Auto Industry: “We’re winning with NAFTA.” Seriously?

October 25, 2017

http://www.reuters.com/article/trade-nafta-autos/auto-industry-tells-trump-were-winning-with-nafta-idUSL2N1MZ028

The above-linked article reports on an effort to generate opposition to the Trump administration’s tough stance on the renegotiation of NAFTA.

Auto trade associations representing General Motors Co Toyota Motor Corp, Volkswagen AG, Hyundai Motor Co, Ford Motor Co and nearly every other major automaker, are part of the coalition dubbed “Driving American Jobs” and backing an advertising campaign to convince the White House and voters that the agreement has been crucial in boosting U.S. automotive sector production and jobs.

“We need you to tell your elected officials that you don’t change the game in the middle of a comeback. We’re winning with NAFTA,” the group said on its website.

OK, wait a minute, domestic auto manufacturers, especially GM and Chrysler.  First of all, you’re not “winning.”  You’re barely hanging on, thanks to a taxpayer-funded government bail-out a few years ago, made necessary by the fact that rotten trade deals drove you into bankruptcy.  What American jobs have come back since then were largely driven by the fact that the United Auto Workers, being one of the stakeholders in the bankruptcy process, demanded that it have some say in the location of new plants.  That’s GM.  And Chrysler?  Part of their pathetic “comeback” required them to be sold to Fiat, globally recognized as one of the shoddiest car-makers on earth.

Ford survived without a bailout, a point of pride for that company, but now finds itself struggling with a shortage of capital to modernize its product offerings.  Not a problem for GM and Chrysler who factored that need into the bailout.

No doubt, NAFTA has played a role in propping up the profitability of these companies.  But to suggest that that somehow is a “win” for American workers is ludicrous.

The campaign comes amid rising concern that the Trump administration could opt early next year to withdraw after giving six months notice, a move that could expose automakers to high tariffs who are building trucks in Mexico and impose new tariffs on parts and cars made throughout North America.

This coalition would like you to believe that automakers would have no “plan B” to counteract tariffs.  That they’d have no choice but to continue building in Mexico, forcing consumers to pay the tariffs.  Don’t be ridiculous.  Production would be moved back to the U.S. to avoid the tariffs and the impact on production costs would be largely offset by reductions in shipping an other supply chain costs.  The impact on consumers would be virtually zilch, and the impact on the American labor force would be an upward pressure on wages.

I don’t understand why the Trump administration is even wasting its time with trying to renegotiate this agreement, whose sole purpose was to boost Mexico’s economy, in line with the United Nations’ push to raise living standards in underdeveloped countries.  I suppose to be able to at least say, “we tried.”  But there’s nothing to negotiate.  Just impose the tariffs and watch them work their magic.

 

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“Cash for Clunkers” an Abysmal Failure

August 27, 2009

 

http://www.reuters.com/article/newsOne/idUSTRE57P5C220090827

When the “cash-for-clunkers” program ran out of funding after only a few days, Congress quickly injected another $2 billion into the program (which was first authorized with funding of $1 billion).  Auto dealers across the nation were hailing it as a huge success.

The intent of the program was two-fold:  to improve the overall mileage of America’s auto fleet by taking old, inefficient gas-guzzlers off the road but, more importantly, to stimulate auto sales and rev up domestic auto manufacturing.  And it did both.  GM added shifts to its Malibu and Cobalt manufacturing plants to replenish depleted stocks, putting 1300 auto workers back to work. 

So the program was a success, right?  700,000 cars and trucks (as reported in the above-linked article) were replaced by more efficient models.  Sales of domestically-produced vehicles were boosted from their recession level lows. 

So why was the program so unceremoniously terminated Monday by an administration that has played fast and loose with cash to boost the economy?  And why am I calling it an abysmal failure?  Because it was eroding our GDP (gross domestic product) at a frightening clip, undoing the effects of other stimulus spending.  More than anything, the Obama administration would like for 3rd quarter GDP to actually show some growth, however modest.  (After all, GDP is the gauge by which the end of the recession will be judged.)  But, if it misses that mark, the blame may very well lie at the feet of the “cash-for-clunkers” program. 

To understand, let’s do some math.  As reported in the linked article, 700,000 vehicles were sold in this program, at a cost to the government of $2.87 billion.  But 80% of these vehicles, or approximately 560,000, were imports.  (This figure doesn’t match the percentages reported in the linked article because some of the sales by GM, Ford and Chrysler were also imports from Mexico or Korea, like the Chevy Aveo imported from Korea.)  If we assume the average value of those imported vehicles to be $17,000, then almost $10 billion worth of vehicles were imported, and every dollar of imports is subtracted from GDP.  (Dollars spent on imports are lost and no longer available to spend in the domestic economy.)  So, for $2.87 billion in taxpayer expenditures, the government managed to reduce GDP by almost $10 billion.  A little of this was offset by boosts in domestic manufacturing, but not much. 

And this $10 billion erosion in GDP took place in the course of only about three weeks.  At that pace, if kept going, the program would have eroded GDP at a quarterly rate of $43 billion.  Actually, the effect upon GDP is doubled when you consider that those imported vehicles could have been produced domestically.  In addition to the subtraction for the imports, an equal amount of domestic business was lost. 

Making matters worse, the share of the “cash-for-clunkers” that went to domestic auto makers fell below the pre-program market share of those manufacturers.  In other words, the program was actually eroding the market share of the big-3, exactly the opposite of what the government – now by far the biggest shareholder in both GM and Chrysler – wanted to have happen. 

Now you can see why the program was terminated without any further calls to keep it going.  As the administration began to evaluate the data and saw that 80% of the money was being used to boost the economies of Japan and Korea (primarily), their response was surely, “Oh, sh#t!”  “This isn’t very smart!”

To its credit, the Obama administration has drawn a line in the sand when it comes to the demise of the manufacturing sector of the American economy – a line that, as owner – it will not allow the domestic auto industry to cross.  But, as owner, they are now also faced with the quandary of how to boost domestic auto sales (and thus the entire economy) within the framework of free trade policy it has inherited.  Now it can see that stimulating auto sales in a way that doesn’t violate trade agreements doesn’t work.  Will it now rely on boosting the quality and competitiveness of American cars?  If it does, it will be ignoring decades of experience that proves that that approach doesn’t work either, as imports will simply match them move-for-move.  Or will it continue to rely on jaw-boning other nations to start importing more American products?  That approach too has been proven a resounding failure.  Sooner or later, either the Obama administration or some subsequent administration must come to the realization that failed trade policy lies at the heart of our economic woes.


New GM Emerges into Same Old Environment

July 12, 2009

http://www.usatoday.com/money/autos/2009-07-10-gm-bankruptcy-friday_N.htm

General Motors emerged from bankruptcy on Friday promising more nimbleness, better products, more customer focus and a return to profitability.  Freed of all its crushing debt, it certainly should find it much easier to make money.  And its image of poor quality and boring cars is largely a hangover from the ’70s and ’80s.  They already have a nice line-up of vehicle offerings with quality on a par with anyone in the world, a line-up that is promised to only get better. 

But so what?  The federal government went to extraordinary lengths to salvage both Chrysler and GM, not primarily to return them to profitability, but to salvage the last vestige of the manufacturing sector of our economy and the jobs that go along with it.  What’s important is not so much a return to profitability for GM, but the restoration of the job-creating sales volume that GM, Ford and Chrysler once enjoyed. 

Unfortunately, the new GM and Chrysler emerge to rejoin Ford in the same marketing environment from whence they came.  GM and Ford build outstanding vehicles (hopefully, Chyrsler will soon join them), but that’s not going to make a bit of difference.  Neither will reduced labor costs or lower debt overhead.  The problem is that Toyota builds great vehicles too.  So does Honda.  And Nissan. And Subaru, Suzuki, Mazda, Kia, Hyundai, Volkswagen, Mercedes, Audi, Porsche, BMW, Jaguar, Land Rover, Saab, Volvo, …  The list can go on and on.  Soon, Chinese manufacturers will be joining the fray.  How can anyone honestly expect that the market share of GM, Ford and Chrysler will do anything but decline as more and more foreign manufacturers get free access to the U.S. market?

It wouldn’t be a problem if American manufacturers were getting access to equivalent foreign markets.  The problem is that there are no equivalent markets.  Most of these foreign brands emanate from countries that are so badly over-populated that their car markets are a mere shell of what we have in America.  In Japan, even the Japanese auto manufacturers have difficulty selling cars because so few people buy them, not because they can’t afford them but because owning a car there is impractical.  There’s no place to park them and the roads are far too congested.  That’s why Japan is famous for its badly overcrowded mass transit system.  It’s the same in Korea.  Germany isn’t much better.  American exports of vehicles to these countries is virtually non-existant, while they export hundreds of thousands of cars to the U.S. every month. 

With all the celebration of GM’s return, there was little notice of the fact that GM plans to lay off another 20,000 workers.  And there will be nothing but more job losses in auto manufacturing as the ever-growing onslaught of foreign manufacturers erodes market share for the domestics.  Nothing will change until the time (if ever)  that our nation’s leadership wakes up to the real underlying problems with our trade policy that make our huge trade deficit and the accompanying loss of jobs unavoidable.  Only when they come to the realization that the experiment in unfettered free trade begun in 1947 with the signing of GATT (the Global Agreement on Tariffs and Trade) has been an abysmal failure for the American economy, wiping out in six decades all the wealth created over the previous 171 years, will there be any chance of putting this economy back on a sound footing.

The new GM has emerged, but into the same old world of dumb U.S. trade policy based on half-baked 18th century theories and politicians lacking the wisdom, will or intestinal fortitude to do anything about it.


Weeds Growing Amid Economic “Green Shoots”

May 5, 2009

http://www.usatoday.com/news/nation/2009-05-04-new-homeless_N.htm

Amid the happy talk of “green shoots” in the economy – tiny increases in construction and new home purchases, retail sales holding steady, a soaring stock market and general rates of slowing decline in the economy, this may be a good time to remember that the only consequences of the economic decline that matter, unemployment and poverty, continue to grow like weeds.  The linked article is a good reminder of that, chronicling the tent cities now populated by the growing ranks of unemployed who now count themselves among the homeless. 

The story features a laid-off autoworker who fled to Florida looking for work, and now finds himself living in a tent.  The article closes with his outlook for the future, one that pretty well summarizes the state of the American economy:

At this point, he has lowered his expectations. “I don’t expect ever to make $50,000 a year working in the auto industry, but just enough to survive, have my own place, buy my own food, my own clothes,” he says. “What every American would expect.”

What’s so telling about this statement is that it not only applies to his situation but, sadly, echoes what a lot of Americans are feeling today – that they’d be happy just to have a roof over their head, clothes on their back and food on the table.  This is exactly the situation I warned of in Five Short Blasts, that our slowly growing problem of overpopulation and our practice of trading freely with grossly overpopulated nations would steadily drive up unemployment and poverty.  We kept it at bay for a while by building a mountain of debt, but that strategy could never work indefinitely.

In spite of the “green shoots” that Federal Reserve Chairman Bernanke speaks of, hoping to build a self-sustaining wave of optimism, there are problems brewing that may spell a turn for the worse.  The entire Chrysler Corporation is now shut down indefinitely, awaiting its fate in bankruptcy court, a fate not at all as clear as the government might like to believe. General Motors is now only weeks away from the same fate.  And the entire network of suppliers is teetering on the brink of bankruptcy as well.  In addition, the delusion of a recovering banking sector may be exposed when the results of the bank stress tests are released this week. 

The one real bright spot in the economy is the rapidly declining trade deficit, most of which is due to the recession itself, but some of which is a real shift away from imports to domestically produced products.  The real test will come as export-dependent nations become desperate and more insistent upon free access to the American market.  I see a major trade battle brewing. 

Regarding the surge in the stock market, a few words are in order.  It’s important to remember that the stock market is driven by corporate profits, not by the state of the economy and especially not by the economic plight of the masses.  Corporations will find a way to make money in any environment.  It may take a period of adjustment to new conditions, during which the market may decline, but in the end they will always make money.  Don’t confuse the stock market and the economy and expect the former to reflect the latter.

With the stock market soaring and economic concerns waning, let’s not forget that virtually nothing has been done to address the consequences of economic overpopulation, both home-grown and imported.  Without action to permanently restore a balance of trade and to stabilize our population, no long-term improvement in the micro-economies of folks like you and me is possible.  Our economic lawn will resemble a vacant lot overgrown by the weeds of unemployment and poverty.  A nice place to pitch a tent, perhaps.


Obama: “Buy American”

May 2, 2009

http://www.freep.com/article/20090501/NEWS06/905010398/1008/NEWS06/Excerpts+of+Obama+s+remarks+on+Chrysler

I don’t know how widely or in how much detail Obama’s remarks about Chrysler’s bankruptcy were reported in the national media but, here in Southeast Michigan, people hang on his every word.  So this may come as news to you. 

In his remarks, aimed at shoring up confidence in Chrysler’s ability to emerge from bankruptcy, President Obama included the following statement:

If you are considering buying a car, I hope it will be an American car.

I just about fell over when I heard him say this!  It’s about time!  It seems that Obama is someone who’s willing to lay down his free trade pompons and start cheering for American workers.  Much has been made of the fact that the federal government has made itself a majority shareholder in two of our domestic auto manufacturers (not to mention most of our major financial institutions).  There’s justifiable concern that corporate decsisions will be politically motivated instead of directed by market forces.  But maybe we’re seeing a little of the “up-side” here.  With the federal government a major shareholder, it now sees the need for shifting consumers’ buying decisions toward American brands.  Can revisions to trade policy to accelerate that process be far behind? 

Until that happens, heed the president’s advice, especially if you’re someone concerned about your job.  Even if you’re not an employee of one of the Big Three, it doesn’t help your prospects any to have millions of former auto employees out there getting retraining to take your job away.  Buy American and put them and all of us back to work!


Requiem for Chrysler

May 1, 2009

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.


Farewell, Pontiac.

April 28, 2009

http://www.usatoday.com/money/autos/2009-04-27-gm-kills-pontiac_N.htm

Taking yet another step toward oblivion, General Motors announced today that it will kill the Pontiac brand in 2010.  Thus ends another proud American name-plate, sacrificed on the altar of “free” trade. 

President Obama had the power to breathe new life into the domestic auto industry when he took office by restoring a balance of trade in the auto industry, demanding that Japan, Korea, Germany and Mexico begin buying as many American-made autos as we buy from them, or face tariffs and import quotas.  This would have almost instantly doubled domestic auto sales, breathing new life and profitability into GM, Ford and Chrysler, even as we headed further into recession.    Additional shifts would have been added and idled plants restarted.  This would have been a stimulus plan that put the one he opted for instead to shame.  Instant results. No expense to the taxpayer.

But no.  That would have made him a turd in the punch bowl at the G7 and G20 parties.  Much better to drive the domestic automakers into bankruptcy, slash pay and benefits, kill off thousands of dealerships, stiff bondholders and shareholders and stick taxpayers with the bill.

What a shame.  Pontiac made some of the most iconic models of all time including the G.T.O. and Firebird.  I’ve only owned one Pontiac in my life, a used ’84 Fiero which, aside from my first car, a ’73 Corvette, was the most fun car I’ve ever owned.  A mid-engined, 4-speed sports car with a composite body, independent suspension, four-wheel disc brakes and incredible handling for only $4,000.  High insurance rates finally killed off demand among its target demographic.  Too bad.  It was a terrific sports car at a great price. 

In my opinion, Pontiac still has the most attractive styling of all of the GM products available today (except Corvette, of course).  The Pontiac G6 is as stylish as anything in its class and the styling of the G8 is in a class by itself.  Then there’s the Solstice – the equivalent of a BMW Z4 at almost half the price.  I’d be driving one now if I was in the market for a new car. 

Obama has said that America needs a vibrant auto industry.  But the plan seems to be to down-size it out of existence.  In 2004, Oldsmobile bit the dust.  Today it’s Pontiac, Saturn and Hummer.  Along with those cuts come the closing of more plants, the elimination of almost half of its dealership network and the elimination of 21,000 more jobs. 

If this was all part of a process of slowly reducing our population to a sustainable level, I wouldn’t have a problem with it.  But killing off the last vestiges of the manufacturing sector of our economy even as the population is expected to grow by at least 100 million people in the next forty years is a recipe for an economic catastrophe.  Oh, wait, we already have one!