The Volkswagen Debacle

October 17, 2015

The above-linked article appeared on CNBC a few days ago, and I can’t let it pass without comment.  In case you’ve been living under a rock and haven’t heard the news, the U.S. EPA (Environmental Protection Agency) discovered that VW diesel engine-equipped cars are also equipped with software that cheats on emissions tests, making them appear to meet emissions requirements when, in fact, they don’t.  VW is facing fines that potentially could reach tens of billions of dollars.  And sales of these models have been halted.  The city of Wolfsburg, home to VW, is bracing for the worst.

“… news of VW’s diesel emissions scandal has hit the city hard, sparking anger and dismay as well as worries of the financial and employment consequences for both the carmaker and Wolfsburg. Some are even invoking the decline of another motor city — Detroit in the US.

“I am worried. It’s not good for Wolfsburg. Detroit stands as a negative example for what can happen: the city has collapsed. The same here is also thinkable,” says Uwe Bendorf, who was born and raised in Wolfsburg and now works at a health insurer.”

The decline of Detroit is due entirely to trade policy that fails to recognize the role of population density in driving global trade imbalances.  A massive trade deficit in manufactured goods – autos in particular – is the inescapable consequence of attempting to trade freely with a nation like Germany, more than six times as densely populated as the U.S. – a nation that comes to the trading table with a bloated labor force, hungry for work making cars for export, and nothing to offer in return but a diminished market stunted by over-crowding.  Detroit’s misery is due in no small part to VW and the prosperity that Wolfsburg’s citizens have enjoyed at Detroit’s expense.

“VW’s sprawling factory employs about 72,000 in a city with just 120,000 inhabitants.”

Anyone who doubts the importance of manufacturing to our economy:  take note.  That’s a per capita employment rate of 60%, and doesn’t even include the additional employment in Wolfsburg by companies that provide products and services to VW and its workers.  Compare that to 46.3% per capita employment in the entire U.S. economy – a figure that the Obama administration would like you to believe represents low unemployment.

“A worker at Autostadt, a kind of theme park to VW that was built at great cost at the start of the century, says: “Who is polluting the air in the world? It’s not just cars, it’s airlines, big trucks, container ships. There is lots of pollution in the US and they don’t seem to care about that.” “

You’ve got to be kidding me!  The U.S. EPA raised this issue because the US does care about pollution – pollution caused by German engineers who obviously don’t give a crap about it!

“Referring to General Motors‘ ignition switch scandal last year that was responsible for more than a dozen deaths, he adds pointedly: “At least we didn’t kill anybody.” “

Not directly in this case, at least.  But he seems to forget some of the junk that’s been foisted on the American public by VW, like “The Thing” and the VW Fox – a car famous for starting up and driving off by itself with no one inside.

The German auto brands owe much of their success to a perception among the American auto-buying public that “German engineering” is somehow superior.  That notion continues to thrive in spite of the poor quality rankings of Mercedes Benz and chronic electronic problems with BMWs.  This cheating scandal is just another crack in that myth.  One can only hope that it will lead to the deserved demise of VW and a boost to domestic manufacturers in the U.S.  If it does, then just suck it up, crybabies in Wolfsburg, and enjoy a taste of your own medicine.





VW Executive Wants American Tax Money to Fund Purchase of German Imports

April 9, 2009

As Congress considers a plan to boost auto sales known as “cash-for-clunkers” (a plan with the dual purpose of stimulating the domestic auto industry while simultaneously replacing old vehicles with more efficient ones), the CEO of Volkswagen of America, Stefan Jacoby,  is complaining that imports should get a piece of the action. 

The bill with the most backing in Congress would limit incentives on new vehicles to only those built in North America, with extra money for those bolted together in the United States. It’s a key reason the bill has the backing of GM, Ford, Chrysler and the UAW.

Jacoby — whose company imported 59% of what it sold in the United States last year — said limiting federal aid to domestic vehicles would be counterproductive since it’s a global industry facing worldwide problems.

This “global industry” he speaks of is one in which everyone has free access to the American market while American-made autos are virtually excluded from the rest of the world, either by design or because so many of these foreign markets are so badly emaciated by over-crowding and low per capita consumption that even their own automakers have difficulty selling cars there. 

The American version of the “cash-for-clunkers” plan was inspired by a very successful, similar plan in Germany.  That plan had no requirement for the cars to be built in Germany.  But then, why should it?  German automakers dominate, with 68% of the German market.  Naturally, the majority of German taxpayer money used to fund this program will boost their domestic auto makers. 

But that’s not the case in the U.S. where the domestic share of the market is down to less than 50%.  Why should U.S. taxpayer money be used to predominately boost the economies of foreign auto makers?  Hasn’t the U.S. auto market been tilted in favor of imports enough already?  Not for Jacoby.  He warns:

“We are not going to solve the global economic crisis by creating global trade barriers,” he said. “There would be other countries immediately answering.”

We’re not trying to solve the global economic crisis, Jacoby.  We’re trying to boost the American economy.  If you want to boost the German economy, then do what you have to do.  It’s not our responsibility.  And about those “other countries immediately answering,” I say go ahead.  In fact, let’s just take it to the max right out of the box.  You bar American cars from being imported to Germany and we’ll bar German cars from the American market.  Let’s see who gets the dirty end of that stick.