere in the world. The direct labor component of a car represents roughly $1,800 of its total cost. Believe it or not, the direct production cost differences among all US-based assembly facilities from any manufacturer are nominal.
What’s different: the profits of foreign-brand cars assembled or imported in the United States go back to their home countries. That means their countries benefit from reinvestment of those profit dollars into the next generation of vehicles. Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there– not from US ingenuity and skills. Do we really want to depend on Japan, Korea, and Germany (and soon China) for the future of our cars and related technology or do we want it grown here in the USA?
What’s most promising is that the future of personal vehicles lies not with traditional gasoline ICE, but with variants thereof such as HCCI, diesel, and hybrids and/or all-electric vehicles. Getting there requires a huge investment of dollars. New tech also delivers collateral benefits: software for engine management, ride control, transmissions, heat recovery systems, emissions, and improvements in safety systems. Investments in new technologies come directly from the profits generated from selling vehicles today. And they’re mostly made by suppliers looking for an edge. We simply can’t abandon our future to others.
We need an American auto industry. One that runs the table on the entire production and sales chain. There’s no cost basis reason not to produce vehicles here. We just need better run companies with forward thinking managements. You can argue how we get there, but not where we need to be.
In principle I agree, but as with so many things, the devil’s in the details. If American automakers can or will not operate profitably and sustainably, then where’s the benefit to having ’em? I think that even if all three Detroit firms go CH7 (worst case scenario) America has the know-how and entrepreneurial spirit to start up from scratch (or close to it).
The structural problems that nobody seems to be able to fix (dealer and labor bloat, “perception gap”) would go away if the D3 restructure or even disappear completely. The problem isn’t that people think “I won’t buy American, because we only make crap,” it’s that people have been burned by these three firms too many times. “Saving” the names and structures of these firms seems to invite only repetition of the last several decades.
Is an successful native automotive industry desirable? Yes. Is the only way to get one by helping existing firms escape the consequences of their mismanagement? Absolutely not.
The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.
Having just watched the latest Top Gear episode, it’s hard to say that it’d be okay to let America’s car industry go. I’m not a domestic car fan, but if they disappeared, it wouldn’t be the same.
If we were to let the domestic auto industry go belly up, what would be the ramifications of the transitional period? How long would it take before they can become even half of what they were in their best days? How far behind in technology would we be because of it? Just look at the struggles Tesla is having trying to become the 4th domestic auto maker, yes they are jumping on technology and that is a lot of their problems, but sooner or later these changes will be coming to the D3 anyways.
Either way you look at it, it’s by far not a optimistic outlook. One one hand we can risk bailing them out, and on the other hand we can let them crash and hope all goes well on a recovery.
I’m starting to lean towards bailing them out, with strict guidelines, limitations, and most importantly, change. Change in upper management, change in the UAW, and a change in the products they sell. If our government is willing to help out than it needs to help out in ways that the D3 is unable to its self.
Yes, we need American auto companies. Whenever I buy a car that turns out to be a lemon I like to know it was an American engineer that designed the parts wrong. When it comes time to screw me over at the dealership for refusing to honor the warranty, I like to know that it was an American company’s service manager doing it. When the factory hides product defects and destroys corporate documents to avoid costly recalls, I feel better knowing it was an American company putting people’s lives at risk. Whenever a part falls off my car because a bolt wasn’t tightened up to spec on the assembly line I like to know an American union worker was responsible. Even though Americans lose jobs when their cars are being assembled at the company’s Mexican assembly plants I feel great pride in the fact that those savings from that cheaper Mexican labor goes to line the pockets of overpaid AMERICAN auto executives, and NOT foreign ones !.
I’m PROUD to be an American, and to support my country’s auto industry. My dad was a mechanic for close to 40 years at a GM dealership, and thanks to General Motors quality products he was never without work or laid off in the entire time he worked there. That’s proof American products produce American jobs, and not just for class-action lawsuit lawyers either, but for the working man too !. God bless America.
miked:
Your point is well taken on the national security issue, but it’s not just the heavy “metal-bending” capacity that we need to consider, but also the industrial base for secure microcircuit technology. Without a source of IC chips that is totally trustworthy, the ability to run most any sophisticated machinery today without fear of tampering can be compromised.
As far as the domestic auto industry is concerned, I would also want it to be a viable draw for US kids who want to be scientists and engineers. Anything that can add to the “innovation base” helps us all in the long run. But I don’t claim to know if the approaches being discussed are the right ones.
Honestly I’m not sure how much overlap there would really be between a Abrams factory and a Silverado factory. My guess is so little that converting one to the other would only save on the cost of the building itself.
People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power. Bar none. The T-34, Panther, Tiger, hell the Mark IV were all vastly superior. I guess we had better tanks than the Japanese, but that wasn’t too relevant in that theater. You can’t just retool a civilian car factory and make quality weapons.
Anyways, there is no inherent reason we can’t have a domestic auto industry. It’s just that the Big 3 got fat and stupid during their heyday and never recovered.
I’ll accept a bailout if it comes with trimming all that fat. If it just tries to maintain the status quo, its a waste of time and money. It’d be a better use of the governments money to buy Hyundai or something.
I think it’s worth saving, but not with a cent of taxpayer money. GM, Ford, and Chrysler got themselves into this mess through years of building crap. They need to admit their mistakes, declare bankruptcy and move on from there. I’m pretty sure all of the 3 companies can build decent vehicles that actually hold their resale value, but not the way they’re structured now.
Bailout money is just going to make it so GM gets another 6 months to a year to continue sucking. Nothing will change until their rotten management is replaced with people that haven’t been exposed to the GM Kool-Aid for years.
The question is what is an automotive industry.
Which country the corporation is incorporated in and which country’s citizens own the most equity are overrated. Everyone talks about how amazing Toyota and Honda are – who’s buying their stock? Porsche SE makes more money trading than selling cars.
Of the worlds 20 most profitable companies only 1, Toyota, makes cars, they rest are in energy, finance or information technology: http://money.cnn.com/galleries/2008/fortune/0806/gallery.G500_biggest_profits.fortune/index.html
The most important thing is to have the automotive engineering, supplier and manufacturing jobs. If GM engineers its cars in Korea and makes them in Mexico it won’t be that important that their losses come from or razor thin profits go to the US.
The keys to the engineering and manufacturing jobs are well funded public and private Universities with very strong engineering and natural science programs, strong infrastructure, and (oh no) national healthcare. The solution is NOT bailing out failed companies.
Still, I would like to see GM and Ford remain domestically owned. While Ch. 11 is inevitable (the only question is how much government money comes first) there should be restrictions on foreign companies buying them out of Ch. 11 on the cheap. On the other hand I would prefer that a foreign company buy Chrysler out of Ch. 7, they’re more cursed than my local Chicago Cubs.
I haven’t seen the latest Top Gear, but based on statistical information available, UK manufactures no less cars within UK then it was when all/most facilities were British own. Actually, production is higher now. Who are the losers: investors who lost their shirts to domestic mismanagement. Who are the winners? Obviously folks manufacturing those vehicles, consumers who can afford to buy them. Another set of losers are probably garages that had much larger volume of work, since in the past quality of UK manufactured cars was second to Russian. Did Britain suffered throw this transition? Somewhat, but not as bad as during WWII. Germans own their factories, without dropping munitions on London and Coventry.
What about US? Lets be realistic: over 50% of cars & trucks sold in US are of foreign label. Majority of foreign label cars and trucks are made in US. Large chunk of US label cars and trucks are actually not made in US at all, and those that are made are of foreign content. Look on the new car sticker in Ford or GM lot vs. Honda/Toyota. Walk through the lot and view a couple of models for better representation.
Look at the articles in the press: majority of foreign manufacturers are planning to open assemblies in US, GM and Ford are investing in China, Russia, Brazil. None of domestics are planning to do anything in US in the future.
If those companies with current leadership, ownership and employees (unions) could not survive in the market that foreign manufacturers are prospering in, why anyone would think that investing 50 billions would change anything? Ford lost more then that alone in the past few years. And I doubt that even GM auditors have a handle on their bleeding, because they have judiciary responsibility to notify NYSE, Fed and share owners. I did not hear a sound last year (or 6 months ago). And in 4 weeks GM will be bankrupt.
Saving domestics is like helping junkie with better quality cocaine.
Ken: Do you have a source for the labor cost comparison?
(It’s not that I’m skeptical, it’s that I would really like to bludgeon certain people over the head with that fact.)
Better days are coming folks. America is famous for re-inventing itself especially after a crisis. No other country is able to do that (and if, only through the help of the US). I’m not American, nor do I currently live in that (I think still blessed) country, so I view things from the outside.
No doubt, mistakes have been made in the US automobile industry basically from day one. But Ford gave us wheels and a working middle class. The import market was underestimated by the US3 ever since the VW beetle has put its tires on US soil.
The European automotive industry is basically no better. Leave the US export market out for them and you will see what happens to Benz, BMW and Porsche. All manufactures are somehow tied together through their supplier chains. So if GM and Ford collapse, what will that do to their suppliers that also supply the rest of the industry? Well, no parts no cars.
We Europeans think we go the better products, in some cases that might be true, but look what we have to pay for them. If GM and especially Ford would not have perfected the way of manufacturing especially the Europeans would not be able to afford cars at all.
So even in this turmoil, I strongly believe that your industry will rebound, management systems will get replaced and you will pull out of the ditch. It will be costly, financially and on the head count side, but if you can’t do it- then Lord help us all.
The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.
If you don’t have a general manufacturing base, you can’t have a defense industry. You can’t just start up an assembly line. You need a supply chain.
Also, it matters who owns the plant. You think a company ultimately controlled by the Chinese government will build weapons for us?
Sadly, we’ve allowed most of our manufacturing base to disappear because we wanted cheap prices at Walmart.
Honestly I’m not sure how much overlap there would really be between a Abrams factory and a Silverado factory. My guess is so little that converting one to the other would only save on the cost of the building itself.
There wasn’t much overlap between steering knuckles and 50 caliber armor-piercing bullets or tank treads either, but my old Chrysler facility was converted from one to the other in a matter of months–with much of the same machinery.
People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power.
The Sherman (granted) wasn’t that great, but that’s just one example. Compare the Corsair with Zero, the P51 with the ME109, or the Jeep with the Hitler’s “Thing.” Most of what we built in that era was world class. Remember we did win.
From an earlier TTAC post citing a Booz & Co. report:
“While 83% of the automotive industry’s 2007 R&D spending came from three countries ―the U.S., Germany and Japan― just 60% of total R&D spending took place in those three home countries.”
“If we ever need the machines to make more tanks, then the assembly lines are here to do it.” -miked
Car assembly lines can not be easily converted to make the MRAP or JLTV. All the evidence you need can be found in the list of bidders for the Joint Light Tactical Vehicle http://en.wikipedia.org/wiki/JLTV
Not a single auto/light truck manufacturer. If there was ANY relationship between the war-time and civilian vehicles don’t you think that we’d see some level of involvement by the big 2.8? Further, if the Pentagon (the experts) felt like they might need to call on America’s auto manufacturers don’t you think they ask them to be involved in the R&D phase?
RE: secure microcircuit technology
What does this have to do with the price of rice in China. I mean seriously, you are extending this discussion well beyond its logical borders. The fall of the auto industry would mean squat to ability to source computing components for weapon systems.
RE: “innovation base”
Where do you think the Holden Monero Coupe was “innovated” into existence? How about the Opel Astra? The engineering heavy-lifting was all done overseas and any future GM would likely expand its overseas development of USDM vehicles. GM does nothing for our “innovation base.” Just seeing “GM” and “innovation base” in the same sentence makes me chuckle.
We Ontarians certainly do. In Southwestern Ontario, 1 in 5 people are employed directly or indirectly by the Big Three. It’s still something like 1 in 8 if you include the rest of the province.
I want to see America continue to have an auto industry, but not on my tax dollar which is already being pissed away in many ways. The auto industries made this mess, let them figure out how to get out of it. Remember this is the industry that has “job banks”, any industry that stupid may not either be worth saving or capable of being saved.
Those who concerned about domestic defense industry: we missed our boat. Our defense industry needs raw materials first: steal, alloys, bolts, nuts, etc. Very little percentage of it is manufactured on our soil. In the case of war (assume with Japan) all factories in US can be legally nationalized for war effort. GM factories in South Korea – literally gone.
If I recall correctly, when Chrysler was rescued in 80’s as a part of package production of Abrams Tank was spawned off and sold as a separate entity. Abrams was Chrysler project. I think Big 2.5 spawn all non-essential to auto businesses and country is not dependent on their contribution to DoD programs.
From the 2007 Harbour Report:
The difference between the most and least productive in terms of total (Assembly, Stamping and Powertrain) labor hours was 5.17 hours per vehicle (or about $300 per vehicle), down from 7.33 hours per vehicle in 2005, and less than one-third the 17.17 HPV gap in 1998.
This year, Honda’s showed the biggest improvement (2.7 percent) across this combined assembly, stamping and powertrain measure.
In overall productivity, four of the six companies with assembly, stamping and powertrain operations in North America – GM, Honda, Chrysler and Ford – showed improvement in 2006. Nissan Motor Company did not participate in this year’s report. Toyota’s total manufacturing hours per vehicle, while leading the way among the participating companies at 29.93 HPV, was not as strong as its 2005 performance of 29.40. Honda was second at 31.63 HPV.
Well, first I would like to say thanks to Farago for allowing opinions different than his to be heard and published.
Now back to this article. I don’t know where to start. There are so many things wrong with it that I don’t know which one to mention first: half truths, lots of statistics and the wrapping in the American flag. (I’ll use bullets since I’m an engineer):
– True. USA is the biggest consumer of high end automobiles. So what?! USA is also the biggest consumer of many other products which are not made in USA (e.g. tee shirts, shoes, etc. the list can go on and on). Is it more important to have auto factories and not to have shoes factories? Kinda’ tough to drive bare footed.
– We live in a global market. Calling GM American and Toyota Japanese has become inappropriate. How come, while loosing $2.4b in the last quarter and firing 2000 employees, GM goes ahead and buys some $500m car factory in Russia? Or China? What’s American in that? How come Hyundai builds, in the USA, the most technologically advanced car factory in the world? How come this article does not mention any of that? For me the profitable American Honda factory is more American than any of GM’s failed ventures oversees or bankrupt ventures within the USA.
– Why does the author compare an $8 product from China with the equivalent product made in USA saying that it is much cheaper but then goes ahead and says that there is no difference in cost between a car from any of the US-based assembly facilities from any manufacturer? Why not compare with the same car manufactures in China? And I don’t believe the difference is only $1800.
The price of a car has very little to do with it’s manufacturing costs (being labor or components). A specific market dictates the price of a car.
– We need an American profitable industry/economy! Not an auto industry necessarily. It does not matter that we produce cars or buttons as long as it is profitable. To get there we need good management, qualified work force, and to let the free market do its work. Anything else is just communism.
So to answer the question: No. It’s not worth saving something that’s rotten.
Take the $25 billions that’s needed instead and put it in schools and research. I’ll bet you there would be more and better return on that investment.
“The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.”
This is so wrong on so many levels. First, the differences between modern weapons and automobiles is much, much larger than it was in 1941. Second, modern defense is far less about quantity than qualtity. It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.
The problem isn’t that people think “I won’t buy American, because we only make crap,” it’s that people have been burned by these three firms too many times.
While they regularly replace unrepairable consumer electronics with a new model from the same company. Before I got an MP3 player this year for music on my bicycle, I treated portable cd players as essentially disposable. I think the last electronic devices I had repaired were a *conrad-johnson tube preamp for my audio system and my Sony ProWalkman I used for live recording back in my tape trading days.
You see comments here and on other blogs about ‘my dad had a Taurus back in ’88 that was a piece of crap so I’ll never buy another American car again.’
Oddly, you never hear someone saying they won’t buy another Kenmore because their vacuum cleaner failed.
Cars are somehow different and it’s not just because a minivan is more expensive than a washing machine. People get emotional about cars. About as many American households have washing machines as they do cars but I don’t think there are many washing machine blogs.
Economists base their theories on people being rational actors, but so many consumer choices are completely irrational.
*conrad-johnson, btw, is a great company (and you don’t see them whoring themselves out like Mark Levinson). I bought the preamp used. When considering the purchase I called up c-j because I was weighing the merits of the used component vs a similarly priced new c-j model. They told me to buy the used one because it sounded better. That impressed me because the manufacturer doesn’t make a penny when folks buy used gear. When I sent it in for the above mentioned repair, a bad muting relay, they ended up also upgrading the unit to the latest revisions and replaced the nickel plated RCA jacks with gold plated connectors – at no charge.
“Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there – not from US ingenuity and skills. Do we really want to depend on Japan, Korea, and Germany (and soon China) for the future of our cars and related technology or do we want it grown here in the USA?”
When in the last 30 years have the D2.8 innovated anything?
An example. The Dual Clutch transmission was invented by Borg-Warner — an American company. How many of the D2.8 are using it? The D2.8 have been a drag on innovation.
Time to put them out of our misery.
Why should the Auto industry be more valued than America’s steel industry?
We let steel production almost completely disappear from the US landscape. My father-in-law was an engineer with Bethlehem Steel and I’ve heard all the stories.
Would the US be better off with a thriving steel industry? Maybe; but that question is irrelevant at this point.
We didn’t bail out the steel industries, why should we bail out the auto industries?
-ted
YES – we need this industry b/c for national security we need an industry that can produce equipment for our own defense. We’ve moved from agricultural based society to industrial now to service / technical – but we need to have a balance. We need to compete globally meaning we need to be competitive locally too!
Unfortunately we need to get over the fact that Detroit’s long in the tooth, overly bureaucratic structure, legacy costs all from horrible management these past 5 decades – they need to reorganize and do it under bankruptcy and cut out all the fat. Once GM and Ford restructure they will once again be competitive and lean in structure. Chrysler – throw it to the wolves or 3 headed dogs as it is a long time coming for this 3rd rate MFGR to listen to the fat lady singing.
It’s life…death and rebirth is required for almost everything. If we do not modernize and change for the better then we fail catastrophically.
Here is what needs to be done.
Fire the managers and directors who brought these companies to their knees. Shame on you Wagoner! Bring in truly independent boards with straight shooters like Warren Buffet. Make the unions stakeholders in trade for concessions. Make each division a profit center, competing not only with outside companies but each other. You win or lose by the decisions each makes.
Finally, deep within each company is someone who knows the ropes and most importantly, loves building great cars, Not merely adequate, but great. Hire him and people like him to manage. I’m truly tired of this penchant for hiring executives from failed companies outside of the industry.
Finally the American public and its government needs to let them know that this is your last chance. Good luck and don’t screw it up.
In its current state: no. I hate to say it because it would mean the loss of tens of thousands of jobs in the US, Canada and Mexico, but I think the only future for GM especially would be Chapter 11 and in the process or reorganizing kill everything except GMC, Chevrolet and Cadillac (sorry Buick, Saturn, Pontiac, Saab, etc). Perhaps they could keep Saab in Europe and just continue to sell rebadged Opels, but the brand has no use in N. America.
Until the American auto industry cuts the fat, operates profitably, and makes cars that consumers want to buy, they will never make a turn around and the government bailouts will never “pay off.”
We absolutely need an automobile industry.
First of all, the automobile is the most important product in the world. It is something which all rational people emotionally identify with and see as an extension of themselves.
Developing the greatest automobile should be a matter of national pride. We need the automobile industry to both develop and showcase our engineering prowess. We need that career path for car obsessed engineers the future leaders of our country.
However, I don’t believe that we do need to keep the companies we currently have or should nationalize the industry or adopt protectionist trade policies. The car industry has enough potential for profit and enough inherent value to the country in terms of skilled and unskilled labor that it will remain without government intervention.
The headline and the article itself ask two different questions. Do we need an American auto industry? And is the American auto industry worth saving?
To the first question, I believe it’s valuable to have a healthy auto industry presence here: Among the benefits are the creation of a good number of reasonably-paying jobs. And the fact that a number of transplants continue to set up shop here suggest that domestic labor rates can be economically viable, at least when those rates aren’t artificially controlled by a monopoly. Is this worth preserving? Yes. I would hate to see the foreign automakers punished in some way for their significant investment in manufacturing capacity on our shores.
Does the existence of a healthy auto industry imply that the major players must be headquartered in the US? That’s where I disagree. As others have pointed out, the profits (or losses) flow back to the shareholders, whoever and wherever they may be. Want a piece of Toyota’s profits? Buy some of its stock. Also already pointed out–those profits are typically razor-thin anyway, meaning most of the proceeds from sales go to labor, suppliers, engineering, R&D, dealers, marketing, advertising, etc. In other words, a lot of the revenues stay in the local economy.
Now, I’m sure Honda and Toyota, to use some examples, do much of their R&D and engineering in Japan (but not all of it–I believe that the Accord, for example, is designed in the US). Sure, I’d like to see more of these jobs in the US. And of course, much of these companies’ management will reside in Japan, meaning some of the revenues will flow back to Japan to pay management salaries. And I actually prefer to see that money go to pay the relatively reasonable compensation of Japanese executives and managers than the exorbitant compensation of their American counterparts. (One need only look to Rick Wagoner’s compensation package as an example.)
Which brings me to the second question: Is the American auto industry (which I read as “Detroit” from the article’s context) worth saving? I would say yes again–but what it needs to be saved from is its current management.
I must wonder aloud: Will the US continue to be such a rich vehicle market? I suspect that much of this vehicle market has been propped up by easy credit for some time now. Obviously the pendulum has swung in the opposite direction recently, but when things stabilize, what will the size of the market be?
>People forget that all those Shermans were the absolute worst tanks in WW2 used by a major power.
The Sherman (granted) wasn’t that great, but that’s just one example. Compare the Corsair with Zero, the P51 with the ME109, or the Jeep with the Hitler’s “Thing.” Most of what we built in that era was world class. Remember we did win.
Popular Mechanics’ site currently has a feature on the most deadly weapons of the modern era based on when they were introduced. The Zero made the list because it’s maneuverability was superior to anything the US had in the air at the time. In time, the Americans developed superior tactics (dogfighting at high altitudes where their horsepower had an advantage) and training (rotating experienced combat pilots back stateside to train new pilots with the latest tactics – also it took the Japanese about two years to train a pilot and they never recovered from the loss of over 400 aviators in the Midway battle). Also, the Hellcats and Corsairs and Mustangs used in the pacific theater were much more survivable and could sustain much greater damage than the Zeros which had no armor for the pilot. Still, the Zero gave the Japanese air superiority in the early stages of the war.
The Spitfire and P51 were great planes but the ME109 was a competent fighter. As I understand it, one reason why the Nazis lost the Battle of Britain is that the ME109 had limited range, allowing only about 20 minutes of fighter cover for the German bombers.
We won not just because of superior weaponry, but because we made fewer mistakes than the Axis.
That and the “arsenal of democracy”. Yes, the Sherman was a death trap, certainly the early models. It had no armor on the bottom (making them vulnerable when cresting the hedgerows in Normandy) and a smaller main gun than the German tanks. No question that the Tiger and Panther tanks were superior. However, Germany being fascist the government told corporations what to do and assigned tank manufacture to heavy equipment companies that were used to low production rates. The US took bids from general manufacturers like the auto companies. The Germans manufactured about 25,000 Tiger and Panther tanks. Chrysler built about 75,000 Shermans during the war.
The Zero faced the same issues, with some parts being handmade, while US planes rolled off mass production assembly lines.
The strategic question of quantity vs quality remains to this day. We ended up deciding to go with relatively few very expensive F-22 Raptors and a whole lot of much cheaper F-35 JSFs. If the other country can put up five planes to your one, that can possibly overcome superior performance and technology. OTOH, considering the incredibly high kill ratio for the F-15 and F-16 against comparable MiGs, they’d have an even greater success against cheaper planes.
Should we ever have a military conflict with Iran in the Gulf or Straights, Iranian strategy will be to used massive numbers of small, fast boats to try to penetrate the carrier battle group. All they need to do is get one suicide boat through.
Cars and trucks will continue to be built in America (assuming it can be done profitably).
Does that necessarily include the Detroit 3 tri-opoly?
Or should it be done by the best global companies such as Toyota and Honda that actually care about the US consumers?
Or should we have new American auto companies arising from the ashes of the Detroit 3 that have self destructed?
It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.
And without GM & Ford buying computers (pcs, mainframe and super) for their designers and managers and electronic components for their cars, there might not be domestic industries left to supply those things to Boeing and Lockheed.
“While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions.”
This is just not true. Maybe eastern europe buys cars without A/C, but that’s just because its so cold they only need a heater.
Equating size with value is partly what go us where we are today (e.g. SUV market crash killing big vehicle dependent big three), and I’m sad to see it being pushed on TTAC (though I applaud Robert for allowing differing views). Europeans buy smaller cars with smaller engines – but fully equipped with all if not more of the luxury features we demand in the US. Navigation, leather, HID headlamps, panoramic sunroofs – can all be had in B-segment cars. And Ford and GM make them in Europe. They are not imported because even with these features, unless they get a 250hp V-6 in their mid-size sedan, Americans feel cheated. When this nation fully embraces that good things come in four cylinder packages we will all be better off. I’m not saying there is no place for large cars, but they are not better because of the size of their shadow.
About manual transmissions: Europeans don’t buy them because they (themselves) are cheap, but because they enjoy driving and interacting with their cars! This too is changing as europeans are shifting (pardong the pun) to DCT transmissions. And in reality, I don’t believe automatics cost as much as they sell them for here in the US; if you know that 95% of the customers will choose the auto, why would not charge an extra $1000 for it – its free money!
Someone mentioned earlier how GM and Ford are buying and building factories in other countries whereas Toyota and Honda build here. Unlike the big 2.8, Toyohonda do not have blanket UAW contracts and thus can build in the us for a far cheaper labor rate than GM and Ford. Ford and GM have to go to Mexico to compete with a car Honda builds in Ohio. This is why I want the UAW to die – it encourages sending jobs out of this country. That is one good argument for bankruptcy – get rid of the UAW contracts. As long as the US industry is burdened with the UAW it will suffer a disadvantage (I’m not blaming all of the US auto industries problems on the UAW, that would be giving them too much credit).
I’m not sure what Farago’s stance is but here is mine: If the only way to have a US auto industry is a taxpayer owned and operated one, then I’m not for it. If, on the other hand, we can get the big 3 to declare bankruptcy, and potentially aid (as in short term loans that MUST be repayed) them AFTER bankrupcy and the UAW is dead, then I’m all for it. I won’t hold my breath for the latter. I do firmly believe we need manufacturing to remain a viable economy – service industry provides no value. And the auto industry was the backbone of our manufacturing for a century. I hope it stays that way, but tough decisions have to be made to make it happen.
An example. The Dual Clutch transmission was invented by Borg-Warner — an American company. How many of the D2.8 are using it? The D2.8 have been a drag on innovation.
Time to put them out of our misery.
It’s been a long time since Kettering invented the electric starter and all worldwide car companies have been relying on vendor innovation for decades.
It is, however, a symbiotic relationship.
Do you think B-W can survive the collapse the Detroit companies?
I hate to say it because it would mean the loss of tens of thousands of jobs in the US, Canada and Mexico,
Not tens of thousands, not hundreds of thousands, but millions.
Bozoer Rebbe :
Where’s the data?
@bunkie – “It’s the electronics, software and tactics that make modern weapons so formidable. And the last time I looked, Boeing and Lockheed-Martin weren’t puting cash on the hood to move their hardware.”
I’m aware that the software is what makes our weapons so good. I write the stuff! But no matter how much software I write, without the physical tanks, planes, jeeps, etc to put it in it’s useless. You can’t have an autonomous HMMWV without the HMMWV to put the software in.
There are two separate questions here, and people – perhaps deliberately – get them confused.
One is, “Do we need an auto industry?” I would answer that with a “yes.”
But that question is a substitute for the more loaded question – “Do we need a domestic auto industry that consists of three major companies headquartered in Michigan, producing the same basic vehicle under various nameplates, and employing the UAW?”
That is a “no,” because we’ve already moved beyond that one with Toyota, Honda, Nissan, Hyundai, BMW and Mercedes setting up manufacturing facilities in the U.S.
miked–
“The only thing I worry about is the loss of manufacturing capability for defense. I don’t care who’s running the machines, as long as the machines are physically located in the US. If we ever need the machines to make more tanks, then the assembly lines are here to do it.”
The big 3 can’t even seem to retool themselves to build fuel efficient cars (the need for a $50B loan, right?) so how can they retool to make tanks?
given the amount of trouble rebels with old trucks, soda bottles, car batteries, and AKs give our forces, maybe we should just give the Big 3 a loan to retool to build the 1984 Toyota Hilux
toxicroach:
“You can’t just retool a civilian car factory and make quality weapons.”
Please read:
http://www.allpar.com/history/military/preparing.html
http://www.allpar.com/history/military/arsenal-of-democracy.html
http://www.allpar.com/history/military/b-29.html
for Ed S.
“RE: secure microcircuit technology
What does this have to do with the price of rice in China. I mean seriously, you are extending this discussion well beyond its logical borders. The fall of the auto industry would mean squat to ability to source computing components for weapon systems.”
I’m simply responding to a discussion point being raised, even if it does ‘expand’ the discussion. That’s allowed, I hope. In any case, I’m not convinced by your assertion that there’s absolutely no connection.
“RE: “innovation base”
“GM does nothing for our “innovation base.” Just seeing “GM” and “innovation base” in the same sentence makes me chuckle.”
Pardon me, but did we cite GM specifically? Read, please. But yes–I believe even American car companies are capable of innovation. Not every bit of engineering can or needs to be imported from overseas–there are supporting industries and companies that require it as well. If you disagree, fine.
“maybe we should just give the Big 3 a loan to retool to build the 1984 Toyota Hilux”
I’d buy ten!
I work in the US defense industry (USAF), and we don’t even make our own bolts and nuts in this country anymore. The loss of the Detroit 3 will not make any difference in US defense capacity. Times have changed drastically since the 1940’s, you cannot compare retooling an old-fashioned automaking plant (back in those days the still did everything in house, including toolmaking, forging, etc) to produce the very ‘primitive’ equipment of the day with that used on the modern battlefield. Today’s automobile and defense plants have very little in common.
I think this is a very well-written, sensible, article.
However. It is one thing to say “the US needs an auto industry”. That is pretty easy to say. It’s like saying “The US needs a space program”.
Life (and government) is about trade-offs. So let me ask you: What are you willing to give up in order to get what you want?
Here’s my opinion, for what it’s worth.
You can’t have an auto industry without universal health care (because privatized health care undermines the car makers’ cost structure). You can’t have an auto industry without an industrial policy. Laissez-faire doesn’t wash it in the global market. You can’t have an auto industry if you tolerate golden parachutes and multi-million salaries for management, because that erodes any common ground between management and workers, and kills your cost structure. You can’t have an auto industry without effective corporate governance. You can’t have an auto industry if you have a gas tax regime and a standards regime that differs from the rest of the world, because it prevents you from building competitive world cars.
All of these things are incompatible with the insular, exceptionalist, free-market ideology reigning in the US since Reagan. Milton Friedman wouldn’t have minded to see the auto industry go down. Are you, Ken, really willing to turn a new page?
Bozoer Rebbe :
Where’s the data?
Since you don’t think that Cole is impartial, tell us how many people you think will be unemployed by a complete collapse of the domestic auto industry and those companies in their supply chains that are dependent on them. Don’t forget to include those businesses that are dependent on the employees of all of those companies.
I hate the idea of the taxpayers bailing out the domestics but sometimes medicine doesn’t taste very good.
Please explain how the collapse of the domestics and their supply chain will not cause massive unemployment.
It’s OT, but there’s a worthwhile piece on the Cato Institutes’s site about how businesses, particularly big businesses, are not advocates of free markets and how they often welcome government intervention in industries and markets.
http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/
Frankly, I’d like to see the business tax rate go to zero. Profits should only be taxed after they are distributed to shareholders, replacing our current system which taxes corporate profits at least twice. It would make billions, perhaps trillions available for business expansion and new jobs, reverse offshoring and increase foreign investment. Foreign direct investment, I think, is a good measure of an economy’s strength.
The purpose of the economy is to organize resources so as to serve the needs of the consumer, not the producer. That’s not a trivial statement; it means that any analysis such as this that focuses on benefits to producers instead of benefits to consumers is likely to be flawed. Here are some ways that this post is flawed:
– We need domestic automakers to support the Gulfstream industry? In reality the U.S. will have its millionaires who buy or lease jets, regardless of whether some of them live in Detroit. The tall guys with executive hair and political skills will just be executives in some other industry.
– Sending profits “over there”? Here is how multinational corps work my friend. A company has subsidiaries in each country it operates in, and that local subsidiary generates profit (or not), and pays local taxes on its local profits. So Toyota North America recognizes profits and pays U.S. taxes. (Meanwhile GM records only losses and so does not pay income taxes, ha!) Companies have much discretion as to internal pricing, and hence where exactly the profits are recognized. Therefore they recognize profits in the region of the cheapest tax regime, inasmuch as possible. Clever huh? If the U.S. wants more corporate profits recognized on domestic soil, the U.S. should stop having the 2nd-highest corporate tax rates in the world.
– And since you mention reinvestment of profits, its funny you ignore the fact that Toyota and Honda and BMW and Hyundai ARE reinvesting their profits right here in the US of A. If you are looking for social good from corporate profits, there is your investment in plant and equipment and job creation in America, thanks to those foreigners.
– If your argument was “We need domestic automakers because only American producers understand what American consumers want and need” … that would be a lot more convincing — except that here in the real world, oddly enough, the opposite seems to be the case, and the Japanese do a better job sniffing out America’s emerging desires than do residents of Michigan.
The only substance to your argument is that we’re the USA, and we by God should have some good, competent automakers based in this country. Yes, we should. But we don’t. And that’s not my fault as a taxpayer. There you have it.
Martin Schwoerer: You can’t have an auto industry without universal health care (because privatized health care undermines the car makers’ cost structure).
The Honda, Toyota, Nissan, Hyundai, BMW and Mercedes plants in the U.S. appear to be operating quite well without government-sponsored universal health care.
Martin Schwoerer: You can’t have an auto industry if you have a gas tax regime and a standards regime that differs from the rest of the world, because it prevents you from building competitive world cars.
The Japanese and South Koreans appear to be doing just fine with their own set of regulations that differ from those in Europe and the U.S.
U.S. car makers have pursued a policy of buying local companies or setting up local subsidiaries to meet demand in that region or country. They aren’t going to export large numbers of vehicles from the U.S.
That has not been their policy for at least the last 50 years, and it won’t save them now.
GM and Ford build competitive cars in Europe and South America. They build distinct versions of vehicles for the U.S., but then so do Honda, Toyota, Nissan and Hyundai. The North American Accord differs from the one sold in Japan and Europe. Yet the North American Accord is just fine. The challenge is using the same basic platform to build vehicles tailored to different tastes – which is what the Japanese are doing.
Selling the same vehicle in many countries doesn’t work too well – ask VW, which loses money in the U.S., and doesn’t sell in very high volume over here.
the duke
Your comments in your last paragraph echo my sentiments exactly and have distilled the issue to its salient point. Well written. A government-owned and managed American auto industry is less desirable than a short-term future of no American domestic auto industry. Let the big 2.1 go out of business, and I would bet a year’s salary that within 3 years, some investors will be eyeing the “under-served” American market and bringing innovation and imagination to create a “new” American auto industry, with a functional business model and exciting, rational and world-class products. The genius will be that the fixed costs will be smaller….all the infra-structure being available (at pennies on the dollar), as well as the engineering and manufacturing talent. It will be great to see what an entreprenurial, hungry group of Americans, freed from the bureacracy entrenched in the Big 2.1 and released from the shackles of union labor and (hopefully) without any marketing people in the building, can do against the rest of the world. I might even license the name Pheonix Motors….in 3-7 years the American auto industry will be up from the ashes. Pull the plug on the old corpse. Harvest the organs that can be salvaged. Start a new domestic American auto industry. Now is a time for celebration of a bright future, not for a dirge for what is already dead.
So Toyota North America recognizes profits and pays U.S. taxes.
Except for the fact that while they operate assembly plants here, they still import a significant number of cars as well as a lot of high value components like engines and transmissions. Those cars and components are bought by the NA subsidiary providing an opportunity to operate Toyota NA at a break even point and move the profits back to the home country.
I’d be surprised if any of the captive importer/distributor/assembler subsidiaries turn a profit.
Since the US has some of the highest business tax rates in the developed world, it’s an incentive to move profits out of the US.
It reminds me of Jim Garner’s lawsuit over profit sharing on Rockford Files. The show was a huge success and is still in reruns but it never showed a paper profit. They’d do stuff like repairing the same gold Firebird over and over instead of buying a small fleet. Many successful films, even ones grossing hundreds of millions of dollars, never show a paper profit. That’s why actors, writers and directors with some leverage insist on a gross points, not a percentage of the net profit. Michael Keaton hasn’t had to work since the Batman movie.
Almost forgot to add. I would really like to know if anyone has studied the role that government regulation has played in killing the big three…..the bodies are not yet cold, but the fingerprints of government regulators are all over the murder weapon, imho…
and the Japanese do a better job sniffing out America’s emerging desires than do residents of Michigan.
Robert,
Another anecdote. See, it’s not just the car companies they hate, it’s the folks who live here too.
# Mark MacInnis :
November 12th, 2008 at 4:39 pm
Almost forgot to add. I would really like to know if anyone has studied the role that government regulation has played in killing the big three…..the bodies are not yet cold, but the fingerprints of government regulators are all over the murder weapon, imho…
Mark,
Read the above link to the Cato site. A lot of that regulation was perfectly fine with the Big 3 as long as it helped their bottom line. Import restrictions, tariffs on small trucks, pollution and safety standards that smaller competitors couldn’t meet. The list is long.
While Europeans pay more for cars, they generally get less too: smaller cars, smaller engines, and in many countries, devoid of air conditioning or automatic transmissions.
Actually, I’ve been trying to pay the big 3 more for smaller cars with smaller engines and manual transmissions as long as I’ve been buying cars. They don’t make them, so I’ve had to buy “foreign” cars. They are generally reliable, fun to drive, economical to operate, and hold their value. And some of them were even manufactured in the USA. Go figure.
“Better motors, advanced electronics and safety equipment, and even new propulsion systems come from over there – not from US ingenuity and skills.
Ok, then why did Toyota, the world’s greatest automobile manufacturer, open a massive technical enter in Ann Arbor? On a side note, why did they choose Michigan over California, Tennessee and Georgia? R&D will remain very strong in SE Michigan well into the future. As much as we see the southern states build manufacturing, you well not see them making large gains in the R&D sector
While a lack of a national health plan may, I repeat may, create structural costs for manufacturers in the form of health benefits, the money’s got to come from somewhere.
That somewhere is called taxes.
My brother lives in Israel. He services industrial machinery and CNC stuff and so much of the US machine tool and machining industry has gone away that it’s easier to find customers there than here. When he first moved there, he’d come back once or twice a year to service customers but there are so few that it’s not worth it anymore.
They have a pretty good national health plan there called Kupat Cholim.
When my mom told him about a sub $10K Nissan, he called me about it. Equipped the way a standard issue Israel market Nissan Tiide comes, the Versa (same car, different name) would run about $13K-$14K here in the US. The Tiide in Israel would cost him over $28,000. Almost all of the difference is tax. Tax on a used car there is 50%.
Like Heinlein said TANSTAAFL.
Bozoer Rebbe :
November 12th, 2008 at 4:39 pm
Since the US has some of the highest business tax rates in the developed world, it’s an incentive to move profits out of the US.
False. Statutory US tax rates are high compared to world average, but there are so many loopholes and exemptions, they end up being very low compared to world average, on an effective basis.
http://www.cbpp.org/10-27-08tax.htm
Aren’t they owned by share holders?
Where is the share holder nationality breakdown?
Are you sure that no American pension plan owns shares of Toyota?
IMO this flag waving is largely a straw man to direct welfare money towards failed models, states and enterprises.
Ok, then why did Toyota, the world’s greatest automobile manufacturer, open a massive technical enter in Ann Arbor? On a side note, why did they choose Michigan over California, Tennessee and Georgia? R&D will remain very strong in SE Michigan well into the future. As much as we see the southern states build manufacturing, you well not see them making large gains in the R&D sector
derm81,
Virtually every car company and supplier that does business in North America has some kind of research, engineering, or assembly facility in SEMI. I follow the Indian auto biz and a number of Indian vendors have offices here and have made acquisitions including a heavy truck transmission company whose name escapes me and I’m too lazy to look it up. For the time being Detroit is still the global center of the auto industry. Are there banks in London? Yeah, and many of them have offices and branches in NYC, the global center of the financial industry. Detroit is like that to cars.
Whether Detroit remains that global center is anyone’s guess owing to the current turmoil.
There’s a reason why Tesla opened up their now shuttered facility in Rochester Hills and why Fisker (I do embroidery, have lots of scissors and it’s hard not to type Fiskar, lol) is going to assemble the Karma (if it isn’t vaporware) in Pontiac (though I’m surprised they didn’t buy the Saleen facility that assembled the GT40 for Ford).
SEMI still has the largest concentration of automotive engineers in the world. They’re good engineers too. Unfortunately they have to engineer what the bean counters and product managers want. When Iacocca wanted coach lights on the c pillars, they made great coach lights, so it doesn’t surprise me that given the reins the Corvette team could come up with the ZR1.
The answer to this question is much more than simply “Yes” or “No”.
The American car industry is worth saving, but if it does fail, don’t be too upset.
Take the U.K as glimpse into the future. When MGRover died, the press lamented the death of the U.K car industry. Yet, everyone conveniently forgot about Toyota, Honda, Nissan, GM, Ford, Land Rover, Jaguar and BMW/Mini. You see, despite what you read in the American media and car journals, the UK car industry is doing well and, in the face of this economic climate, is holding up rather well.
I read an american car website refer to Nissan Sunderland, UK as “The English Patient”. I was confused by this comment because there was absolutely NO basis for that comment at all, because Nissan Sunderland, UK are actually taking people ON rather than laying them off (like Nissan Spain) because of the success of the Nissan Qashqai. Toyota awarded the building of the new Toyota Avensis to Toyota Burnaston, UK. They could have chosen, Toyota Turkey, Poland or their plant in the Czech Republic, but they didn’t, they chose the UK. Also, Toyota invested £88 million into their powertrain plant at Deeside to build engines for export around the world. They also invested £100 million in Burnaston to build the Toyota Auris.
So any fear of foreign car makers leaving a country after its indigenous companies have gone are completely unfounded.
Now, onto talent. People worried that the UK would just turn into a sweatshop; just build stuff that other people have designed. Not true. The Nissan Qashqai was styled by Nissan Design Europe (based in London), engineered by Nissan Technical Centre Europe (Based in Cranfield, Bedfordshire) and built in Sunderland, UK. It’s a completely British car, the only thing “foreign” about it is the badge.
My overlying point is that people HAVE to get out of this mindset of “Death of the American car companies = Death of the American car industry” mentality. Companies build plants (especially car plants) in a country for the following reasons:
1. To protect themselves from currency fluctuations. (Proof: VW sell their cars in U.S for high prices to cover transport costs, higher labour costs from Germany, higher parts’ cost, etc. Recently, they moaned about profitability in the U.S market. Now, they’re building an American factory to eradicate the Euro-U.S Dollar exchange rate and, hopefully, sell their cars cheaper. BMW are also putting more pressure on their U.S factory to crank out more cars for the U.S market so they don’t have to make up the shortfall from German made cars.)
2. The models being built are only for that market. (Proof: The North American Accord is built in Ohio for one simple reason. It isn’t sold anywhere else! So why build it anywhere else? Does it make sense to build it in Japan and ship them over, thus, exposing themselves to a currency risk for no reason whatsoever?)
3. To give themselves a foothold in a key market. (Proof: Hyundai, Toyota, Nissan, Honda, Mitsubishi, Mazda, BMW and Mercedes all have factories in the U.S. VW don’t have a factory in the U.S and how well are they doing in the U.S? Likewise, look at China and India. Every carmaker (including Renault, Peugeot and others) are racing to establish themselves there.)
The North American market is a big market and no carmaker will turn their backs on it. Renault and FIAT are still wanting to come back after all these years. That’s how important the NA car market is! So, for anyone who still believes that the demise of the American car makers will signal the death of the American car industry, I say, look at the U.K. We’re doing OK…….
One more point, to all the people who think there could be a national security risk if Detroit go under….it’s twaddle! For YEARS, the U.S government have awarded national defence contracts to foreign companies (e.g BAE, Rolls-Royce, etc). The failure of Detroit shouldn’t change this.
Ooooh! Chimpanzee that!
The defense argument is faulty. This is not WWII; for the last several decades, the US has maintained a permanent military-industrial complex that is constantly producing weapons, including during peacetime.
Today’s weapons are far more complex and the level of technology used ensures that they will not be produced in the volumes that were required to fight WWII. WWII was a relatively low-tech war by today’s standards, which made it necessary to build substantial amounts of equipment because manpower numbers were critical and losses were much higher. There is simply no comparison.
The loss of the Detroit automakers would pose no threat to the security of the country. (GM Defense isn’t even owned by General Motors any more.) The defense contractors are in decent shape, because they are always producing, whether or not the equipment is actually being used.
Detroit is not competing against China or Korea.
They are competing against Alabama, Tennessee and the Carolina’s.
It isn’t about saving American industry. It is about “saving” the failed prevailing welfare mentality in a local demographic.
My questions is how long will manufacturing remain in the south? Can mass manufacturing remain in the USA for the next 2, 3 generations?
derm81, is there anything to suggest that it can’t? Those manufacturers seem to be thriving (current economic conditions notwithstanding).
It’s worth Having.
I don’t think the 2.8 we have now are worth Saving.
I would be Overjoyed to buy an American car if it were a good product built by a good company.
-which is not the case today.
So much of US Auto resembles Russian-Style Communism, that even my lizard-brain knows it’s all wrong.
Love to see capability & profits kept here, esp. through export other than weird Chinese fetishes.
“Like Heinlein said TANSTAAFL.”
As a science fiction geek I must make a small correction: Heinlein may have said it, but it was Poul Anderson with whom the saying is associated. ;–}
This has been a great discussion. With regards to the job losses, consider what would happen if Ford, GM and Chrysler (and all their production) simply went away tomorrow. The transplants would be scrambling to acquire capacity as fast as possible. And those players who want a presence in the US would also jump in. The result would be that many of those lost jobs would reappear. Many would be in different locations and with different firms, but as has been mentioned, the industry exists to serve consumer demand. Sooner or later all those cars on the road will wear out and will need to be replaced. With the inevitable bargains in factories, tooling and, yes, skilled workers, there is no doubt in my mind that the auto industry in the US will survive. It won’t look like the one we know now, but it will survive.
Oh and, in defense of American automobile technology, the Corvette (with it’s magna-ride shocks) and the latest version of the ZR-1 small-block V8 are pretty damned impressive, just to name one example.
“WWII was a relatively low-tech war by today’s standards, which made it necessary to build substantial amounts of equipment because manpower numbers were critical and losses were much higher. There is simply no comparison.”
There is no comparison to make between WWII and any war fought since then (or before then, for that matter). The truth is, we don’t have any idea what a conflagration on that grand scale would look like today. I do know that during the second Iraqi campaign, we did not even have enough capacity to build a few thousand MRAPs in the needed time frame.
Our airpower has not been seriously challenged in over 50 years. If we indeed, God forbid, ever again face a truly formidable foe with serious weaponry for an extended time, we will need replacement aircraft and other military vehicles the likes of which we do not have the capacity to produce. BTW, none of this kind of weaponry can be built in a technology park. It will have to be built in a traditional, heavy industry/factory environment, not unlike the lines that currently produce light, medium, and heavy duty trucks, as well as traditional aircraft.
We don’t have to worry about silly wars, scarp the industrial base and let’s go to Web 3.0 already.
Before I get into this, a note on the Sherman tank and similar. One reason the US built lighter combat armor was that we weren’t driving to the war. Everything Germany (and the USSR) put on the ground could be wheeled to the theater. We flew and floated everything in, and put up a wall of bullets and shells. And we prioritized “time to market” over everything else. In planes, tanks, armaments, and ships, we iterated to perfection and overwhelmed with volume, while the strategic project — the atomic bomb — was researched, developed and fielded for certainty.
From the L.A. Times, today:
http://www.latimes.com/news/opinion/commentary/la-oe-olin12-2008nov12,0,3572420.story
For more than 100 years, the Big Three automakers have been a cornerstone of the U.S. economy and an important symbol of American industrial might. The auto industry is the largest manufacturing industry in America. And it’s not just the 239,341 employees of Chrysler, Ford and GM.
A Center for Automotive Research study conducted for the Motor & Equipment Manufacturer’s Assn. estimates that for every direct job at an automaker in the United States, there are 3.3 supplier jobs. These motor vehicle parts suppliers directly employ 783,100 people in the United States and are, in turn, estimated to generate another 1.97 million indirect jobs in industries ranging from steel to plastics to technical services. The spending by these employees generates yet another 1.7 million “spin-off” jobs. A total collapse of this industry could affect as many as 3 million jobs in the first year alone — almost 5% of total U.S. manufacturing jobs — and send shock waves through national and foreign markets.
So, if this accounting is correct, 239,000 jobs carry 3,000,000 on their backs, and this is strictly the D3 employment pool’s leverage. So let’s stop arguing about whether it matters who makes what, where.
Domestically-owned and headquartered companies do not cede their advantages for their national economy just because we have a globalizing economic world. Regardless of geographic distribution of shareholders if they are public companies, scalable domestic concerns do accumulate capital that remains under their own direction. Their global operations suppot a large number of very high value headquarters jobs taht are not equalled by transplants from abroad. They command internationally distributed techncal resources that are marshalled for the sales, market share and financial performance of the HQ entity that’s accumulating capital. And if they are exporting business, currency too. And, if we can get past the era of “Wall Street against America,” the self-interest of such companies and their executive teams considerably coincides with national interest, and vice-versa.
Moreover, manufacturing industries mitigate against other trends to economic polarization, instead underpinning a moderating middle class and they also provide a conveyor for upward mobility, generation to generation, that is difficult to duplicate in pure service industries without education thresholds, and in those that have very high entry barriers. An immigrant-oriented country like the US that is also vast, among the globe’s most diverse and dynamic, and having disproportionate global responsibilities is far better off with a full-spectrum economy for resilience, readiness, confidence and range of opportunity.
We also have a chance to lead the world off the oil drip, and doing so would be aided and abetted by an integrated effort for mass solar, wind, geothermal, clean coal, greenhouse capture; electric, hybrid and alt-fuel transportation; efficient building and architecture, etc. The materials sciences and production alone to support such broad-based manufacturing from a leadership position can provide a new vector for diverse economic expansion. The US is the world’s most innovative society, but it has also for a century combined that with leading or competitive scaled manufacturing efficiency. Innovation is essential, but its leverage is limited if it doesn’t yield something to sell. And if we can make goods that sell to the rest of the world, better still.
While the argument for latent defense production capacity by appropriation is far less convincing now than between 1915 – 1995, it’s not completely without merit. Large volume complexes geared to metal fabriation and complex assembly do provide a reserve infrastructure that can be redirected in an emergency. While it’s unlikely that we’ll fight a war anytime soon on the mechanized scale of WWII, disruptions can upend assumptions. Throughout the 1980s, especially when the Berlin Wall came down, no one thought we’d be shipping a half-million-man army and all its heavy metal to a spot of sand to push Iraqis back into Iraq. But we did. Had that war gone differently and cost considerable inventory of gear, we’d have wanted to replenish quickly. Even in a conflict as small as the second Iraq war and subsequent occupation, we’ve had production lags in transport vehicles, armor, personal gear, etc. If we were forced into a moderate-to-large scale conflict of even modest duration with a foe capable of inflicting damage, having the reserve of domestically-owned and managed heavy production remains an asset we’re better off with than without, however unlikely it comes into play.
But all that is less important than the single day-to-day truth: A diverse, full spectrum economy provides a wider range of opportunity for upward mobility than a narrow spectrum specialized national economy does. American life and its freedom, opportunity and rights orientation supporting individual progress depends upon — and works better with — a big-tent economy. Domestically owned and operated automobile manufacturing is the biggest, strongest single tentpole supporting that proposition, and their destruction weakens every other column supporting that proposition. Competitive domestically-owned and operated companies can build more wealth for us than do transplants. But Americans have to get in the game as individuals too, and broaden their view of what constitutes self-interest when committing their dollars to purchases. A righted ship will be the product of both government assistance and individual action, along with mandated upgrades to recipient companies’ governance and management execution.
Phil
If production costs are separated from development costs, then that leaves engineering and executive compensation in a common pool. $14.5M per year would buy a lot of good engineers. The starving 2.8 engineers left in the company must basically be demoralized paper-pushers. The U.S. produces 70k new engineers per year. China plus India produce 700k new engineers per year. I submit that, comparatively speaking, rampant and myopic executive compensation has withered the engineering staff and turned the U.S. into a hollow force already.
I’m shocked by the shallow thinking exhibited here.
To continually see “let them burn / don’t need domestic ownership / transplants will fill the gap / new competitors will emerge” repeated is very discouraging. Do people actually think before writing these things?
First, eliminate the myth that North American operations will go under and leave the rest of the global organization happily humming along. That can’t happen. This might be possible with enough resources and planning, but that planning has not happened and the resources are not there . . . if one of these three companies folds, the whole thing folds.
Next, stop thinking about any ‘dead cat bounce’. Not going to happen. If one automaker — say GM — goes bankrupt, then the other domestics will follow. None of them are in any position to withstand the chaos that will hit the supply base if GM goes under. GM falls, and then a few key suppliers fall, and then production is disrupted at other companies, then sales tank, then boom . . . two more dominoes fall. One bankruptcy means three bankruptcies.
So what? I’m sure that’s what you’re thinking. Who cares? Good riddance.
Really?
So the ‘domestic’ manufacturers close down. Globally. And when they shut down, they SHUT DOWN. Plants shuttered. Paychecks stopped. Production halted. Immediately.
Remember, the domestics still sell 45% of the vehicles in the US. Let’s say for argument that together they account for 30% of the sales globally. That is gone.
You think the transplants or imports will fill that gap? Yes, there is overcapacity in US and global auto manufacturing. But remember, much of the overcapacity is owned by these domestic companies . . . the ones that have shuttered their facilities. There is no way that the existing — let alone remaining — capacity can fill the hole that’s left. How do you imagine that’ll be solved, oh “B&B”? Do you have any idea how much time and money are required to plan and build a new assembly plant? Years, and $Billions. Oh, I know . . . Toyota can just buy up the abandoned Ford or GM factories and start cranking out Camrys. Right. It could happen, true . . . but again it would take years, and $Hundreds of Millions.
Where is that investment going to come from? The remaining auto companies are certainly doing better than our domestics . . . but I seriously doubt they have the kind of cash needed to make these kinds of fast expansions just sitting around. And remember . . . they are beholden to the same interwoven supply base, and will be pretty well consumed trying to stabilize, prop up, or buy the suppliers that they depend on, just to keep their own production going. It’s an integrated world, and most suppliers supply to many or all manufacturers. So a sudden 30% drop in business to this system will hurt everyone, even those strong manufacturers who remain.
And what will happen to the product plans at the remaining manufacturers? Remember . . . they’re now forced to expend any resources they can to stabilize their supply partners and expand their capacity of existing products. You think this might slow down new development? You betcha it will.
OK, so what about just accepting a smaller market? Drop the US vehicle sales down to 6 Million units or so. If we SWAG an average new vehicle price of $20K, we’re looking at $80Billion in lost sales. And since this loss is coming from the unprofitable domestics, every penny of that was going somewhere other than the pockets of investors . . . to suppliers, to salaries, to taxes. Gone. For good. And now 40% of the US car buying population and 25% of the global car buying population is under served. Want to replace your hooptie? Tough. Get in line, two year wait. Ride your bike. The greenies will love it.
I don’t think simply accepting this type of market contraction is acceptable.
But it will be unavoidable, in the medium term at least. The void cannot be filled quickly. Again . . . perhaps it could in flush times with good planning. Let’s shut down company A and move their capacity to company B . . . quickly with minimum disruption. Sure, with planning and cash. But suddenly, in the midst of the biggest financial meltdown in a century? Not likely.
You think this won’t cause chaos in our economy? You think the chaos here — along with the similar though smaller situation in Europe — won’t cause chaos in the global economy?
Sounds like a perfect opportunity to start a new auto company from scratch. Right. Let’s see any of you invest in that venture.
I can’t wait to see the analysis that says this will be a good thing. Times are tough. I need a good laugh.
Honestly people . . . think before you write.
so we are using the same materiel stragedy that the Allies defeated in WWII? I’ve been railing against the de-industrialization of the US my entire adult life. So only after the industrial base has been allowed to wither away, only now, is there a cry to save the domestic auto industry? Too little, too late.
WWI? yeah its gone. We won because the russkies paid the price, and because Hitler made so many mistakes. Starting the war was the worst one. Our equip was not first class at beginning of war. It was broadly competitive, same throughout the whole war. We did have numbers on our side esp. with Russkies dying at 30,000 per day. 1939. P40 vs zero and 109 and wildcat etc. Well with the A bomb we might finally have killed Nazi Germany regardless of how things went on the continent.
Sherman was not very battle worthy once in the battle but it ran fine and did not break. They upgunned it when they got there. It was better than predecessor and they figured right that German production was too low.
For fun speculate russian cars today vs T34 in 1939. What went wrong there?
The point is to keep the jobs stateside. Management and union have to go one way or the other.
Great article Ken. Before I launch into this, can I just say kudos to Phil Ressler’s reply in particular – he expressed my line of thinking much more eloquently than I could hope to do.
Continuing along that line, apologies if I’ve missed anyone who addressed this point, but it surprises me that no-one has addressed the ‘value-adding’ equation. It seems to me there is a lot of “She’ll be right” thinking – that America has found itself in tough spots before, and fought itself out of them. The major issue I have with this is – have you really? Large swathes of the US’ infrastructure need huge expenditure to bring them up to scratch; real wages have remained stagnant for a long time; plenty of manufacturing jobs have gone overseas; your overseas commitments are an immense drain on government expenditure; household savings rate is virtually zero; the federal budget is running a huge deficit; and the (structural) current account deficit is through the roof.
I have noted before that the dissolution of America’s manufacturing base is key to this last point. There are those who subscribe to the view that foreign debt doesn’t matter. That camp doesn’t include me.
Let’s leave the jobs argument to one side for a moment. For all the reasons that Ken mentioned, America’s transport infrastructure is vital to its long-term (and, let’s face it, short-term) development. I subscribe to the Galbraithian view that technological progress is absolutely critical for long-term economic development, which is a big reason why I think industrial conglomerates, with their attendant investment in R&D, are important to national economic development.
But what it boils down to is this. All the countries in the world which run structural current account surpluses – and there aren’t that many – have strongly-established manufacturing sectors, geared towards US export (although this latter point is more true of Asia than it is of the EU). Manufacturing – high-value-adding processing – is the only way a country can consistently earn more than it spends. Being a subsistence economy, or being a service economy, amount to essentially the same thing when it comes to value-adding – you simply cannot, in my estimation, keep importing plasma TVs from overseas at a couple of grand a pop, when the vast majority of your economy is agriculture and service-based. Point – when you’re the leader in a manufacturing sector (so for cars, Toyota), you set the price, and everyone else follows – it’s not really a demand-side equation. When you’re in agriculture, or resources, or service, the market (demand side) sets the price – and you live by it.
The US has already surrendered most of its heavy manufacturing capability, and it will never regain it. As Ken says, don’t make the same mistake with the centrepin of what’s left.
I’ll be simple about this.
Q: “Is the American automobile industry worth saving?”
A: No.
Explanation: Not in its current form. It is probably worth re-inventing for the next generation (of cars, of technology, of people).
Evolution really only happens when the unfit get eaten or otherwise expire due to their “unfitness.” Evolution is what’s needed.
Let’s read up on Amtrak because that is what this GM situation is reminding me of:
http://en.wikipedia.org/wiki/Amtrak
Why do all these conversations end up being about (at least more often than not) about where the final assembly of a vehicle takes place??
I don’t get it. Its as if the final bolting-together and paint ovens are all that matters. The amount of technology and R&D investment in SE Michigan is disgustingly high. Add to it all that going on by suppliers and it becomes even more insane the amount of money being spent here, by Americans, for American business. That will all disappear. And if some of the larger suppliers go under, everyone is in trouble. Toyota, Honda, Nissan, Hyundai, Mercedes, BMW all buy a boatload of part from companies who also will not make it. You don’t think that could cause serious problems for them as well? That would be a world of hurt.
I’m not sure how I feel about this mess. Do I think we should have an industry, yes. Do I think we should throw money at it? No. Would I maybe be open to it if it meant fixing the causes of the problem and replacing the management? Maybe. I just can’t see this train wreck continue, especially if it uses my money to keep it going. If the fundamental flaws are fixed, then I think maybe we have to do it. Or maybe the gov guarantees the C11 process?? And I agree wholeheartedly with the person above who mentioned the gov has it prints all over the murder weapon. All the regs, rules, states going their own way, etc have really held the hands of the companies. Not saying no regulation is preferred, but SMART regulation certainly is, and CAFE, different fuel blends in different regions, different economy and emisssion standards, etc are NOT the way it should be done.
All I know is if we keep talking about final-assembly locations, then go ahead. But understand we lose all that technological innovation, spending, knowledge and instead just become a factory where we screw together some other country’s designs. For many of you, it seems this is as American as it can get. After all, we would be the ones putting it together and into a box, and that’s all that matters right? And to those who point to vehicles designed/developed in the US, please know that even if that is the case, they take orders and final say still flows directly from Japan, either through a Japan facility taking the lead or through Japanese managers transplanted to US Technical Centers. These facilities do not operate autonomously. Everything still flows from Japan, US managers do not get the final say.
Instead of the world catching up to us, we’ll be rushing down to meet somewhere in the middle. Don’t know about you, but I’m not anxious to be going there.
Jerome, that is one of the most intelligent responses I have ever read about the American auto industry. Thanks.
Those of you who are choosing to gnarl on the pieces of meat disguised as political wrangling should think twice. All the pontifications and colorful metaphors do nothing to help. One way or the other.
Building a car for the masses is damn hard work. If our country wants the physical and intellectual capital that makes the auto industry such a lucrative one, we ought to do a far better job defending it and promoting it.
In otherwords, look deeper than the political pundits and so-called captain’s of this industry want you to. The ‘truth’ in this industry isn’t as obvious or black and white as what others would lead you to believe.
Its as if the final bolting-together and paint ovens are all that matters.
Most of the economic benefit derived from the auto industry is derived from the assembly labor and the sourcing of the parts. That’s just a fact.
R&D comprises a few percent of revenue at most. It’s a tiny cost of a vehicle, particularly those that are mass produced in large numbers. In the scheme of things, it just doesn’t matter that much.
If we indeed, God forbid, ever again face a truly formidable foe with serious weaponry for an extended time, we will need replacement aircraft and other military vehicles the likes of which we do not have the capacity to produce.
That’s just wrong. Massive conventional wars involve less equipment than they used to.
We will not have the need to build thousands of F-15’s and B-1 bombers. Modern forces don’t sustain the losses that the low tech forces of WWII once did. Even if we wanted to, we don’t have enough personnel to pilot or service them in the numbers that were required in WWII.
Don’t turn to Victory At Sea reruns for your vision of what is needed for the next conflict. Unlike WWII, the US is now always constantly preparing for war and already has defense contractors building what is needed long before it is needed.
Detroit will not be serving in that function again. The production requirements of WWII were unique to that era and will not be repeated.
Propping up the American car industry in its present form will only expand the pain.
A larger truth about cars is that, even in a country as big as the US, the current model of personal motor vehicles is an insane waste of wealth. (Unless one sees driving a personal tank to work as the highest form of living.) Before dedicating all available capital to tinker with the current model, much of that capital MUST be diverted to technologies that are inherently more efficient AND less destructive of community.
Such as sustainably designed communities, comprehensive fast and convenient rail systems, and hospitable environments for cyclists and pedestrians. If capital must go into cars, direct it mainly to shared small electric units and get away from the personal chariot/tank nonsense.
Rather than waste more wealth on a discredited and unsustainable transportation model, shift support to technologies that could be so advantageous that they could be exported. To just catch up, adopt current European systems. Yes, the EU population is relatively dense in places, but the transportation principles are scalable. All the knowledge required to do this already exists.
“We need an American auto industry. One that runs the table on the entire production and sales chain. There’s no cost basis reason not to produce vehicles here. We just need better run companies with forward thinking managements.”
None of the D2.8 come close to running the table. There is the core of the problem. Ford appears to be the closest, but they make a lot of crap.
We will not have the need to build thousands of F-15’s and B-1 bombers. Modern forces don’t sustain the losses that the low tech forces of WWII once did. Even if we wanted to, we don’t have enough personnel to pilot or service them in the numbers that were required in WWII.
It is a truism among military historians that the U.S. has always been fully prepared to engage in war…the last war we fought, that is. However, invariably the next war tends to be quite different than the last. Your opinion is no doubt colored by our experiences in Panama and Iraq, conflicts that, relatively speaking, posed no great challenge.
Before 1989, our military was structured, staffed, and eqipped to mount large-scale campaigns against the Soviet Union. When that threat dissolved, we dissolved our military accordingly. If you remember, commentators were noting before the 2nd Gulf campaign that we could no longer replicate the scale of invasion we mounted in Iraq in the First Gulf War. That era marked the last days of our Cold War military, and after 1991, its size was drastically reduced. Top brass at the Pentagon concluded that no more Soviet-worthy enemies remained, and of course at that time they were correct.
Today, we cannot dismiss China as a potential military adversary. There are many potential causes for conflict, most notably the scarcity of oil and other natural resources. The Chinese simply will not allow anything to stand in the way of economic growth, whether that be geopolitical concerns or whatever. And, they will not share our qualms about large numbers of casualties if we, God forbid, come to blows at some point. It is no secret that they seek military growth and are improving their currently-sub-par capabilities for deployment.
In 1941, this nation had an incredibly tiny number of trained military pilots and support staff. We proved then that manpower can be quickly added as needed. What could not be created in 6 months or a year was an industrial base.
Reducing the military to correspond to current threat levels after the Cold War was the proper thing to do. We simply could not justify that level of military spending. However, we can sustain a civilian, peace-time heavy industry in case the need arises in the future to produce the machines of war.
So much for the defense and manufacturing argument: General Motors did have a division which produced the Stryker and light armored vehicles. It was sold to General Dynamics back in 2002 for just over $1 billion.
Bozoer Rebbe
November 12th, 2008 at 4:39 pm
“Since the US has some of the highest business tax rates in the developed world, it’s an incentive to move profits out of the US.”
Bozoer Rebbe, most (more than half) of US corporations pay NO income or business taxes whatsoever, and of the remainder, the average pay less than 5%.
Source, the GAO: http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081015/REG/810159997
A red herring argument.
It would be nice to continue producing American cars but the current business practices of the American car manufacturers has caused the trouble. They build cars that are not competitive, take too much profit out of the company and don’t invest enough into researching and building innovative products. Our government doesn’t care about American jobs. The new Presidential helicopter is a European model. The Pentagon is trying their best to give away the contract for new aerial refueling planes to a foreign manufacture. How many jobs are lost from that?
As a DOD employee, let me state that the US military industrial complex has, on hand right now, enough equipment and hardware to defeat the forces of the Soviet Union (if it even still existed) or of China. US defense spending already dwarfs that of the next 20 largest military forces on Earth combined. No worries in this department, Pch101 is extremely astute and correct in his comments on the matter.
If at some point in the future US defense needed to be ramped up, it could, albeit gradually. However, such a move would be more efficient and quicker than attempting to retool existing consumer automobile manufacturers to fill this role. In short, wars of the present or future are no more likely to require the service of revamped Buick plants any more than they will revamped toaster manufacturers. They lack the capacity to produce armor, munitions, armaments, aircraft, synthetic body armor, communications equipment, prepackaged food, load bearing gear, boots, garments, or pretty much anything else actually used by the US military.
Today, we cannot dismiss China as a potential military adversary.
This is yet another red herring.
This is not a WWII or military discussion forum, so I will try to be succinct. But if you know anything about modern armed forces vs. those in WWII, you should know that WWII involved massive amounts of production because a lot of the equipment that was built was built with the expectation that it would be destroyed in combat, along with the men using it. It was a numbers game, with the goal of continually producing equipment and using it long enough that the war is eventually won, but at tremendous cost to men and materiel.
Those sorts of losses don’t occur anymore. There are no 1,000 bomber missions being flown, supported by hundreds of fighters, with hundreds of losses per battle. Add to this that a war with the likes of China, were it to occur would be pretty fast and would involve losses Stateside, unlike WWII.
This is not 1943. The needs today are different. The sophisticated weaponry that will be used in those conflicts will have been built before the war begins by contractors who specialize in it.
There will be no massive civilian mobilization, because the conflict will have been won or lost before that effort could even start and the contractors needed to build the stuff are already building it.
If planes and missiles start getting shot down in droves, you wouldn’t have the personnel available to fly new ones, even if you built them, because the forces aren’t that large and these modern planes require more training to fly.
This is why the US now continually produces defense equipment in peacetime, because everyone in the Pentagon knows that your scenario cannot occur. They need to have everything ready to go long before the war begins. If the US was as unprepared for the next war as it was for WWII, it would lose that war in a matter of weeks, long before you even converted the first factory.
Geeber: sorry to reply so late.
Not so sure about your argument re the transplants (Honda Toyota etc in the South). What about legacy costs? How many old people work at the new factories? How much is Hyundai paying in pensions? It’s easy to establish a low-cost plant in the South, but what to do 30 years hence? Declare bankruptcy and set up a new plant in another state (with generous State government support?) Slash and burn ain’t no way to run an economy.
Anyway, transplants are not really evidence for a healthy car-making environment, I would say. There are plenty of transplants in South Africa but SA is not a car-making country.
That takes me back to my central argument, which I could put this way:
Does the US want to have an auto industry like Japan, Korea, Germany? Then change and adapt.
Is it sufficient for the US to be like South Africa or Brazil? Then let Detroit sink.
Fallout: Bozoer Rebbe, most (more than half) of US corporations pay NO income or business taxes whatsoever, and of the remainder, the average pay less than 5%.
A red herring argument.
Wow, have you spectacularly missed the point. First, you cite a false statistic. It is NOT true that so many companies “pay no taxes”. That’s how many companies paid no income taxes during some ONE YEAR of an 8-year span. Huge difference, as companies do occasionally have unprofitable years (hence no federal income taxes due). Also it says nothing about them paying no “business taxes” at all, you just made that up. There is a long list of various other taxes such companies pay that are unavoidable. Ever heard of FICA?
But more to the point, you missed what we’ve said above about companies recognizing their profits in countries with low tax rates — hence, anywhere but the U.S. It’s right there in the article you link to: companies utilize the “ability to use transactions within the company to shift income to low tax countries.” That’s a close rephrasing of what I said above, and that’s the whole point. If we want the economic benefits and the tax receipts that arise from corporate profits, the U.S. might try abandoning its world-topping confiscatory tax rates. (When people speak of loopholes that lower the effective tax rates, recognizing profits elsewhere is one of them. But taking advantage of any loophole is costly. Businesses simply seek the lower cost option — profits elsewhere, loopholes of some other sort, or simply recognizing profits in the U.S. ) Oh, but even mention this obvious common-sense idea and you get attacked for giving a tax break to the rich, don’t you?
If we want the economic benefits and the tax receipts that arise from corporate profits, the U.S. might try abandoning its world-topping confiscatory tax rates.
The point is that companies pay taxes on “profits”, not revenues. There are plenty of ways in the US system to reduce taxable income to a point that the net effective rate is below that than it is abroad.
If you focus on the wrong data point, you will understandably reach the wrong conclusion. The US has a business-friendly climate and US tax rates are certainly manageable. Companies are not avoiding the profit opportunities available in the US because of its tax rates.
Today, we cannot dismiss China as a potential military adversary.
This is yet another red herring.
While I will concede my logic may not be flawless, (who’s is?) I don’t think that regarding an up-and-coming superpower as a potential threat for which we should be prepared is a red herring by any stretch of the imagination. In fact, it speaks directly to the debate at hand.
The point I’m trying to make is that we have not faced an enemy of anywhere near our own strength since 1945. Hence, we have no historical ground upon which to stand that supports the allegations you make. Your and fallout11’s arguments sound eerily similar to the philosophy of Rumsfeld before 9-11. It too advocated an extremely light military which would better, as he thought, correspond to modern times. We know how that went, after we faced totally unforseen problems in an unstable Iraq, problems for which we had neither the manpower nor equipment to handle.
But to swing back around to my primary thesis: there is more to an industrial base than so many assembly lines. There is engineering and scientific capital, both of which can be rapidly harnessed to aid in any military conflict. The erosion of an industrial base would carry with it much of the same kind of expertise required to build a suitable defense system.
I am not in any way attempting to make direct comparisons to the WWII era. All I’m saying is the auto industry is the only one large enough and similar enough (besides civilian aircraft) to the defense industry to provide crucial aid in the event that it’s needed. Do you really believe, considering the short-sightedness of Bush’s defense dept. that we will continue to maintain required military readiness over the course of, say, 50 years of peace? I shudder at the thought of facing a well-prepared and aggresive China in 2058 with the typical blinkered Pentagon such as we had in the ’30s and ’90s, and no industrial base (with it’s priceless human capital) to come to any type of rescue.
Your and fallout11’s arguments sound eerily similar to the philosophy of Rumsfeld before 9-11. It too advocated an extremely light military which would better, as he thought, correspond to modern times. We know how that went, after we faced totally unforseen problems in an unstable Iraq, problems for which we had neither the manpower nor equipment to handle.
This has nothing to do with Rumsfeld. It has everything to do with the fact that an air force using modern jet aircraft does not at all resemble the forces used to fight WWII.
You’re about 3-4 decades behind the times. In the modern era, a nation must be fully prepared for the war before it starts. If it isn’t ready before it starts, it is already too late.
The US is no longer an island that has years to mobilize a landing force. The mobilization is continuous and ongoing. It is happening as we speak, and it will continue to happen until the day that it is needed. There will be no slumbering giant running to Detroit for help — it already has Lockheed, General Dynamics, AM General, etc., etc. building the stuff, and those are the companies that it is relying upon to get it done. The US auto plants are useless for this purpose.
Ken Elias said:
I submit that it’s in our national interest to keep it alive and moving forward.
I disagree. I think it’s in Americans’ national interest to honor market economy, i.e. let the consumers choose which brands to buy from, and not let the government to choose which companies to inject cash into.
I need to earn my living, by persuading my employer that my service is of value. The Detroit 3 and their minions should earn their own living by producing cars that people want to buy, and not live on taxpayer’s dollars too.
br549 :
I wouldn’t worry too much about China. They are not the Soviet Union, and nowhere near as capable.
Their land forces are using first generation Soviet tanks(Like the T-55) and the air force currently flies copies of Mig-19’s and 21’s(Which have long since been rotting in aircraft graveyards in former soviet states). They are not really a credible threat yet.
There will be no slumbering giant running to Detroit for help — it already has Lockheed, General Dynamics, AM General, etc., etc. building the stuff, and those are the companies that it is relying upon to get it done. The US auto plants are useless for this purpose.
Okay, I’ll take just one of your examples, AM General, a spinoff of a Detroit auto company that currently produces the Humvee. GM has provided major drivetrain components for this vehicle and, in fact, AM General is in discussions with Navistar International Truck to supply the latest generation of powerplants. These contractors to this day rely on outside engineering, research, and components often provided by domestic civilian vehicle manufacturers.
I would like to point out off topic, of course that until they met the russians, German tanks weren’t as good as the French tanks. Undergunned and poorly manufactured.
You people are obsessed with wars and being attacked by somebody. This shows me the culture of maintained fear and brainwashing that happened and still does happen in the USA today. Big Sam succeeded once again.
What the f do tanks and all that war bullshit have to do with the banckrupt auto industry?
So what you’re telling me is that I should get used to buy crap cars from a croocked American auto industry for a greater good of being prepared to build tanks on a short notice?!? Are you out of your minds?
Let them crash and burn! Nobody is going to miss them. Use the money to re-train and help provide new jobs for the workers.
Isn’t it ironic that the same government that has choked the auto industry with too many nanny-state regulations now will pay, one way or another, for killing said industry? If it weren’t so friggin sad, I’d laugh.
It’ll be funny when all the “let them burn” people finally get what they wish for. It’ll be funny when their favorite sub shop in say, Van Nuys, CA closes because their biggest lunch rush came from a contract engineering firm who did work for GM. Or, that their local property tax in Mesa, AZ goes sky-high to make up for the loss of revenue from the proving ground, and the restaurants, dry-cleaners, gas stations, grocers, stationary store, ect, whose tax reciepts go down, down, down. It’ll be funny. I’m no bailot fan, and I do say let them all get into C11 to shed themselves of the goddam UAW and Greedy/Greasy dealers, THEN and only then if they still need a little help via a LOAN, then maybe, just maybe, as long as they have a good plan in place, and that their top management is replaced. Oh, and the best thing this government can do for the auto industry is adopt one trade policy for ALL nations: “We will treat your imports as you treat ours” Simple. Fair. Makes too much sense.
They lack the capacity to produce armor, munitions, armaments, aircraft, synthetic body armor, communications equipment, prepackaged food, load bearing gear, boots, garments, or pretty much anything else actually used by the US military.
The point is that all those things cannot be produced unless we have a general manufacturing base in the US. We’ve let most of that industrial base evaporate and the implosion of the domestics may take much of what remains with them.
GM isn’t going to make army boots, but for practical purposes we have no shoe industry here. You can’t make something as simple as bullets without a machine tool industry, another US industry that’s a shadow of its former self.
You mentioned body armor. Kevlar was developed by DuPont. While DuPont is highly diversified, the auto industry remains it’s primary market. Almost every component of a car uses some form of DuPont polymer, connector or coating and just about everything DuPont makes finds its way into a car. While they now sell coatings and polymers to almost every car company in the world, GM and DuPont have always been close, to say the least (DuPont controlled GM from just after Pierre DuPont ousted Wm. C. Durant from the company he founded until into the 1950s when they were forced to divest under antitrust law), and GM is still most likely DuPont’s single biggest customer.
Take away the domestic car industry and DuPont will be forced to cut back and that may delay the development of a fiber that works even better than Kevlar for body armor.
The idea that the defense industry, particularly the high tech and materials science parts are somehow not dependent on more general manufacturing is just plain silly.
BTW, Kevlar was invented by Stephanie Kwolek. I’m sure she sleeps well at night knowing how many lives she’s saved. Will she ever win a Nobel prize? No, the prize committees tend to favor academics, not people doing applied research in the private sector. I think the last prize winners from the private sector were Penzias & Wilson for their work discovering background radiation from the Big Bang while working for Bell Labs.
Pch101 :
November 12th, 2008 at 5:14 pm
The defense argument is faulty. This is not WWII; for the last several decades, the US has maintained a permanent military-industrial complex that is constantly producing weapons, including during peacetime.
That military-industrial complex needs a general manufacturing base as part of its supply chain. Nobody is saying that we’ll have to shift plants from cars to fighter jets, but General Motors and General Dynamics both need a healthy general general industrial base to be able to function. Not every component on military equipment is made out of unobtainium and plenty of 1st, 2nd and 3rd tier suppliers to defense contractors are general manufacturers who produce mil-spec items like electronic components and connectors.
Pch101,
Are you saying that sourcing military aircraft engines from Rolls-Royce has the same strategic and security risks as buying them from the Shanghai Industrial Facility #38?
The relationship between the US military and British vendors is long and trustworthy, and the relationship between the US and the UK even more so. With Chinese vendors and China? Not so much.
I’d draw the line for sourcing military stuff at Canada, Australia and Britain. I’m not even happy that the main battle gun on the M1A1 tank comes from Germany.
>Today, we cannot dismiss China as a potential military adversary.
This is yet another red herring.
There’s an old saying, you many not like war but war likes you.
You may dismiss China as a potential military rival or adversary but China considers itself to be a military rival to the US. Why else would they be building a blue water navy? Why would China need aircraft carriers to project power if they don’t see the US as a possible rival. I don’t think their carriers are intended to prop up the regime in the Sudan.
While trade generally is good for peaceful relations and China has no immediate gain in military conflict with China Inc’s #1 customer and debtor, but countries have gone to war with trading partners in the past.
China is not our friend. It’s hypernationalist and has international ambitions.
I thought that Fallout and myself already addressed these points sufficiently, so I will make one final post in respect to this:
-The United States has already built most of the equipment that it will use to fight the next war. Unlike WWII, it has built most of what it needs before it needs it.
-The United States already has an abundance of defense contractors to build what it needs. It does not need the Detroit automakers to do the job that is already being performed by other companies.
This is not WWII. If the US attempted to prepare for the next war as it did(n’t) for WWII, the war would be lost within a couple of weeks. The US is now super-prepared for war, has already assembled its heavy equipment, and has numerous relationships already established to build more of it over time.
It does not need Detroit to do what is already being done by others, nor will it require the scale of production that was needed during WWII. WWII was a totally different war that required far more equipment because much of it was destined to be destroyed in a manner of combat that generated far greater losses than can be expected in a modern war.
Please give it up, the defense argument doesn’t fly. The attempts to frighten readers into believing that we need to tolerate lousy Cobalts in order to protect the homeland are not useful or particularly honest.
+1 for PCH101.
In addition to all of our miliary equipment already being built, and much more advanced than Corvettes and F-150’s…I don’t believe that another major war would be fought on any ground. Jet’s will carpet bomb their targets, and if that doesn’t work, we have thousands of nukes to get the job done.
If there is a next world war…everybody will lose…everything. Tanks and humvees aren’t going to help anything.
Problem with nukes is that any dangerous potential enemy (China, Japan, Europe, Brazil, Russia, India) has them too. And most of the countries that are not dangerous but aren’t kittens either have them too(Nigeria not, Iran not, Turkey yes, Korea (south) yes, South Africa yes, Pakistan yes, Argentina yes, Egypte yes)
This just makes military power above a certain level useless