Why the Automakers Won't Make Fuel-Efficient Cars, Even as the Price of Being Bailed Out
Telling automakers to make more fuel-efficient cars as a condition of being bailed out is like telling Citigroup or any other big bank to issue more affordable loans to Main Street as a condition of being bailed out. It won't happen. Conditions like these make the public feel better about using their tax dollars to bail out private firms, but they're useless. Automakers, like the big banks, will do the minimum required, and you can bet their lawyers and lobbyists will find ever more clever ways of avoiding even that minimum. Without lots of buyers who want fuel-efficient cars, automakers won't produce them, period. (Without credit-worthy borrows able and willing to pay the costs of bank loans, they won't be issued, either.)
You might think that the recent memories of $5-a-gallon gas would transform nearly everyone into prospective buyers of hybrids that get more than 30 miles a gallon. Think again. Consumer memories are dreadfully short. With gas prices settling down to half that sum, buyers (to the extent they still exist in this recession) are moving back to SUVs and pickup trucks, which automakers are all too happy to provide given the larger profits that come with gas-guzzlers. We're witnessing a repeat of what occurred immediately after the oil crises of the 1970s. As soon as cheap gas was readily available, consumers who had said they wanted fuel efficiency went back to their old ways -- and so did the Big Three.
What to do? Short of a gas tax that would push prices back up to $5-a-gallon -- something deemed politically impossible -- the only way to get lots more fuel-efficient cars is to put the costs of the gas-guzzlers on to the automakers themselves, as part of a cap-and-trade system requiring the major sources of carbon-dioxide emissions to pay for them. This would give automakers a powerful incentive to make more fuel-efficient cars and price them far more attractively than the guzzlers, thereby attracting consumers to them.
But a conditional bailout that flies in the face of consumer demand won't work.
You might think that the recent memories of $5-a-gallon gas would transform nearly everyone into prospective buyers of hybrids that get more than 30 miles a gallon. Think again. Consumer memories are dreadfully short. With gas prices settling down to half that sum, buyers (to the extent they still exist in this recession) are moving back to SUVs and pickup trucks, which automakers are all too happy to provide given the larger profits that come with gas-guzzlers. We're witnessing a repeat of what occurred immediately after the oil crises of the 1970s. As soon as cheap gas was readily available, consumers who had said they wanted fuel efficiency went back to their old ways -- and so did the Big Three.
What to do? Short of a gas tax that would push prices back up to $5-a-gallon -- something deemed politically impossible -- the only way to get lots more fuel-efficient cars is to put the costs of the gas-guzzlers on to the automakers themselves, as part of a cap-and-trade system requiring the major sources of carbon-dioxide emissions to pay for them. This would give automakers a powerful incentive to make more fuel-efficient cars and price them far more attractively than the guzzlers, thereby attracting consumers to them.
But a conditional bailout that flies in the face of consumer demand won't work.
posted by Robert Reich | 3:00 PM
70 Comments:
The solution is to remove the 54-cent-a-gallon tariff on foreign ethanol and put the tariff of 54-cent-a-gallon on foreign oil or at least on Middle East oil. It is better to transfer our wealth to Brazil than to Saudi Arabia. Our car companies can make flex fuel cars for Brazil, so they can make them for America. The distribution infrastructure is already in place to switch to ethanol.
Dr. Reich,
Reluctantly, I have to agree with you. I remember going through some old yahoo emails in 2004 and I ran across a quote my brother sent me.
Michael Boyd explained "Consumers have the attention spans of monkeys, they just forget real quick."
I had to try to remember why he said that for a long time.
Considering that automakers' finance arms underwrite many of the auto loans, it makes sense to make fuel efficient cars because buyers of such cars are less likely to default and because the cars hold better value. Buyers of more fuel efficient cars are more immune to price swings in oil, and they typically have higher incomes and better credit than buyers of equivalently-priced cars with worse fuel mileage (consider that the average Prius buyer makes nearly $100k vs $60k for a Camry).
Fuel efficient cars tend to have better resale value, and many of these cars will end up back on the same dealer's lot as "preowned" vehicles, and they'll be financed again by the same company- import luxury car dealers make *most* of their profit this way.
In the long run, isn't having customers who don't default on payments and having high resale value more important than simply "making a sale?"
Dr. Reich,
Making cars is a for-profit enterprise, thus the automakers will always want to build the vehicles most likely be purchased. Why fight (possibly shortsighted) consumer preferences? Congress must step up and create a gas tax. If we believe that cutting our oil use is important (and personally I believe it is critical) then let's limit consumption in the most rational and efficient way - tax it heavily.
Steve, WA State
Two things work against Big Three making fuel efficiant cars. First one is long tradition of failed new technology cars.
Second is that most of their car buyers are people who do not feel the pinch of higher gas prices. Used car buyers do not dictate their sales.
Big three's history is littered with new concept cars that failed and caused them bunch of money to be wasted on production lines that work on marginal numbers. You have to spend the same ammount on a new production line weather you make 100,000 or 10 mill cars. And it is profitable only if you make 1 mill cars by the time it is shut down.
They do not wanna repeat the same mistake over and over. Why not to wait for the market for a new hybrid cars to be developed by others and then jump in with much better model with less development costs.
Toyota spent billions to prove customers that hybrids are convinient and eco-friendly. Big Three jumped in recently with hybrids with much better marginal fuel savings on SUVs then small margin savings on small cars. That is a tremendous tactical planing on their side. They also did wait for better batteries to be invented and now they can use it for full electric car. But i would preffer rechargable electric car with addition of solar cells. With such added option on top of the car you almost can eliminate small gas engine as recharger untill there is electrical outlet infrastructure all over the country. Solar cells would not add to price if you eliminate small gas engine. But there is a problem with charger, are they making it wall mounted, as in EV1, or removable part of the car's trunks which is only convinient way.
Considering the price, it would be a second car buy anyway and famillies can use other gasoline car as a long distance car.
Let's take a look at gas price change. Even with price of $5 a gallon there is no financial incentives to buy hybrids. Only environmental incentive trading it for convinience and cost. Even with $5 a gallon it takes 3 years, with best models, to balance the inital higher cost then of same car specs of non-hybrid, with savings in gas. By the time you come out even you need new battery, not counting waranty problems asociated with new technology. Other thing is that buyers of brand new cars, with exception of pontiac and saturn, do not feel the extra $2,000 a year on gasoline double prices. It would be a different story with $8-$10 a gallon as it is in Europe.
If there is a gas tax that brings price to $6-7 it have to be countered by tax car credit to poor not to inccur rage.
Green Cap and trade on car makers is going to mess up poor again, since car makers will transfer that cost on collective production, not on single smaller models.
If you wannt to make carmakers make smaller, more efficient cars across the board without trade-offs only option is laws that makes them do that without question. Lack of options will force buyers to accomodate, but that is totaly ambigous in a long run. Especialy with open foreign trade and Toyota making bigger cars allready.
If only it were that simple. But the Big Three have basic competitive issues that must first be dealt with, the most obvious one being the excessive costs they must carry for the several hundred thousand retired workers' pensions and healthcare benefits. All other factors being equal with the Japanese car manufacturers, the legacy costs alone will make it impossible for the US players to be competitive on a price basis. Yet perhaps as equally important is that Detroit has not achieved parity with Honda and Toyota quality standards, which continues to cost the US producers a steady loss of market share. And as painful as it is to admit, the Big Three are lagging behind the competition in technological innovation, which was once the hallmark of American industry.
All in all, it is difficult to see how Detroit can overcome these immense obstacles no matter how generous the US taxpayers choose to be. It would seem, in summary, that Detroit is just an aging giant that has lost it's powers and is doomed to steady decline while being overtaken now by more aggressive and creative players.
We have to look at "the big picture." The days of tunnel vision are over. Our nation better wake up and smell the coffee. With all our bail outs along with the 168 billion economic stimulus package, that btw did nothing for our economy it is hard to understand why our government can't see the need to bail us out of our dependence on foreign oil. I am appalled at news stories of green technology losing hope of being furthered because of lower gas prices. How long does anyone really think this decline will last? OPEC holds the key and we are at their mercy. They just cut 2 million barrels in production a day and vow to cut more if prices don't rise again. Instead of spending billions upon billions on bailouts, why don't we instead invest in renewable energy. We have GUARANTEED returns if we do this. I just read a fascinating book by Jeff Wilson called The Manhattan Project of 2009 Energy Independence NOW .This book Is the big picture.
I disagree. The problem isn't that the Detroit 3 don't make fuel efficient cars. They do. The problem isn't that they don't make hybrids. They do. The problem is that they don't make profits on those vehicles. They make profits on trucks and SUVs. And therein lies the problem. Will a carbon tax fix that?
The automobile industry would have been in deep recession long ago if it had to depend on consumers like me. I bought a Toyota Celica in 1980 for $12,000. I paid cash so never paid a cent of interest nor had a car payment. My goal was to drive that car for 20 years and 200,000 miles. Actually, I drove it for 22 years and 220,000 miles. I loved that car. I loved the looks; it was a radical model change that year. I loved how it handled. It was a great car, but when it was time for it to go, I didn't look back. Jewish family service hauled it away, and I got a tax break for my donation.
After that I made a decision not to replace the car. I decided to just use my work van for all my driving needs, and to use public transportation as much as I could. Since my 15 year old work van(purchased as a used vehicle)is a gas guzzler, I used public transportation a lot when gas was $4. a gallon. I did make a concession to my girlfriend and got the air conditioning fixed and a step put in so she could get in and out easier.
When I consider how few cars I've owned in my life, I reflect on the fact that the car industry would have long since gone down the tubes if all consumers were like me. But do I feel guilty? Not at all. I'm proud of the achievement of having driven a brand new car for 20 years and 220,000 miles - especially a car I dearly loved.
I think the US needs to change from a consumerist society to a society based on frugality and self-sufficiency. What that society would look like, I don't know. But I think that rabid consumerism fueled by TV advertising needs to go in the dustbin of history. Advertising is superfluous since you can find anything you want on the internet and find where you can pay the lowest price for it and have it delivered. Some things just make more sense as ways to consume.
Today's children are the first generation that can look forward to a shorter lifespan than their parents because they consume on average 300 more calories a day than their parents did. A large percentage of children eat three or more meals a week at a fast food restaurant. Type 2 diabetes rates are soaring from consuming too much high fructose corn syrup (think soft drinks). People need to eat less and exercise more. Bikes anyone?
I think people need to resist advertising and consume less but consume wisely and consume things that you really love not just a bunch of crap for the sake of consuming. If I buy something I try to make sure insofar as possible that I'm going to really love and enjoy it despite model changes, despite fashion changes. I want classic lines that will never go out of fashion - at least in my mind. Otherwise, what's the sense of consuming just to consume?
Sadly, the automakers have relied too much on the status quo and less on creating markets. In the past I purchased a new car when there were sufficient innovations to warrant it. My last purchase was 10 years ago and although I have been looking for the past 4 years, would like to (and am able) to purchase a new car I have not primarily because the fuel mileage ratings for the new cars are LESS than my 10 year old car. Mileage was important in years past because of the number of long-distance road trips but now it is important to my regular budget. I suspect I am not alone in wishing the American automakers well but doubtful that they will make the necessary changes.
Seems to me that, rather than offering a direct cash bailout, we should ask the automakers to support universal health care.
In 2005, GM CEO Rick Wagoner claimed that health care costs for GM added $1500 to the cost of every vehicle the company makes.
Universal health care would relieve GM of those costs, helping GM weather this crisis and remain competitive.
Of course, nothing is free. GM, once it became profitable again, would likely have to pay higher taxes.
But, in the short term, while GM has nothing but losses, GM pays no taxes, and there would be no cost to the firm. In the short term, universal health care would be of enormous benefit to GM by removing one of their largest expenses and making them competitive again.
How about if the US Government only buys cars that get 50+ MPG? There's your market -- the gov't buys *a lot* of cars.
If there aren't lots of buyers who already want fuel-efficient cars, it would be foolish to compel automakers to produce products that no one will want and your argument also suggests that Detroit was essentially correct for all these years producing the vehicles for which everyone is now severely criticizing them. But the fact is Detroit has lost almost half its market share in the last 25 years while foreign car companies who have been eagerly producing fuel-efficient models have assumed this share. It makes no sense for Detroit to continue down this same failed path if they are serious about rebounding and becoming a viable long term player again.
Your suggestion about their probable intransigence suggests that (a) their lack of more fuel efficient cars is not really a problem because their customers will not want to buy them anyways and (b) they will inevitably fail as viable enterprises regardless of any bail out infusions the taxpayers provide to them because they will continue down the same market share declining trajectory that got them to less than half of the domestic US market.
Stan Perkunder
There is a difference between fuel efficient quality cars that toyota, honda and europe makes and HYBRIDS. I was talking about hybrids, and you are talking about Big Tree loosing market share because they made bigger, lower quality, more expensive, gas guzling cars.
They are suffering because two things: SUDDEN shift in demand for hybrids (since they became more cost effective) AND sudden demand change for all cars.
b) they will fail mostly because they inccured lot of debt in previous 20 years by failing product lines. GM allready owe $60 bill, after stocks fell GM is worth $35 bill. 35/60 How could anyone survive with that leverage, and now they are asking additional $18 bill just to survive till 2010 when they hope they'll be able to make profit to start returning money.
Mr. Reich,
1) Man made global warming --- the rationale for your cap and trade nonsense --- is the biggest hoax ever perpetrated on the human race.
Click here to put current CO2 levels into historical perspective (per directly cited peer reviewed science).
Click here and here to put temperatures into historical perspective (per directly cited peer reviewed science).
Click here to put sea levels into historical perspective (per directly cited peer reviewed science).
Click here and shatter the biggest myth of all regarding man made global warming and whether government should regulate CO2.
That is just the start of a new presentation I am putting together in the hope that the world will wake up BEFORE we waste at LEAST $45 TRILLION in an utterly futile and completely counter productive effort to micromanage a climate which is CLEARLY beyond our control!
2) Click here and know why I predict that, by 7/15/2009, oil will be back above $100 per barrel, probably above $125 and possibly above $150. I also expect that by 12/1/09 oil will be back down to about $50.
Note, in the previous link, that it is a quantifiable fact that ANWR alone could have prevented the enormously destructive GLOBAL price spikes of 2008!
YOUR PARTY is to blame for the price spikes of 2008! And, until your party STOPS obstructing efforts to add some of our TREMENDOUS resources to the global market, we will CONTINUE to see these chaotic and destructive fluctuations in oil prices.
3) Click here and know why “Peak Oil” is probably at LEAST 40 years away. Once we reach “Peak Oil”, there will still be plenty of oil left. But, gasoline prices will then remain consistently high. After reaching “Peak Oil”, Oil Shale, Coal Liquefaction and more will still give us at least another 50 years to develop the next generation of transportation fuels (assuming your sort have not yet driven us back into the Stone Age).
Please, just try to stay out of the way. The markets, in due time, will work this all out. Your BIG mistake is that you are, for no valid reason, attempting to foist upon the markets a “solution” to a problem which does not yet exist and won’t exist for at LEAST another 40 years. The worst part is that you are seeking to foist your folly upon the rest of us through force of law.
The “divine right of self-righteous groups” indeed.
SBVOR
Oil price spike was caused mostly by crash of real estate market, after which all investors rushed to sell securities and buy commodities such as oil futures. Do you know that speculations in agriculture market was banned in March 2007? There was some increase in demand but that accounts for present prices, jump from $30 to $45 a barell as today.
About ANWR you would be right under two conditions.
a) if there is sudden instalment of 100,000 new oil dericks. Thats how many would take to pump so much oil
b) if US oil market is closed market and doesn't contribute to world prices. As it is present, all oil pumped from ANWR would affect the world price by additional supply for $0.50 difference. Oil from US goes to world markets to be sold by companies that do not have rafineries. Only if US oil is nationalized and refined in US and sold in US it might have effect in closed market.
How many US TV manufacturers are left ? None. Asians now dominate the technology
Same will happen to cars: Asian & European monocultures have higher average IQs and will complete their takeover (like in California where almost everyone buys Asian or German cars).
Hate the idea of another bailout..or should I say rescue of automakers. Yet my concern for the workers at the lower end.. without jobs, or should they all collapse, finding jobs in this market has me conflicted.
But your ideas are well taken, hope you may become the next Labor Secretary. www.vernasmith.com
SVBOR,
Your ideology is showing. A discussion concerning oil production can be had without dragging global warming into it, although for some it would seem, the issues are intertwined.
Your comment that production in ANWR would have prevented the price spike in oil that we have experienced leads me to believe that you have not followed the Congressional hearings conducted with our 5 oil co's CEO's. Without high oil prices they could not invest in the research and development of infrastructure necessary to bring ANWAR online. The next problem is delivery capacity. The existing pipeline was constructed to handle a specific amount of barrels per day and as we know a pipeline cant be stretched. Also, pipeline would have to be constructed from ANWR to connect to it or new ships would need to be added to their fleets.
All of this cannot be accomplished without a substantial and guaranteed increase in the price of oil.
The same goes for drilling in deep water off our coasts. It is only assumed that vast amounts of oil exists. The technology to research at great depths is in itself very expensive and all of the deep water platforms (33) are currently spoken for.
If as you say, Peak oil is 40 years away, we must conclude that cheap oil is NOT if we are to access the remaining reserves. 10 or 12 dollars a gallon will become the norm, possibly more. We cant expect the oil companies to produce a product if they cant make a profit, now can we?
Professor - based on your previous comments, do I assume correctly that you agree with Chris Whalen that CDO's and CDS's should be "outed" and then culled to keep the real hedgers solvent while letting the "naked shorts" of simple bettors take it in the teeth?
Fuel economy standards also work.
Improvements is efficiency just lower the total cost of ownership. As what happened after CAFE standards were originally imposed showed the result was more cars on the road driving more miles per year.
The net result was that gas consumption continued to rise.
The only way to cut consumption over the long term is to restructure the transportation model. This means getting away from single passenger vehicles, getting away from exurban living, and getting away from the global transport of everything from spinach to water.
Society needs to be restructured so that it is more compact and that it gets more of what it needs locally and that it spends less on what it doesn't need at all.
Since all plans being discussed are concerned with how quickly we can re-inflate consumer spending it seems that the opportunity for examination of the fundamentals of our economic system will pass unexamined, once again.
Got proof reader?
M.
The three auto CEOs recently missed a great way to save themselves.
While returning to congress to beg for a "socialistic handout" and taking a car instead of expensive private jets, they should have driven to washington DC in a TOYOTA.
Instead they drove their own American made cars and missed an opportunity to experience their competitors value proposition.
They are losing market share because they produce CRAP. Period. Get a Fu__ing clue.
In the US we use gasoline at rates that are 30% less efficient than our competitors.
What is the future of any entity, country or corporation that willingly chooses inefficiency as a policy for a finite resource?
If the US were a private corporation, and we the stockholders, we would all be embracing CAFE, or cap and trade, etc as means of competitive survival.
All Dems,
If it is really so infeasible for domestic oil companies to produce more domestic oil, WHY has your party found it necessary --- for at LEAST the last 30 years --- to make it illegal to produce that oil?
Granny,
Sorry gal --- oil and AGW are, for now, inextricably linked at the hip (thanks to the single most dangerous religious cult the world has ever seen).
Jordan & Cunctator,
1) Click here and read just a “few” proofs that “speculators” (as always) served to contain price volatility.
2) Click here for the one chart which proves the price spikes in oil were a simple matter of world demand exceeding world supply.
Click here for the more expansive proof.
3) Click here and here for two charts which prove that domestic conservation will not address the growing global demand for oil.
Click here for the source of the first chart.
If you want to impose your Liberal Fascist folly through force of law, you had better get to work on that One World Socialist government.
4) No, we cannot remove the political obstructionism from ANWR and get immediate results. But, if Dems had not spent 30 years blocking ANWR production, we would already be up and running and producing just about EXACTLY the amount of the MAXIMUM global imbalance documented in this post.
Jay Leno succinctly addressed the insanity of the argument that ANWR cannot provide immediate relief (to those who are addicted to immediate gratification).
AGAIN, click here for the PROOF that ANWR alone could have prevented the price spikes of 2008. You will have to do a little reading and follow all the ANWR related links. But the proof is there.
Now, click here and realize that, although ANWR alone could increase our proven reserves by 48%, ANWR is very small change compared to some of our FAR larger domestic possibilities.
Government needs to get out of the way and let the market determine which of our domestic oil resources are economically recoverable and when.
Dr. Reich:
The whole problem with American car companies is that they already are disadvantaged by an uncompetitive cost structure. So you want to increase taxes on them, and create operative burdens?
It is very, very unwise to burden further sick competitors with operative & tax burdens as a precondition of a "bailout" in the first place. The term “bailout” is not even accurate because no one is suggesting a give away to the auto industry. These are loans that will be expected to be paid back. That is not a bail out - it is an investment. An investor should only want one thing: a return on investment.
Really smart people with backbone would say, “yeah, lets loan the industry $25 or whatever billion dollars with the only precondition being that those car companies make a profit and permit us a return. That requires car companies be flexible enough to make whatever type of cars that consumers want at a competitive cost.
Under a cap & trade system, it won’t be the automakers that will foot the bill, rather it will be the consumers.
Dr. Reich, I challenge you to rise above the rhetoric, and discuss how we can create policy that allows our industries to become more competitive with the world. Tax burdens and restrictive operating rules will not do this.
Ford sells a 65 MPG diesel car in Europe. Why can't they use the bailout loans to retool in America to offer us the same option.
Over 40% of the U.S. oil consumption is related to transportation. The average U.S. auto gets 22 MPG. Selling a 65 MPG auto could potentially reduce our oil consumption for autos by 2/3.
Why isn't this an option? Why can't I get this 65 MPG Ford.
As a taxpayer, I want answers to why these companies aren't more progressive and more strategic.
I doubt if the bailout loans will change their business model. I vote for a bankruptcy option to force U.S. auto makers to redefine themselves.
@Robert, et. al
You made a very obvious logical error. You assumed SUV = non-fuel-efficient. And you assumed consumers want fuel-INefficient vehicles.
If a consumer could buy a F150 that got 50mpg do you think they would prefer a F150 that got only 10mpg?
Since when is wasting money a desired "feature"?
Does anyone go into a dealer shopping to find the car that wastes the most gas?
Separate out the desire for big vehicles from the NON-desire to spend money on gas!
I am disappointed Bob. I expected more from you.
You posit that the US big 3 are suicidally committed to irrelevance and obsolence as a business plan?
I don't think so. It is much more likely that:
a) They are fufilling a market demand.
b) There are market distortions (political/economic/etc.) that encourage the manufacturers to do what they do.
c) There are other nuanced reasons for their actions.
Well, I've wanted a hybrid minivan for years now, and am angry that they are available in Canada but not here, yet we have hybrid SUVs here.
Maybe they just need to do a better job of figuring out what consumer "demand" truly IS.
Donna,
What’s stopping you from buying your hybrid minivan in Canada?
Are you more enamored with your anger than your vehicle?
Sbvor:
I knew I'd hate seeing you back. Didn't realize it would be this quick.
Folks, Sbvor is somewhat of a lunatic. Can be a nice guy at times but gets carried away with his euphoria and has a real fetish for links, most of them to his blogsite, where you can find a huge collection of insanity and nonsense.
He has a real problem with cause and effect. He links graph after graph purporting to support his conclusions but most of them don't.
Some of you are new here and will love to engage him, it will be fruitless. After you have shown or proven the illogic to his rants he will begin with the fascist, communist, socialist crap. In his mind anyone to the left of Phil Gramm is a communist.
Enjoy him for comic relief but don't get pulled into thinking that he is open to reasoned debate.
SBVOR
Let me explain what ideological blindness means. In problem-solving process you have to keep going untill you reach BOTTOM LINE. Ideologically blind stop the process when they encounter ideologicaly acceptable level, not bottom line. When you reach bottom line is called pragmatisam.
Can you immagine what would happen if US was using oil reserves to maximum capacity, as you suggests, and another global war started? That was the reason for puting asside oil reserves in time when oil was $12 during COLD WAR. It was not democrats or republicans alone that banned that oil.
Are you forgeting that there is 64 milion acres of unused oil allready leased, but oil companies are not able to use it yet untill they free up other platforms and those areas are profitable only when oil prices are higher. I guess you are against free market and want to order those oil companies to drill there against their profitabillity. I guess you want central planning.
Sarah Palin is for drilling in ANWR since old oil drilling is drying up and pipeline is at half capacity. And their oil revenues are falling. It would take tax subsidy to force oil companies to start drilling there to make it proffitable and to build more pipelines to connect ANWR to already existing line. I guess Alaska wants US to pay their communist sharing of natural resources, since oil tax is used to share Alaskan state revenues in between residents. They receive $2000 each from state revenues, and they pay no taxes. But do not have money to pay themselves for pipeline and bridge to nowhere? They wannt pork from the federal budget so they cann keep sharing?????
Art
you are late i allready got pulled in
Thanks
Jordan:
Sorry. Spent the morning responding to your post a couple of iterations back.
Dr. Reich is dancing faster than I am.
Jordan:
Since you brought her up I gotta relate a story from NPR yesterday.
Apparently NPR has a cartoonist who draws his cartoons on NPR website and they then request readers to suggest captions for the cartoon.
Yesterday the cartoon was of Santa undergoing psychotherapy. He was sitting on the couch, head down, shoulders rounded, looking forlorn. The psychiatrist was in her chair, prime and proper, taking notes. One reader sent in a caption to wit: "...and then I heard a shot; someone shouted You Betcha; I looked over and Rudolph was dead".
Was driving down the road howling.
Art, as always, is all rhetorical bluster utterly absent any quantitative data to refute my quantitative data.
Jordan strikes me as a profoundly underachieving high school student (at best).
Both are excellent examples illustrating why I moderate comments on my blog.
Let us consider for a moment the amount of advertising money the automakers have spent to ensure that their larger, less fuel-efficient, more-profitable-per-unit trucks/minivans/SUVs continue to enjoy high demand.
Customer demand is driven by a number of factors, not least of which is targeted advertising. The automakers are the largest purchasers of television advertising in this country (and probably the world though I have less data on that). They aren't spending all that pre-profit money for naught.
The argument that they won't make a vehicle because there isn't a demand for it presupposes that demand is independent of their other actions.
Toyota, Honda and other foreign manufacturers have proven that "if you build it [well], they will come."
Sbvor:
Nice try and your likely right in your assumption that no one will research to see how many times you have been shot down with your "quantitative data".
After dealing with you over time I know longer need nor have the time to run around and prove you wrong over and over again. Been there, done that.
I have now acquired an experience level with you that allows me to presume most of what you post is fatuous and any "quantitative data" you have, you have either misinterpreted or garnered it from some obscure group of peer reviewers.
Love ya guy, you are a trip. But I do enough talking to the wall.
Sbvor:
Oops, forgot.
You moderate comments on your blog because you don't want to hear from anyone other than yourself or some like minded twits.
“You moderate comments on your blog because you don't want to hear from anyone other than yourself or some like minded twits.”
Click here and examine the published comments for proof that you lie.
In that same thread you will find proof that when I am proven wrong, I admit it.
When reasonable people advance the discussion and at least attempt to substantiate their points, I publish them. If you ever adhered to that standard, I would publish your comments. But, you never do.
Dr, Reich,
With all due respect, I believe you have been sitting in your ivory tower too long. Given consumer demand for a green car, do you really believe government needs to meddle in the market to make car companies meet that demand? Having the government decide what cars the companies should produce is a prescription for disaster. “Become profitable so you can repay this loan,” is all the government needs to say. Companies will have to meet demand and pay their cost of capital, or they will cease to exist.
The problem has been that American car companies have not been able to be flexible enough to change their products in the face of changing demand. Simply put, they have had too much overhead, and have too little to reinvested t o stay competitive. This is why their products are inferior to those of their competitors. They will have to become leaner & more nimble, so that they can allocate resources more effectively.
"They will have to become leaner & more nimble, so that they can allocate resources more effectively."
Perhaps, but if that's the case, they are doomed, because they might diddle around the margins, but they have no idea how to become more nimble. And their idea of lean is to continue to seek concessions from workers, not fundamental structural transformation.
It is for these failures that the CEOs should be removed. Leaving those with a demonstrated track record of failure to conceive and successfully implement such a massive transformation assures it will never happen.
No, if this was a good bet, they'd be able to get money commercially.
If anyone questions that the Multi-National Corportions(Oil) in concert with, in particular any Republican Administrations, the American Petroleum Institute, the AMA(the Auto Mfg. Assn.) and All Lobbists related thereto doesen't threaten anyone, any state, any Group active in safety, clean air and water for it's citizen, then you should contact the people from California who leased the EV1 electric car(from GM Corp.)and
they themselves lobbied to keep leasing this wonderful car was like tearing down the Berlin Wall with a tooth pick. If this country would have maintained a more strigent Anti Trust laws and had the guts of Teddy Rowsevelt, who kept them at bay while he was in office, to their chargrin of the Fascists of that circa, perhaps we the people might just have a government that would listen to the people instead of money and power.Respectfully,
thedrunkenfoulmouthedfilthybeast
SBVOR, who is you calling a liar? And who are you calling a liar & why?
Global warming is not a fallacy, it is happening. Although there are some other forces (natural) such as the stagnation of ocean currents help keep the poles a lot cooler than the center of the earth and stop this from happening. Let's hope so.
If we prove you wrong, will you honestly admit it? Will you even listen to our arguments?
Reich leaves out the tax incentives the government gave out to people who bought SUVs for 'business'. My boyfriend got his SUV, after tax breaks, for half price. This amounted to getting $20,000 in government incentives to buy this vehicle.
Although my boyfriend actually uses his for business, I see a lot of kids getting driven around, a lot of empty-single-driver SUVs on the roads. Obviously this was a tax boondogle.
He also bought a Honda hybrid, but only got a $2,000 tax break. These tax incentives should have been reversed. It is NOT a free market out there Mr. Reich. Many consumer car buyer decisions are government driven.
I agree that this is likely to occur. I disagree that this is already occurring as it was just reported that YoY sales for November were off by 30% to 45% or so depending on the brand. No one - yet - is running out to buy SUVs. But I do expect that it is likely to occur next year.
Jordan wrote:
"Two things work against Big Three making fuel efficiant cars. First one is long tradition of failed new technology cars."
But why do the new technologies fail? There is a 2006 documentary film called Who Killed the Electric Car? that claims that the auto and oil industries worked to kill off the electric car.
Dr. Reich,
I just sent my e-letter off to Senator Dodd explaining why Chapter 11 would be a better solution for Detroit's Three Stooges than sending my money to Detroit. Why should a bunch of politicians, many of whom have never run a company, reorganize a company rather than a bankruptcy judge appointing a professional team. Maybe Jack Welch could head up that reorganization team. There are scores of companies that have come out of Chapter 11 and started making money.
Bob Callahan
Stamford, Connecticut
Dr. Reich,
Not all car maunfactures are created equal. Ford has money in the bank and only needs a bridge loan, GM on the other hand is out of cash and Chrysler is managed by a private equity firm and why would they qualify for a loan. I do not believe that management is the entire problem, it is the unions that have caused this but bankruptcy will not solve this problem. To be brief, Hondai builds cars in AL for $26.00 an hour and Detroit pays $76.00 an hour for labor. That is the problem.
Before there were Japanese Cars in the American Market, I read a column by a Princeton Professor of Engineering. He told of his attempts to interest GM in a better engine he had invented. They weren't at all interested. Finally one GM VP told him that he didn't understand; they weren't in business to make cars but to make money.
Well then the Japanese came in and they were making much better cars.
Unfortunately the same attitude prevails in the upper echelons of management today and the cars are inferior to the foreign competition.
Control should be rested from these clowns and given to Engineers who are interested in producing great cars. Only then will the Big Three become competitive.
Morris Kent Thompson for President
An American
Gearing up for 2012
Dr. Reich:
While I agree with your assessment that it is the consumer that drives the economy there are times that the Government and our courts have changed society.
For example, I remember when blacks sat at the back of the bus. Today we have the first black in U.S. history as our President.
Ironically, I do not see a black man, but a very intelligent and charismatic individual that has captivated the world.
The acceptance of EV cars and technology can be fostered with governments stressing the importance of combating Global Warming and mandates. The public, the consumer. will join in the fight.
We have an opportunity to restructure and retoll our auto industry with state of the art technology that will help to propel us into the 21st century. A century with such wonders to behold, or such calamity to come.
A thought.
Kent
All the plans are for short time relief only, the future can't sustain our dependence on oil, poor engineering, relying on consumer demand to determine the direction of transportation, gridlocked cities and sprawl that strangle daily life in a hundred ways and make the US uncompetitive in a global economy.
I grew up in California and was a car nut, Italian sports cars primarily and could not imagine not having a car, the entire society was based on private cars, walking and public transportation was not an option for the vast majority of communities. I moved to another country 5 years ago and did not have a car. The city I was in had public transportation in many forms yet many people were moving to car ownership because the could afford them for the first time. The same problems with car oriented societies started to change the way people live, for example the gridlock, shopping centers far from the city center that had no easy access other than by car, and dirtier air. It is unfortunate to see that trend because after living for 5 years without a car I feel free of the addiction. A decent public transportation system is so much less intrusive on ones life, it is faster, cheaper, carefree, reliable and allows a much better quality of life. I have more time for important things such as family and friends and social activities, plus save $1000 a month in direct and indirect transportation costs by not having a car. When I talk with people back home in California, they insist that cars give them freedom yet in every aspect of their lives they are restricted by or dictated by a car oriented society. I recently visited there for 2 months and drove myself, I had to, no stores or services where within range of the limited public transportation options and car oriented layouts of towns and cities rule out walking. It took twice the time to do things there than here in my adopted foreign city. I found cars to be more limiting than liberating, and they are suffocating and bankrupting America's whole society. These items, along with others are making the US less desirable to live and work in, less competitive, and lowering the quality of life.
These are the long term issues, not whether oil is temporarily $2.50 instead of $5, or whether a bailout for companies that cater to the worst instincts of a society, all to save jobs that are doomed anyway.
I know there will be dramatic short term negative impact on some workers and communities that are hooked on car manufacturing but the money asked for would be better spent on education and help moving those people and their communities away from the addiction on the car plants. It is short term pain for long term greater benefit and renewal in a sustainable economy and improved income and quality of life.
Current trade policy doom any large scale manufacturing in the US, but with self interested new policies, new types of production in less destructive fields would result in long term benefits over any conceivable outcome of artificially prolonging the dying auto industry's agony.
It is funny how the protectionist policies of my adopted home country has caused many auto manufacturers wanting easy access to the local exploding market, built manufacturing plants to avoid the high tariffs and those smaller local assembly plants are the most profitable operating units of some of those companies such as Ford, GM, Toyota etc. These new modern plants are more energy efficient, better located, and have better working environments than the old US Rust Belt plants.
Major shakeups like the replacement of the car oriented life style are essential for the US economy and a livable lifestyle to exist in the US.
All the proposed plans are, as best delaying the day of confronting the real issues that will not be denied.
Auto workers don't make $76 an hour. That is just silly talk.
How about a gas tax that is inversly proportional to the gas mileage of the car it goes into?
How about we don't grand-father cars older than 10 or 20 years for polution testing? Or maybe we just do like the Germans do, every car is tested every year and if it doesn't meet current standards, it gets made into beer cans.
Jordan mentions the Big 3's long history of failed models. They are? (I mean besides the Edsel)
And don't bring up the electric car, there was a waiting list and the people who leased them wanted to keep them. (That would be like Bush saying "But he wouldn't let the inspectors in!")
The problem with using fossil fuels is that sooner or later we run out of fossils. So it doesn't matter what we do, we are rapidly entering an age of high fuel cost, which might not be a problem, but as it follows an age of cheap fuel cost, it's going to be very painful for those of us who aren't either extremely wealthy or extremely poor already. My guess is that the automakers don't want to spend any more money than they must as they realize that in a few years, or perhaps a decade or two it won't matter. After all, who wants to be re-tooling when the end comes?
No question that the big 3 won't make the right cars because we Americans won't buy them. Americans won't ever do the right thing without pain. Forcing the manufacturers to take responsibility is ridiculous.
The rest of the world understands it and taxes gas why can't we do it? Why are Americans entitled to cheap gas?
$4 gas got people thinking. $2 gas will cause them to forget. Solution is pretty simple.
If gas prices were certain to be above $4:
It would force us out of our gas guzzlers
American ingenuity would come to the front and help us find reasonable alternatives
Some of the money for energy would stay in the US for use in many important ways: rebuilding infrastructure, incentives, etc.
Maybe we'd get some attention for public transportation?
If average gas mileage in the US was just 30mpg, it would eliminate our need for Middle East Oil. That's reason enough.
After years of tooling around in my husband's 1976 Toyota Corolla (an ugly lime green one), we bought our first car as a couple in 1986. It was an Oldsmobile Siera Wagon. (We kept the Toyota as a station car for a few more years.) Within a year, the paint began to peel, but otherwise it rode fine. But five years later, the main axle broke on the LI Expressway. Fortunately, my husband was able to guide the car to the median safely. The car was pronounced "dead" and had to be towed away.
Considering how long our Toyota lasted and how long my father's 1983 Honda Civic lasted (15 years-plus), we decided not to buy another American car -- nor buy a new car, regardless. We've been driving pre-owned Toyotas and a few years ago, replaced our 15 year-old Toyota wagon with a used Honda Accord. They both still run well with minimum maintenance.
Recently, breaking our new car rule, we purchased a Honda Fit for our daughter to go to and from college. She loves it and it runs well.
To make a long story short, the Big 3 have to make not only fuel-efficient cars, but reliable ones as well. Take a look at any April Consumer Reports Used Car Guide and the top cars for reliability are almost always foreign-made. I need to know that an American-made car will still be running 15 years from now before I buy another. (And don't blame the unions! Blame the fact that we don't have a national health care system like other industrialized nations...but that's a story for another day.)
I am not an economist, so let me get this straight. 1. The public will not buy reliable, small, fuel efficient cars. 2. Detroit has been hemorrhaging market share to the Japanese for decades because they make reliable, small, fuel efficient cars, which the public will not buy. Have I got this wrong? Is it the economist's equivalent of a pesky little philosophical paradox?
Most people including Reich know next to nothing about actual manufacturing businesses let alone the automotive business. If you want to force the car companies to raise mileage on vehicles they produce, raise the tax on gas and force the price to stay higher if you can accomplish this in our dysfunctional political system. There's a reason why Europeans by smaller more fuel efficient vehicles and even US auto companies produce these vehicles for their overseas markets. As long as gas stays cheap, Americans will buy the largest car they can afford. And why not? They are more comfortable and much safer to drive, can have a lot more power, and are often more practical for families to own. Also compared to hybrid vehicles they are usually a much better value too. What you almost never hear anyone talking about is the cost of hybrid battery replacements. Who is going to willingly fork over $4,000-$5,000 for one of these? When gas is cheap, how many miles and years do you have to drive your Prius before you break even on its cost? Not counting of course the cost if you have have to replace one of its expensive batteries?
Or how about this: If you want US cars to get better gas mileage, why doesn't government remove many of the safety standards and gadgetry required on cars that make them heavier and safer? You can easily make a car lighter by getting rid of all of that reinforced steal, anti-lock brake systems, and airbag systems if you don't mind taking more risks when you drive.
We all have our own stories to tell about cars we owned that were lemons but I know lots of people who have more than 200,000 miles on their US made car/truch and are happy with their purchase.
What everyone needs to remember is that we lost almost our entire electronics market to the Japanese because of unfair trade practices and the unfair valuation of the Yen and we are allowing this to happen again to our auto industry. This is primarily government's fault but it is also the fault of people who bought these foreign made products instead of demanding better ones from our US manufacturers and buying American.
Everyone is going to be affected by massive job layoffs if the auto companies fail so why do so many Americans continue to buy foreign cars? There is basically no quality differences anymore between these cars and you can find more fuel efficient vehicles made by US car companies now than you can from all of the foreign companies combined!
The government should not be in the business of mandating more fuel efficient cars for any loans. The government can't even manage its own self.
RJ Crane, topplebush.com
"Without lots of buyers who want fuel-efficient cars, automakers won't produce them, period." That's just silly. It's like saying "as long as 12-year-olds want to drink alcohol, the liquor suppliers will continue to sell it to them, period." Buyers will not want inefficient cars if inefficient cars are not available. All the government has to do is pass a law stating that all cars sold must be fuel-efficient. Period.
Mark Marshall
Toronto
Wake-up America! The bailout won't work because it doesn't address the root of the problem - unfair trade practices.
When they are help crook and theft criminal from wall street paulson bush conggres so fast without question ..they are reward for being crook and take money from AIG give to big 3.
BLAME US POLITICANS THEY ARE THROW AWAY AMERICANS AND BRINK ALL CRAPS AND TOXIC AND THEY MUST BE HELP BECAUSE BIG 3 ONLY AMERICAN LEFT IN THIS COUNTRY...GOVT KILLING us DO U THINK JAPS PEOPLE USING US AUTO...NEVER !
CAN U IMAGINE WE INVENTED CARS AND WE DONT HAVE ANY BECAUSE WE ARE SUCKER !! NO FACTORY NO COUNTRY NO BORDER NO COUNTRY, 2 MILL JOBS OBAMA SAY ONLY FOR ILLEGAL ALIEN.
When the Japs STEAL every bit of our technology they get it for a zero RESEARCH & DEVELOPMENT cost. JUST LIKE THEIR STEALED OUR TECH ELECTRONICS TOO.
Then, when they pay their workers a buck-a-day, don't pay for healthcare, worker's comp, pensions, or anything else, we can't possibly compete so we get killed at every step.
The only way we can lebel the playing field is by using DUTIES. If they're a foreign car company, they should be paying duties, no matter where the cars are made. Protectionist your ass!
Wake up! Do you really think we don't need protection from these tactics? When the Big 3 go under, a $21,000 Toyota will cost $35,000.
The politicians that can't see this need to get their heads out of their ass and quit taking bribes from everybody and their mother.
Any body run for office conggres even president should be put in IQ TEST AND lie detector..they are be lier screw american jobs to unfair trade,they are killing us ,how many japanese using american cars, never ,they like using mercedes beside toyota
I believe the United States has a window of opportunity to reap environmental, economic, and national security benefits from a multiyear tax on gasoline. I understand that in the midst of this recession we are trying to pump money into the economy to stimulate investment and employment and taxing people seems to be counterintuitive. But there are so many benefits to this action and the political context may never be as favorable as right now.
Despite the severe economic downturn that Americans are experiencing, one can almost sense the collective sigh of relief on America’s roadways. When gasoline hit $4.09 per gallon nationally in early July, Americans could probably never imagine that we would currently have gasoline prices under $2 per gallon. Yet, many people correctly realize that the current decline in gasoline prices is only temporary.
Even though the entire world will experience some form of an economic slowdown, global economic activity will eventually pick up led by the emerging economies in Asia and Latin America. Their thirst for oil and gasoline will only exert upward pressure on crude oil prices and eventually our increasing reliance on imported oil will make us vulnerable again.
As a society, if we were willing to look ahead and sacrifice for the future, we would support a gradual, multiyear increase in federal gasoline taxes. An increase of 10 cents per year for ten years seems affordable with some of the revenues going into the highway trust fund for the repair of roads and bridges and some used to create an alternative energy trust fund to finance wind, solar, or even help automakers produce compressed natural gas vehicles. Congress could make sure that many alternatives receive funding. This way, competition would keep a lid on price increases for any one alternative. We could distribute the money to the states (maybe each state should get the same percentage revenue it generates in gas tax collections) and let them decide which type of alternative energy source makes sense for that state.
Imagine the benefits of extra billions in capital every year! Employment in alternative energy industries would soar. We would reduce our “carbon footprint” significantly. We would more steadily pressure Russia, Iran, and Venezuela to avoid risky foreign adventures. In fact, speculators would stay out of the oil markets knowing the world’s largest oil consumer was determined to lower its demand. In this way wholesale oil prices would remain lower and we would feel less impact from the increased taxes.
We probably should initially exempt diesel fuel from the new taxes because of its impact on truck drivers and the cost of basic goods like food. Using some of the new tax revenues to support a new trucking fleet based on compressed natural gas, which burns cleaner than gasoline and is more widely available domestically, would further enhance employment and energy security. We could phase in the tax on diesel more slowly.
Finally, for those who chant “drill, baby, drill,” and think that domestic offshore drilling is the answer to our problems, how many oil companies are going to employ the capital needed to drill in deepwater and other expensive, hard-to-reach fields with gasoline under $2 per gallon? Many unconventional oil projects from Canada to Asia and Africa have been postponed in the last six months due to lower oil prices Do you think Americans are going to buy American-made small cars with gasoline under $2 per gallon. What are the prospects for a return on the bailout of the auto companies under these circumstances? It would be rather foolish of us to bail out the auto companies only to have Americans shun fuel-efficient cars because of low gasoline prices.
Now is a very propitious time to enact this measure. A very large stimulus package is about to get passed and there is an urgency about improving the economy. Why not enact a multiyear gas tax as part of a package? It could be sold as part of a down payment on paying off the debt from the stimulus and a gasoline tax would subsidize the types of spending going into the stimulus. Americans would hardly notice a small increase in the gasoline tax at this point, especially if it took effect on January 1, 2010 when the economy should be more stable. Are we going to wait until the economy starts growing again and the urgency is gone and the dramatic decrease in gasoline prices has worn off?
The big question is whether America is up to the task. The new administration will have to act decisively and creatively to avoid a severe recession in 2009. Similarly, will we support bold and innovative ideas to secure our energy future? Will we have the attention span to “keep our eye on the ball” now that gasoline prices are much lower? Will we be smart and start to wean ourselves more aggressively away from an oil-dependent transportation system? Or will we wait until the next run-up in oil and gasoline prices and then whine and complain when it is clear we have very little control over our destiny and we are even more vulnerable to OPEC and Russia?
Some good points, Prof. Reich. Thanks for your always fair-minded insight for the real Americans that get shafted when these situations play out...
I think Ralph Nader's plan for an accountable -- for once -- bailout for irresponsible CEOs are well-thought out, also.
http://www.nader.org/index.php?/archives/2088-Crisis-and-Opportunity.html Nader Plan
We don't need more fuel efficient
cars. We need fuel-efficient trucks and minivans. SUVs are
classified as trucks.
We need the same fuel efficiency standard for trucks as cars.
Dr. Reich said, "Without lots of buyers who want fuel-efficient cars, automakers won't produce them, period. (Without credit-worthy borrows able and willing to pay the costs of bank loans, they won't be issued, either.)You might think that the recent memories of $5-a-gallon gas would transform nearly everyone into prospective buyers of hybrids that get more than 30 miles a gallon. Think again."
Very true! Supply side economics is great so long as you have a demand side! And your right on the money with job creation the demand side gets smaller and smaller.
Larry K. is waco to think if we build more the unemployeed will buy more! Even Milton F. would question that logic.
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Alena
www.smallbusinessavenues.com
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www.detectivenick.com
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