Requiem for Chrysler

http://www.reuters.com/article/ousiv/idUSTRE53S8F620090430

After 84 years, Chrysler, once one of America’s largest corporations, an automaker with a long history of innovation and iconic brands and models,  filed for bankruptcy yesterday.  Like a zombie, Chrysler will seem to live on for a while, propped up by the federal government and Fiat.  But it’s a dead company walking. 

I give the Obama administration credit for trying to salvage it for the benefit of the employees, but both the Bush and Obama administrations, and many administrations before them, are culpable for its demise in that they’ve done nothing to fix the broken trade policy that grants free access to the American auto market to any foreign maker who wants it, while getting nothing in return. 

But Chrysler is unlikely to survive for long.  Regardless of whether or not, with Fiat’s help, they start marketing small, fuel-efficient cars, few will buy them.  Chrysler has two strikes against it:  a lot of Americans won’t buy American-made vehicles because it’s not consistent with the “hip” image they want to project.  And now they have a “bankrupt/loser” image to go with it. 

Their plants are already shut down as suppliers, many on the verge of bankruptcy themselves, are refusing to provide parts with no hope of being paid.  Dealerships are putting on a brave face, but know that many will be closing their doors as well.  Bond-holders are mounting a legal challenge to government’s quick, “pre-packaged” bankruptcy plan, threatening to drag it out for months. 

The net impact of all of this will be that the American auto market will be diluted even further with the entry of yet another foreign auto-maker  – Fiat.  Market share for all auto makers, foreign and domestic, will decline slightly.  Has Italy promised Chrysler, or GM or Ford for that matter, a corresponding number of sales in Italy?  Of course not.  Because of their extreme population density and over-crowding (Italy is six times as densely populated as the U.S.), many Italians don’t even own cars.  Italy is one of the parasitic economies of the world dependent on exports to the U.S. to keep their labor force employed.

What’s happening to the domestic auto industry and the U.S. economy as a whole is no different than what happens to any host organism that becomes infested with parasites – a slow, agonizing death as it bravely soldiers on but becomes more sickly with each passing day.  As overpopulated nations feed on our market, slowly draining us of jobs and wealth and giving nothing back in return, we try to pretend that nothing is wrong, even as our economy has been brought to its knees.  And, just as in the case of a parasitic infestation, where the parasites begin to feed even more ravenously as the host is dying, oblivious to the fact that the host’s death portends their own fate as well, foreign manufacturers like Fiat are swarming to the American market.  Soon will come a flood of auto-makers from China.  All will be chanting the benefits of free trade and snarling at the host in defiance of any moves to swat away the invading horde with moves toward protectionism.   

It’s time to start taking swats.  Just as a horse is blessed with a tail to keep the hordes of flies at bay, we have at our disposal a whole array of trade policy tools to maintain balance.  Yet, inexplicably, we’ve settled on a policy at the extreme end of the spectrum, giving free access to our markets to everyone while demanding nothing in return, and disavowing other policies that offer some hope of restoring balance. 

We’d better awaken from this zombie-like trance soon, or the same fate that has befallen Chrysler awaits our entire economy.

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7 Responses to Requiem for Chrysler

  1. mtnmike says:

    When asked if Fiat were not yet another foreign automaker whose parent company would benefit immensely from the lucrative offer for “instant acceptance,” the Michigan Governor said, “If Fiat wants to build cars in Michigan, bring them on and any others that want to come.”

    So following this line of reasoning, Chrysler failed due to their inability to produce autos that would sell . . . but yet another foreign manufacturer will be given carte blanc access to U.S. plants and markets to fix all that ails Chrysler? Daimler sure as heck couldn’t save them.

    Why then, not let Toyota take that slot, or Honda, or Hyundai. . . they are already here building cars.

    • Pete Murphy says:

      True, Toyota, Honda and Hyundai are already here, and it’s better that they build some of their cars in the U.S. as opposed to none at all. But many of these assembly operations are nothing more than conduits for foreign-made parts. I think Granholm was essentially saying the same thing – that some manufacturing in Michigan is better than none at all. The hope is that Fiat’s assistance in designing and building small cars will restore profitability to Chrysler and make them a stand-alone company again.

      I think Daimler thought they could make Chrysler profitable again by simply improving their image – having the Daimler/Benz image associated with Chrysler. Rather arrogant on their part. Instead, the opposite happened, dragging down the reputation of Daimler.

  2. Randy says:

    RE: Nothing in return
    They are buying our debt instruments.

    • Pete Murphy says:

      Randy, that’s worse than “nothing.” It’s a sell-off of American assets to finance our trade deficit. It’s the money they use to buy our jobs. They’re doing us no favors. If they stopped buying our debt, we’d have no choice but to restore a balance of trade.

  3. coleto says:

    “Italy is one of the parasitic economies of the world dependent on exports to the U.S. to keep their labor force employed.”
    I’m sorry, what do you consider to be ‘parasitic’? Is it not consuming more than one’s share, consuming more than a person has made or earned.
    Well, south Italy may be living on financial aid from the capital, but as a country I can think of far greater parasites, how about you?
    Imports from other countries has kept your prices low. Besides, importers buy the dollars the fed is printing, and the bonds Treasury is issuing. Shut them out and you’ll have the inflation of the century.
    Overpopulation is not a sin, not more than overconsumption is. It does not mean low standard of life. Belgium and Japan have greater population density of Italy, India or China.
    We’re living in a era when less developed countries are catching on with developed. Why do you think Americans are better than Italians, or Chinese for than matter? Why do you think Americans should get three times as much money for the same work? Is it just their birthright?
    Until Americans realize that they should get more in line with reality this country will just keep sinking.
    Being a leader is not easy. If GM and Chrysler wanted to stay on top, they should have done a lot more for the future. I can understand the government, they get elected just for four years and cannot do the nessesery but unpopular decisions out of fear, but the corporations should have.

    • Pete Murphy says:

      Coleto, I’ll concede that America consuming more than its share of the planet’s resources is parasitic if you’ll concede that preying on the American market and robbing it of its jobs to support overpopulation in other nations is also parasitic.

      Yes, imports have kept our prices low, but the loss of jobs has robbed us of purchasing power even faster. This kind of parasitic trade is actually a drag on the economy. Buying our debt is doing us no favors. If they stopped buying our debt, we’d simply have to stop buying their imports. It’s as simple as that. Selling off American assets to finance a trade deficit has an obvious limitation when those assets are depleted, and that’s exactly what has collapsed the global economy.

      The overpopulated nations you mentioned, like Japan, maintain a high standard of living only by preying on the American market and robbing us of jobs. Without America to consume their exports, their economy would completely collapse.

      Do I think Americans have a right to make three times as much as workers in other countries? They have a right to make what the labor market determines they should make. At the same time, no country has a right to access to our market without giving us access to an equivalent market in return.

      Your philosophy is one of spreading and sharing the consequences of overpopulation, forcing Americans to pay the price for overpopulation in places like Japan, Germany, China, Korea and others. My philosophy is to address the problem of overpopulation and force such nations to face up to the issue instead of exporting it.

  4. ClydeB says:

    Having spent some time in Italy and shopped in the neighborhood markets, I can verify that the cost of many Italian made products are more costly in Italy than in the US. This is a strong indicator of the ‘parasitic economy’ Pete speaks of. Certainly imports keep our prices lower than they would be otherwise. This is not necessarily a good thing. It does, however, demonstrate the extent countries will go to in order to maintain some level of employment for their excess labor force.
    It is true that exporting countries are buying our debt (what better use do they have for the dollars), their own people don’t have the means to be consumers to the extent necessary to achieve a balance of trade.
    Over population is the one dilemma that politicians will not address and it is probably the greatest threat to the viability of civilization we face. At the rate of growth we now have, drinking water, for instance, will be unavailable to significant portions of the worlds population in a few short years.
    GM and Chrysler got caught up in the mistaken notion that growth is in itself is a good thing and that it can last forever. With this mindset, they made committments that they can not keep. At the same time foreign manufacturers were gaining market share and being encouraged to locate assembly plants in the US as well. Domestic manufacturers failed to sufficiently react and got behind. Then the economic bust accelerated their decline.
    Certainly the 2, 4, 6 year time frame for elected officials is longer than the next quarters earnings report for corporations. We elect the government to represent us and our best interests. Generally they fail, still we give them a pass and re-elect them. Corporations depend on the consumer to vote with his purchases, both of the product and of stock. This holds them much more accountable than are the elected officials.

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