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Every day seems to bring new tales of doom and gloom for Europe. Is it time for a Continental Deathwatch?
Europe alone is host to a number of problems;
- An ongoing capacity crisis with plants outputting far less than necessary to stay profitable
- Opel facing a meltdown and a possible merger with PSA
- PSA being eaten alive by rival Renault’s low-cost cars
- Fiat fretting about…well, nearly everything from capacity to EU assistance to labor
- Ford sales taking a swan dive
- An overall bleak picture for auto sales, at their lowest in over a decade.
The time may be right for a Europe Deathwatch. Maybe not in the same vein as the GM Deathwatch, but there is no doubt that there will be major changes to the continent’s auto industry. The PSA-Opel merger, if it goes through, could be the start of massive consolidation in an overly bloated industry, and no amount of editorials lamenting the marque that brought us the 505 STX and the 205 GTI can change the facts on the ground.
In the mean time, have your say.
101 Comments on “QOTD: Time For A Europe Deathwatch?...”
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Whilst many companies are having a hard time some are doing well such as the Koreans, VW and BMW. It is not pretty but over capacity must and will be eliminated.
Hey, it’s not all bad. The EU won the Nobel Peace Prize. The $1.4 million prize, if split evenly amongst the EU’s 503 million members, works out to .02 US cents per person. Not too shabby!
That’s a headscratcher for sure, but the Nobel committee could have discredited themselves more by giving the EU the Nobel Prize for Economics.
Don’t tell Paul Krugman that or he’ll instruct the soon-to-arrive hostile extraterrestrial invaders of earth to vaporize you first.
(It’s all part of Krugman’s quadrillion dollar “When Mars Attacks” economic stimulus plans, where no fear will be left un-shattered, and no window left un-broken)
Paul Krugman makes John Maynard Keynes seem like Ebenezer Scrooge.
@deadweight I’m glad that there is someone else out there who feels that way about Krugman…. what a phony.
I think a Euro Death Watch would be great. My guess (uncreative) is that the moment Opel and PSA merge they become a bunch of goners… its like taking two sinking ships and crashing them together…
Well a Opel PSA merger does not have to mean that they will be both immediate goners. Kmart and Montgomery Ward, oh wait I mean Sears merged over 10 years ago, they have both been on life support for ten years but somehow they are still mostly around and kicking a little bit.
The death of austerity policies hopefully.
What is the alternative? Doubling the taxes on Germans so that Greek hairdressers can continue to retire at 50? Austerity is just a fancy word for living within your means.
Living within your means = Not spending money. Not spending money = death to a post-industrial economy.
Our economy depends on people consuming and spending money. If you won’t do it, then somebody else will have to do it for you. If nobody does it then get ready for ‘Deathwatch’.
The alternative to “death to austerity” is racking up even more debt, at a time when the amount of existing debt can’t be re-paid absent a massive devaluation of the currency used to repay the debt (i.e. a technical default where holders of the debt get paid back in full nominal terms, and even get their interest in full nominal terms, but in REAL terms, they get paid back in currency worth WAY less than that which the loaned to the deadbeat…errr, borrower).
See how long that can go on and what it does to the credit-worthiness of the deadbeat…errr, borrower.
Paul Krugman thinks debts don’t matter – literally. No wonder Enron found him to be a highly indispensable consultant.
What’s truly fraudulent about Krugman is that he supports monetary idiocy such as quantitative easing, whereby taxpayers, savers and actually responsible people & entities get screwed over so that the Federal Reserve can transfer massive amounts of fiat to the very banks whose recklessness contributed in large part to create each credit crisis we’ve experienced since 1913.
Socialized banking/financial sector losses but privatized gains is our present and future, thanks to the Fed (and Congress/Executive Branch).
Long live dead markets!
It is even worse. When my Greek cleaning lady’s mom died in 2005 she stopped working immediately and started a new life living on her dead mom’s pension in Greece.
No pity, on my side. Almost everyone in Greece, top-to-down, did everything necessary to ruin to country completely.
No brain, no gain. If everything is down the drain, blame the Germans.
What happens to a post-industrial economy when industrial economies won’t take their bogus currency in exchange for the real goods that post-industrial people still need to validate their self worth?(not to mention house and cloth them) I hate to break this to you, but post industrial fantasies don’t provide goods and services in the quantities required by entitlements. Someone still has to produce and provide everything, and not many people are so engaged when their rewards are thwarted by labeling them as enemies of the free-loaders.
“Someone still has to produce and provide everything”
Robots and automation.
The US is constantly growing as a manufacturing economy. That
just does not create as many jobs as it used to because of
automation.
http://investing.curiouscatblog.net/2011/12/27/top-10-countries-for-manufacturing-production-in-2010-china-usa-japan-germany/
Even the dirt cheap Chinese workforce cannot compete with
automation:
http://andrewmcafee.org/2012/09/mcafee-rapid-productivity-growth-us-china/
“Even though hourly manufacturing labor costs in China are only
4% of those in the US, it’s still attractive for Chinese
factories to replace people with technology over time.”
Unfortunately for PSA Peugeot Citroën, robots do not buy cars
with the wealth they create.
Malaise does not equal death.
The only company that is in serious trouble is PSA. The rest of them have some level of diversification.
I do wonder about SEAT, although I don’t follow it closely enough to have much of an opinion about its operations. However, on the surface, it doesn’t bode well for a brand to be so dependent upon sales in southern Europe. Combine that with an open market that didn’t exist at the time that VW acquired it, and you have to wonder what the point is of having it.
Lancia isn’t exactly a winner, either. Marchionne seems to be fond of having more brands than are probably necessary, but still, I have to think that even he must having trouble justifying its existence.
Nicely put Pch. I was wondering the same about Skoda myself.
Skoda has been positioned nicely as a value brand below Volkswagen. They are one of the reasons why SEAT doesn’t need to exist.
Skoda Taxi’s were everywhere in Spain when I went there. SEAT not so prevalent. Pretty bad omen for a manufacturer based there. I expect PSA to maybe tie up with an Asian entity as well. Left field but Samsung also makes cars in Korea.
SEAT is a political manufacturer. Its only reason for being is to be a Spanish player. As long as VW continues to do well, it will exist because the long term benefits outweigh the short term pain. If it was anyone besides VW, this thing would have died a long time ago.
The Seat Exeo is very similar to a B7 Audi A4 with new sheet metal. They moved the tooling from Ingolstadt and used the old platform.
(editor, my comment about this kept getting flagged as spam for some reason, so I had to shorten it from the original version)
From a political point of view, they could just drop the brand and use the capacity for VWs, Audis and Skodas. No impact on the Spanish economy, just a less-than-successful brand gone.
@Pch101: “Malaise does not equal death.”
Agreed! I move that we name the series “European Malaise Watch”.
“European Malaise Watch” is just so non-dramatic, though, like the slow drip-drip-drip of a leaky shower head.
The Brits got out of the car making business long ago, they recognize they do not have the requisite automotive skills, the French and the Italians should do likewise, enough of automotive patriotism, let the European Big Three remain, even if all three are German.
Then there are the transplants, like Toyota in France, or Honda in the UK, and there will be more, as soon as the European relax their work rules.
Subcontracting is not a panacea, but it may save the mechanical skills of the Italians and of the French, there is no shame in that, but of course it goes against economic patriotism..
The Brits didn’t get out of the car industry they simply reinvented it. They left the volume cars to the Japanese but encouraged them to build cars and do r&d in the UK. The new Honda Civic is a great example of a Brit designed car.
JLR meanwhile went upmarket and now make more cars than ever. Indeed the UK makes more cars now than at anytime in its history. The UK is actually the model of what the industry should have done ages ago. Good luck to the French and the Italians as they aim to take on low wage economies in the volume sector
JLR and Mini now under foreign ownership, Tata, formerly Ford, and BMW are making cars in the UK. Snaggle-tooth, Union Jack waving Brits reviving their own auto industry? Hardly.
they failed miserably and foreigners came in to pick it up.
I like JLR but they produced 250k cars combined together last year… thats half of Lexus sales, and Lexus does not have great sales outside US, nor they have as many models as JLR.
I wish them the best, but lets admit that mighty have fallen.
There was a time in the early 1950’s when the British Motor Corporation was the fourth largest car company in the world. It all went down hill after that.
I’ve been saying this for quite some time: There are simply too many cars, car brands and factories. The world economy simply cannot support them all, especially with a gradual leveling-out of living standards – which means lower standards for the western world, us included, which is already happened and is ongoing.
Something’s gotta give, and it looks as if the European automakers are going to get hit hard.
No way!
Krugman, Hubbard & Mankiw all claim the problem with the economy globally is that governments haven’t borrowed enough in order to stimulate enough aggregate demand.
Never mind the FACT that the current economic crisis we’re experiencing is a direct result of a credit binge whereby governments borrowed too much, as did the private sector, to buy discretionary crap they did not need, and the bill for those purchases still hangs around the global economy’s neck like an albatross.
Einstein said the definition of insanity was to keep doing that which will not work, over and over again.
It’s worse than insane now. There are “very important advisers” who want to repeat not only things that didn’t work, but repeat the very thing (i.e. debt/credit binge & purge) that broke the system.
Anyone who suggests taking medicine now, even though it will no doubt involve more acute short term pain (rather than long, drawn out Chinese water torture, whereby the end result is total failure), whereby people, businesses & nations allow free markets to match the REAL & TRUE level of aggregate demand, must be one of those nutcases (/sarc).
I dunno about a continent-wide Deathwatch. VW will be fine. The German luxo brands will be fine. Ford will be fine in the long run — its current swoon has a lot to do with its reluctance to discount heavily, which is probably a reasonable strategy. But a Renault Deathwatch might not be misplaced, a Fiat Deathwatch is probably in order, and a PSA-Opel-you-gotta-be-kidding-me Deathwatch really should have started back in February or March…
“Ford will be fine in the long run — its current swoon has a lot to do with its reluctance to discount heavily, which is probably a reasonable strategy.”
It’s the proper strategy, as soon as the others start discounting to move metal, the next generation of cars get discontented to make up for the difference and it becomes a monster that will eat itself. France has already (on several occasions) decided that Renault is the one to save (+) it has Nissan. Italy will not let Fiat die easily (don’t know if having Chryco is a + or -), but the reason for seperating Fiat Auto from the rest of the group was incase it dies, it dies without taking its healthier brother with it. PSA and Opel are dead (only reason I could see GM buying PSA would be to take PSA bank to re-establish an in-house financing group, combine the PSA and Opel auto manufacturing, seperate the bank and let it sink), Renault will get PSA’s french business, VW and Ford will take Opel’s German business and Ford will take Vauxall’s English and then you have four healthy mainstream makers all with worldwide operations (Fiat is still a maybe).
I actually think folding PSA’s car business into a joint venture with Opel in which GM has a minority interest — the rumored plan — would be a really smart move from a GM corporate perspective, and as a GM shareholder I hope it happens. It probably means death for both PSA and Opel, though, as you say. As for Fiat Auto, Chrysler is kind of keeping the place afloat at the moment, which is good for now but… speaking from a historical perspective, if your Plan A involves counting on Chrysler to save you, you bloody well better have a Plan B.
” Renault will get PSA’s french business, VW and Ford will take Opel’s German business and Ford will take Vauxall’s English ”
Cannot see this happening. Ford is tanking big time in Europe. Renault and PSA makes sense. I cannot see GM going anywhere, VW will gain.
Ford is not tanking, they are following Mulally’s plan, not sacrificing profits, R&D, etc. for marketshare. Worked well for them in NA (as they were the only one’s that did not have to file for BK, despite the US openly pushing them to do it (do think if GM still had had an internal financing arm and requested industrial bank status that it would have been denied? But Ford’s request was, while the government bailed out Allied and seperated the car and home loan portions). Just as Ford struck a deal with the UAW just before GM and Chryco could, setting a bar to high for the them to match and giving the final nudge into bankruptcy, I wouldn’t be surprised if Ford were to close a factory in Europe and do it in such a way that it would be incredibly expensive (less money for R&D, materials, production quality, etc.) for the others to match (if Ford workers get A, Opel and PSA workers are going to want the same). And make sure you’re not comparing Ford’s current marketshare to Ford (+) Volvo (+) JLR’s combined past market share, a few % points lost there. Last time I checked Ford was number 3 behind VW and PSA (PSA is key in this discussion) and last time I visited the fatherland, VW was #1 by far, but Ford was a clear #2 (in terms of mainstream), also think they are #1 in England. Secondly, since Ford has decided to bring over thier Euro cars over as “mainstream” US models, while Opel is sending Buicks (Don’t know what Fiat is doing other than inserting tier 2 components into old designs, 8 speed transmissions, etc), it will just allow for more and more economies of scale (and European cars have gotten bigger, so the Mondeo/contour disaster of the past comparison is no longer valid).
Renault will be ok as long as they keep Dacia and their alliance with Nissan. They are also moving more and more of the production outside France (like a big proportion of the new Clio being manufactured in Turkey). No need for a Deathwatch in their case in my opinion.
No. You guys are much more interesting when you keep the schadenfreude in check.
Is it my imagination or are the companies that are suffering most have poor representation in the world’s two largest markets, the US and China?
If Opel were independent of GM, it certainly could make inroads in the Middle Kingdom and even export their stuff to the US as well.
Peugeot was never very strong here and pulled out altogether in 1991, though it mystifies me why it can go toe-to-toe with VW in Europe but won’t dare try the same thing in the States.
European manufacturers historically have not been able to rely on their home markets alone for any prolonged period of time. In the years after World War II, it was export or die, and it appears the same thing applies now. Yes, labor costs are high and the euro is strong, but the former is offset a bit by setting up factories in Eastern Europe and the UK, where costs are lower than most. The latter is a little more complicated.
I’ve said it before and will say it again: If you car company doesn’t import to the US, it will die. Some keen eyes for the obvious don’t focus on that.
Based on the size and profitability of the markets, what you really should say is: “If your car company doesn’t export to China, it will die.”
Trying for a global market rather than a regional one i.e PSA will keep you alive.
Outside of a few Uber brands, does anyone actually import cars to China? (thought thier JV policy took care of that long ago)
Wouldn’t trying to split Opel off from GM run into the same snag that kept SAAB from being a viable sale? I can’t see how you would sell Opel to anyone without the IP, which is all GM.
Much easier to just shut it down. Keep anything that’s worth keeping, shut down the rest.
As long as there are people in Europe craving mobility, there will be cars to be sold.
Yes, a Europe Deathwatch, absolutely. The Germans were even kind enough to coin a term for it: Schadenfreude.
Why are you joyful at Europe’s economic problems?
Also, you do know that that any EU problem also affects our economy?
If Opel disappeared tomorrow GM would be ahead of the game by a billion dollars a year. If the French and Fiat left the car business, would anyone in the US notice? I can’t believe there are a lot of US component manufacturers with these companies as clients.
Maybe if PSA spent less money on pie in the sky supercar concepts and ridiculous looking off roaders from the year 2050 and more on bringing some Dacia-fighters and other low cost models to Europe, they’d not be in the same kind of conundrum. /captainobvious
Notwithstanding the nonsensical pining for European unobtanium on this blog, when people have a REAL meaningful choice, they do not choose any of the sickest eurotrash brands.
My in laws live in New Zealand and Australia. The availability of the plethora of new Eurotrash brands is astonishing to Americans. Long dead brands – Alfa, Peugeot, Renault, Lancia et al – can be seen in new car showrooms in any major city.
And yet the Kiwi and Oz want to hear none of it. They want to hear even LESS about Japanese brands. Throughout my travels there, I was constantly being pestered and peppered with questions about legendary and storied Mustangs, Corvettes, Camaros, Challengers.
Much of my contempt for this site’s frenzied obsession with soft touch switchgear and dash board coverings is derived from the open attitude of disgust towards European brands one sees so common down under.
If you were visiting from the US, wouldn’t it make sense that they asked you about American cars? I wouldn’t ask a visiting Frenchman about the latest in Russian econoboxes. Australians don’t want to hear your opinions about Japanese cars because they’re already experts. Whatever you perceived, seven of the top ten sellers in Australia are Japanese. The number one, number two, number four, numbers six, seven, nine and ten; all Japanese. Nice reporting.
http://bestsellingcarsblog.com/2012/10/04/australia-september-2012-mazda3-and-hyundai-i30-at-record-heights/
Seven Japanese cars, two local Holdens, and one Korean car.
Unobtainable cars are always nice to dream and talk about, but it doesn’t mean they would actually be successful. Kind of like manual AWD diesel wagons in the US …
You said it Larry P2 – what do those Europeans know about making cars? Mustangs, Camaros, Corvettes and Challengers! They’re badass!
“hroughout my travels there, I was constantly being pestered and peppered with questions about legendary and storied Mustangs, Corvettes, Camaros, Challengers.”
That would be news to me as I am from Australia. I think you do exaggerate more than just a little bit. The Camaro MAY have some cache(it was actually engineered here), but the European Luxury and Asian brands are what is desired, plus the ,local Australian exotica. HSV, FPV
The banks have sucked the life out of everything. A great big bloody revolution is imminent.
In short – no. Many European car companies like VW and BMW are doing very well. Yes they will be affected by reduced demand in Europe and slower growth in China but they are far from deathwatch worthy.
Maybe the question you were trying to ask if we should we have a company specific deathwatch for Fiat, PSA and Opel? Absolutely.
And it goes back to my original point. About the only place in the world you can’t buy a BMW is Antarctica, and I’m not even sure of that.
Same goes for Volkswagen. Fiat is everywhere but the two biggest markets, and they have Chrysler to prop them up here.
Opel’s options are limited because they can’t overlap with other GM brands and Vauxhall is little more than a right-hand-drive Opel. Free up Opel and that can change.
But is Opel’s problem little more than creative accounting? If VW loses money in Europe but the Chinese profits are greater than the losses, VW is ahead. GM’s North American profits more than offset its European losses.
The European Luxury car makers and HDT Truck Makers, Scania and MAN are doing well because they are Global not regional manufacturers.
Don’t forget that both Scania and MAN are part of VWAG. They’re everywhere, they’re everywhere!
Something seems wrong here…with a few perceptions above.
Why do the luxos of Europe keep getting a pass from all?
Look…if you want to survive in bad times…sell alcohal or religion….NOT luxury brands.
Now I might be imagining ghost here, but if push comes to shove…the MBWs and Merks will not be as healthy as ya all are saying.
IMO the people will run straight to the econo boxes and vehicles that will do most for less.
That ain’t no 5, 6 , 7 or 8 series!
So when the thunder comes…IF it comes…the place to put your money is NOT in BMW.
You forget about the A-Class Mercedes and their trucks. Also the 1-series BMW. Not to mention Benz taxis, Unimogs, non-luxury G-Wagens, etc.
Mercedes is seen as a quality marque worldwide, but only in the USA is it considered solely a high-level luxury car. They have intentionally kept their workaday stuff out of our market to maintain that cachet.
Benz in particular has never been solely about its cars, let alone its high-end models. Neither has BMW. I don’t think anyone ever considered a 2002 a luxury car.
And they certainly keep their low-line vehicles out of here now. The engines we get are the tops of the lines in Europe.
“Benz in particular has never been solely about its cars, let alone its high-end models. Neither has BMW. I don’t think anyone ever considered a 2002 a luxury car.”
Exactly, Audi used to be more like what VW is now — a slightly nicer car with a nice interior, but not ridiculously more expensive. Instead VW in the US (except for decontented North American-built models) is more like what Audi used to be, and Audi in the US is a luxury car maker.
BMW, Mercedes, and Audi marketing in the US feels unique compared to other car companies, because Toyota uses Lexus for its luxury cars here instead of marketing them directly. That’s why Mercedes wanted Chrysler before, and why it deals Smart cars, why BMW has Mini.
these are still top priced for their segments, right?
I mean…IF you are Joe the Plumber in Europe…do you buy the BMW anything?
Or do you really buy the best bang for your buck?
Look…it ain’t me making this stuff up!
I read it right here!
https://www.thetruthaboutcars.com/2012/04/the-top-318-best-selling-cars-in-europe-hint-the-corolla-is-nowhere-to-be-seen/
You see the Benz anywhere in there?
I see one Audi.
So, um…where do you put your money in the big bet?
Good Luck.
I will stick selling booze, god and cheap transportation.
The European Top 50 list has 4 Audis, 3 BMWs and 3 Mercedes. That’s 20% of the top 50, not bad for premium-priced cars.
You would be surprised by how well the “luxury brands” do in a down economy. People cut back but do it to the wannabees, the feeling is “If I’m going to spend the money, it will be on something that’s worth it.” That’s why Cadillac and Lincoln are doing so poorly.
The big issue is to make sure your brand falls into the “worth it” column.
On the list published by TTAC..I saw 3, one each Audi, Merk and BMW out of 20.
Now that is not what I call sitting pretty for a crash.
I guess I am missing something here….
https://www.thetruthaboutcars.com/2012/04/the-top-318-best-selling-cars-in-europe-hint-the-corolla-is-nowhere-to-be-seen/
When Europe recovers, one of the other big markets will collapse. Asia most likely or one or all of the BRIC economies.
The Skoda is a much better value than VW, and has a long history of making cars. I don’t think the Czechs would appreciate seeing Skoda go away.
Czechs are the most skilled workers relative to their wages in the world.
I think German skilled trade unions are intimidated by the Czech workforce.
Skoda IS a problem for VWAG but not that way. It’s because it’s too good! A few years back VW had to put boat achors on Skoda: they had flubbed the brand management course. What happened was Skoda was making the same vehicles as VWAG… only cheaper. Why buy a Jetta/Bora when you can get an Octavia for less and it’s the same car? People aren’t stupid. Skoda was being b/o and VWAG was losing sales.
VW has stepped in and the cars aren’t the same anymore. They are either decontented “value editions” or they’re changing the models to not have a 1:1 matchup to a VWAG model.
The positioning has been fixed but somehow Skoda sales continue to increase.
In any case VW Group wasn’t losing any sales, the only problem was that Skoda sales were less profitable than VW sales.
I doubt Skoda is going anywhere, but I wouldn’t mind seeing Tatra bring back the Czech secret weapon. Limited production in the $80,000 to $150,000 range. Of course the traditional engine layout, but it may have to succumb to liquid cooling.
http://www.tatratrucks.com/
That sort of truck does not exist in NA outside of Military vehicles. US HDT and MDT truck park is pretty thin on the ground compared to the rest of the world.
I don’t care about the trucks, I want them to bring back the cars.
The car range disappeared sometime ago in the late 1980’s
Actually the late ’90s. But that is the point. They don’t make cars anymore, but they should. Just not mass market. Which they never were. Even during the Iron Curtain they were only for the most equal of pigs.
The ‘European Union (what is left of it)’, was an experiment in Socialism. At least the Brits had enough common sense to not participate in the currency part of it.
There was/is no sense in combining the economies of several soverign nations into one. Now it seems Opel and PSA will pay the price.
Stick a fork in the EU, it’s DONE.
The Brits never joined the EU fully, the Brits & Germans are butting heads, and the Brits never shed the pound sterling, since the U.K. (London, specifically) is ground zero for the Ponzi Scam that is full fractional reserve banking, a too-big-to-fail banking & financial sector that absolutely brutalizes the private sector, and because the appointed puppets of the banksters in the form of British “representatives” could never convince the other nations in the EU to agree to operate and centrally plan their economies around the banking and financial sector British model.
The U.S. sure teamed up with the Brits on the London Model of socialism (aka Crony Capitalism), though, represented by New York City & the Fed.
acuraandy…
Excellent point. I was wondering if someone was going to bring this up.
We’re talking about cars and economies. But in fact, the bigger issue is that an economic fall may well be the end of the political entity we call the “European Union”.
Back to every country for itself. Even the Euro may be worthless, and the German Mark may be the Gold Standard of the continent. Greece, Italy and Spain get flushed; France runs a close 4th…
Stock markets crumble, dragging the US and China down with it… It ain’t gonna be pretty…
I predict the start of this by Fall 2013….
============
Hmmm, Americans telling the Europeans how to run an economy. Isn’t that a bit like GM telling PSA how to run a car company? Oh, wait a minute…
NMGOM:
In short order, I may have to use German Marks to feed my family (or Silver) if we decide to say in the United States of Eurasia;
Ironic if one takes the whole Wiemar Republic history into account.
My ancestors came to the US to escape such economic strife. The question is….where do us ‘Muricans go to try to start over? Canada? If they let my family in?
Canadians, I promise to work and not suck off the Federal teet :)
That said, if certain politicians who at least pretend to advocate for the middle class (WTF that even means anymore) obtain office in the US, ya’ll won’t have to worry about it.
If not, well….again, please let us in! :)
If only you had been president these past four years. Throwing away borrowed money is beyond irresponsible, it’s financial suicide. Looking for a deathwatch? Look no further than America’s eventual default.
Actually it is 12 years since the US had a balanced budget.
Yes, and in fact, the projection was to have quite the surplus by 2012, until Bush screwed that up. The economy tanking is what gave Obama large deficits, but structurally, things were done badly after Clinton when OMB predicted massive surpluses through out the Noughts.
The surplus under President Clinton was the result of the tech boom, which had ended before President Bush assumed office on January 21, 2001. The spending to address projected Y2K issues (remember that scare?) was over by that point, too. The economy was therefore slipping even before Bush took office.
No, it wasn’t just a result of the tech boom. Clinton had particularly high surpluses because of the tech boom, but had balanced the budget properly to ensure future surpluses notwithstanding the tech boom.
Bush then spent a lot of money on “tax expenditures” (aka tax cuts and preferences), wars, and other things. Most of the deficit under Obama is either due to Bush policies or recession-related revenue drops, and very little is attributable to Obama-initiated policies. There are numerous infographics you can see on this.
Both parties are about spending beyond their means if they can help it. What we need is tax compromise and budget compromise that reins both parties in. It has been done before (Clinton + Republicans in the 90s), and it could be done again if everyone actually gave it a fair try.
It was entirely due to the tech boom, along with the use of some subtle reporting tricks. We were in a “tech bubble” in the 1990s, and that bubble produced a revenue stream that ultimately was not sustainable. Once any bubble bursts, the revenues associated with it are ultimately going to vanish. Which, of course, is exactly what happened.
The “Clinton left Bush with a surplus” theme is false. There was never a true surplus. The budget was running deficits before the Bush tax cuts were in effect:
http://finance.townhall.com/columnists/craigsteiner/2011/08/22/the_clinton_surplus_myth/page/full/
Bush made them WORSE – that is true – but he did not turn a surplus into a deficit.
And note that the economy was officially in a recession from March 2001 until November 2001. President Bush, too, therefore inherited an economy in a recession. There is always a lag in job growth after a recession officially ends, and the low point for private-sector employment was not reached until July 2003, when it fell to 108,232,000. By October 2005, which would be 27 months after the job slump ended, the U.S. had 112,491,000 jobs — an increase of 4,259,000 jobs. That’s nearly identical to President Obama’s best 27 months after the recession.
In 1992 (before Clinton took office), the highest income tax rate was 31.0%.
In 1993, the top income tax bracket was increased to 39.6% and remained at that level until 2001. (The top rate was lowered to 35% between 2001 and 2003, and has remained at that level since.)
During FY 1992 (the last full budget year with George HW Bush as president), the deficit was $290 billion.
During FY 2000 (the last full budget year with Clinton as president), the surplus was $236 billion. For FY 2001, which included the last few months of the Clinton presidency, the surplus was $128 billion.
During FY 2002, the first full budget year of the George W. Bush presidency, the surplus became a deficit of $158 billion. The only surplus produced during the GW Bush administration was during the fiscal year when Clinton was still president.
Between 1992 and 2000, annual federal receipts increased by $934 billion, while outlays increased by $407 billion.
Under Clinton, tax rates went up and collections went up. During the same period, pending growth was less than is typical. Result — budget surplus.
When you try to fight a war and cut taxes at the same time, then you will necessarily end up with deficits. Cutting taxes while expecting deficits to vanish is something that Bush 41 would have properly referred to as “voodoo economics.” (The guy was definitely smarter than his son.)
geeber’s link is faulty. The author, Steiner, doesn’t understand accounting and just links to his own op-ed-style posts as “evidence”. The intragovernmental debt works the same way as a savings account. When I deposit money in a savings account, it becomes a liability for the bank because the bank must one day pay me back. Similiarly, when I deposit social security tax in the OASDI trust fund, the government records it as a liability because it must one day pay me back. This accounting fiction is completely lost on Steiner.
What’s funny is that Steiner probably also said that he agreed with Bush’s decision to give back the surplus in the form of tax cuts back in 2001. Now he tells a different story because he’s a partisan hack and writing 10 years later.
Again, both parties worked together to create a budget surplus — Clinton could not have done without Congress’s help — Newt and his comrades. There’s no reason it couldn’t be done again.
Social Security is expected to hit financial trouble by 2033, so using the tax revenues deposited into the Social Security Trust Fund as “proof” that Clinton balanced the budget provides a very shaky foundation, indeed.
This is called “unified” reporting of the federal budget, as it includes the money in the Social Security Trust Fund to mask the growing federal debt. President Clinton didn’t start this practice (it began under President Johnson, when a large numbers of workers were contributing to Social Security, and it was running a big surplus).
If we consider only the federal budget and revenue, and not use the unified reporting, it turns out that President Clinton had deficits in all years but one, when he had a 2 percent surplus. The budget returned to deficit the next year, well before the President Bush tax cuts were in effect.
Derek – Let’s start a China deathwatch. China’s manufacturing employment peaked in 1996. It’s only a matter of time.
http://andrewmcafee.org/2012/09/mcafee-rapid-productivity-growth-us-china/
There are experts who think some types of manufacturing for US customers will move back to the US from China soon:
http://www.economist.com/node/18682182
We still have 20% of manufacturing, and manufacturing has been growing, including after the financial crisis. China is getting expensive, and you still have issues of IP stealing, poor quality controls, fragile supply chains, and long shipment times, among other things.
As energy becomes more expensive and automation makes labor costs less of a factor manufacturing will become more driven by logistics (i.e. by being near the end consumer) than by labor costs.
That can already be seen with Hyundai, which still has lower labor costs in South Korea, building factories in the US.
The flip side is that, because of automation, when manufacturing returns to the US it will not be creating many jobs at all.
Although manufacturing employment in the US has been constantly declining, actual manufacturing in the US has been constantly increasing:
http://investing.curiouscatblog.net/2011/12/27/top-10-countries-for-manufacturing-production-in-2010-china-usa-japan-germany/
The US now manufactures more than it ever did in its history.
The problem for all global economies in the long run is that robots do not buy cars and other goods, and the owners of the robots do not buy that many.
“Well a Opel PSA merger does not have to mean that they will be both immediate goners”
It would absolutely stupid to get rid of one of the oldest automotive brands out there. Both can be merged in the sense that new projects are cooperative affairs between PSA and Opel.
you know there was a time when it would break my heart to see these iconic brands on the verge of extinction but with the souls of these marques long gone I don’t feel so bad!
Its sad when an enthusiast must go to the collectors market to taste what the brand was all about…
sad..sad..sad and no one to blame but themselves…
I think the idea of a deathwatch for Europe is stupid. Sure, the region has problems, mostly related to overcapacity, but that will be sorted out one way or another, whether its in 2 or 20 years. Though if anyone thinks the market is suddenly going to return, just like in the US after 2009, they’re going to be sadly disappointed. Carmakers in Europe will simply have to understand that the annual market is about 13 million cars and they’ll have to fight amongst themselves for a share of that limited pie.
As for the merger between PSA and Opel (GM Europe), if it gets both companies out of the unworkable contracts currently in place with unions and governments, both companies will have the freedom to do what needs to be done in terms of closing assembly plants and related facilities. That will keep the boat afloat, but it still remains to be seen what kind of bastardized, homogonized compromises this unholy union will produce in terms of vehicles.
Survival of the fittest. The ones that worked very hard on engineering,marketing, re-invested, and managed their companies well are winning. FIAT. PSA, and Opel are losing quickly. The losers are quick to blame the winners as we can see with FIAT. Put a fork in it – FIAT is done.
Neither austerity (where the banks get bailed out) nor QE have been proven to work.
The problem is that the job creation (globally) is lower than the population growth (globally).
The post industrial economy is not much of an economy, it’s just governments & central banks trying to export unemployment and subsidize unsustainable jobs based on consumption in the west and on production in the east.
Only a devastating WW III would be a realistic solution.
Hey controllio, OMB did not screw up, but could not anticipate Bush starting two wars, paying off 9/11 victims millions, and giving AARP geezers Medicare Part D (drug coverage) at virtually the same time.
Would have been cheaper and more effective to nuke Afghanistan, would have gotten ben laden quicker and scared Saddam into letting the inspectors back in.
Agreed, see my reply above. Bush policies make up most of the deficit now, and recession-related issues make up most of the rest. Recessions always increase budget expenditures.
Ford is not tanking.
Agree with some of your post, but both Ford and GM have been making large losses in Europe. VW has a much better strategy than both of them. Time to shake out the management at both companies.
Can you believe it, just read today, Bush will not endorse Romney, who’s he going to endorse, Obama? can’t bush just keep his trap shut… Wotta life