Ezra Klein: Tough Truths From The President

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January 26, 2006

Tough Truths From The President

That Bush, man, he's a straight-shooter:

President Bush said General Motors Corp. and Ford Motor Co. should develop "a product that's relevant" rather than look to Washington for help with their heavy pension obligations, and hinted he would take a dim view of a government bailout of the struggling auto makers.

That's uh, fairly true. I mean, relevant may not be quite so sound an adjective as "good," but blaming GM and Ford for producing middling vehicles (at best) strikes me as a surprisingly honest statement in a debate that's spent a lot of time dancing around unpleasant truths. I own a Ford -- a Focus, in fact -- and that's quite the last time I'll buy domestic.

That's not to say health spending isn't a serious factor in their company's costs and they wouldn't be better off with universal insurance, but the domestic auto producers made a conscious decision to focus on fuel-guzzling muscle cars (and eventually, SUVs) while foreign companies lasered in on smaller, more technically elegant, environmentally friendly, and fuel-efficient compacts, and have now replicated the technologies perfect in the smaller cars across their fleets. Honda and Toyota, in fact, are light years ahead of Ford and GM in the next market, hybrids, while Detroit's behemoths keep promising to lead in the currently non-viable fuel cell market.

On a related note, Daniel Gross has an interesting capsule history of what happened last time the government did bail out a domestic auto producer:

President Bush may have only foggy memories of the late 1970s and early 1980s. But he might want to read up on what happened at Chrysler. The loan guarantees actually worked out quite well. Chrysler avoided Chapter 11, restructured many of its debts and got concessions form its workforce. Chrysler paid back the loans in 1983, seven years ahead of schedule. In exchange for the guarantees, taxpayers got warrants in the company, which it later sold at a nine-figure profit. Not bad for a bit of misguided industrial policy.

Interesting. I've argued that the government should effectively bail out Detroit by contracting out with domestic producers for a huge fleet of fuel efficient cars that could function as a ZipCar service for the poor, but that's sort of a different approach.

January 26, 2006 | Permalink

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Comments

All the aforementioned Japanese companies also make behemoth SUVs and gas guzzlers, and market them aggressively as well. It's just that they can walk and chew gum at the same time, car for car, SUV for SUV, the Japanese, and even Korean counterpart in the last few years is simply better. I drove a Ford Focus for a week in between cars and was shocked at how horrendous it was to drive, compared to the Protege5 I ended up in, a week later. Healthcare, economics, labor costs, etc aside, The cars don't sell as well because they, well, suck.

Posted by: BC | Jan 26, 2006 11:17:06 AM

The federal government IS a huge buyer of cars. They could direct those purchases to hybrids with a law written in one paragraph. And Congress could offer another set of huge buyers, state and local governments, a financial incentive to follow the federal direction.

The US auto companies would rather spend time, money and intellectual energy fighting improved fleet mileage than fighting their competitors and anticipating/leading the market in the correct direction of minimizing gas consumption and emissions.

Sometimes it looks like US auto companies have a deep self-destructive urge - that they act upon regularly. Ford is running ads with Bill Ford saying that Ford Motors is an innovation leader while cutting 25% of the productive capacity.

Neither the Bu$hCo administration nor Detroit's car makers are serious about either the need to cut oil imports or improving the environment. The share of US oil consumption from overseas has grown from 58 to 62% under BushCo.

The truth is that US auto firms are not worth saving, but so many jobs are involved that we literally have to prevent their failure in the short-mid term. Long term is another matter - as long as Americans are free to choose, they will and should buy cars that meet their needs from wherever and whomever attract them - and that is not from US makers.

Posted by: JimPortandOR | Jan 26, 2006 11:56:37 AM

Interesting tidbit about Chrysler rescuing.
The french state made like a bandit too, with the money he gave out in the late eighties for rescuing Renault. He owned the company at that times, and had the responsabilities of the capital side, but the argument was mainly political between communist union and free market advocates, not a point about rational financial decision. Unions won, but had to make some concessions during the following years.
It was a surprise for everybody it ended so well.
But I don't think it will be a convincing argument for Bush.

Posted by: LE passant du sans-souci | Jan 26, 2006 2:37:01 PM

I've got a better idea. Deregulate so that like the airline industry, smaller players can get into the auto market with new business models. The Big Three has done a great job of preventing domestic competition going back to Tucker by using government power. They haven't done nearly as well at stopping foreign competition.

Posted by: Adam Herman | Jan 27, 2006 7:10:26 AM

Hey BC, you may be interested to learn that the new generation Focus and the Protege replacement, the Mazda 3, share most major components. Not sure whether this means the Ford got better or the Mazda got worse, but it does show how hard it is to pin down what exactly is an American car these days. Hell, General Motors sells a Saab built by Subaru and a Chevy built by the South Korean company Daewoo.

Posted by: Jodasm | Jan 27, 2006 11:11:18 AM

I own a Ford -- a Focus, in fact -- and that's quite the last time I'll buy domestic.

You should have bought a Focus made outside the US. Consistently rated one of the best cars in Europe.

while foreign companies lasered in on smaller, more technically elegant, environmentally friendly, and fuel-efficient compacts,

Um, those 'foreign' companies? GM and Ford, just working outside of the US market. Ford made a profit in its non-US operations.

As for the role of federal government? Well, one of the biggest barriers to entry is the prior-art provision for EPA and safety certification. If the feds could make it easier, cheaper and quicker to certify vehicles which aren't based on existing models. That way, Ford could speedily introduce the Ka to the US; GM could introduce the Corsa, etc.

Honda and Toyota, in fact, are light years ahead of Ford and GM in the next market, hybrids

The next market isn't hybrids, Ezra; it's a stopgap, rather like the hard-drive iPod is a stopgap until flash memory is cheap enough. The low-emission diesel engine is the next (and current) market; and it's another federal job to enforce diesel emission standards to shake off the position of diesel as a dirty commercial fuel.

Posted by: ahem | Jan 27, 2006 2:28:12 PM

but the domestic auto producers made a conscious decision to focus on fuel-guzzling muscle cars (and eventually, SUVs) while foreign companies lasered in on smaller, more technically elegant, environmentally friendly, and fuel-efficient compacts...

Is it just me, or could this paragraph have been written during the oil shocks of nearly 30 years ago, and been just as applicable?

Posted by: Dan | Jan 28, 2006 12:02:42 AM

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