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Saturday, November 15, 2008

Questioning the Auto Industry Bailout

Auto execs. have had more than enough time to adjust to the market as we agree they must do in a market economy. Not that U.S. car designs aren't competitive, but their fuel performance is not relative to the rest of the world. The Bush Administration is largely responsible for this by refusing to regulate (nothing new about that given the financial structure problem) EPA fuel standards. Moreover, said Administration's antediluvian stance on health care has prevented Big Auto from getting labor cost relief in the benefits paid US workers which raise the average cost to produce an American car by about $1500 higher than global competitors, combined with thin profit margins as a result of their inefficiency and falling volume which raise average cost (econ of scale in reverse) has denied Big Auto the margins needed to deploy needed marketing penetration (via price cutting) strategies. Bottom line: a plague on Big Auto and US Fed Gov, t. But, in my view, that's not the half of it. What is really needed (I have called for this for 3 years on the blog) is rationalization analogous to what France did in the 60's. Applied to Big Auto, I call for merging the Big 3 into one company: General Auto (GA). None of the Big 3 can separately compete against Honda or Toyota. The market is showing that. GA would have larger scale economies and substantial synergy including eliminating duplication and waste. The failure of Fed. Gov't economic policy that infected finance and energy has caught up with autos. With their head in the sand for 50 yrs. on energy and 10 yrs. on finance, not surprising Feds still don't get it. Well, you see auto rationalization (like tax cuts for the middle class) would be socialism, bailout would be patriotism. Auto workers who lose their jobs won't have any gains from tax cuts. OK, the Feds will screw it up and 100,000 jobs will be lost so why not start transitioning labor via training and relocation, i.e. "to have some sort of compensation package for workers and/or retraining program? It seems that, ultimately, these companies might just collapse no matter how much money is thrown at them. Why not take steps now to mitigate the inevitable?" Gene Sperling, Pres. Clinton's main economic advisor makes a persuasive case for this approach.

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