Winter '08

The Demise of the Big Three....

Although street cars are of little interest to me, the potential demise/bankruptcy of General Motors, Ford and Chrysler has certainly concentrated many minds.

I’ve very often had a feeling of ‘déjà vu’, living in America at this time, it so reminds me (economically) of Britain in the 1970s. I don’t have much more to offer than the International media does but a couple of interesting points have never been mentioned or aired by anyone else I’ve listened to/watched/read and I do think they are very important when considering the future of these companies.

I lived in Britain when Margaret Thatcher’s conservative government came to power in 1979. Like many, I suspect, I cheered when she and her ministers defeated the unions. They had appeared to be incredibly overbearing and demanding of the car companies’ top management. Now, looking back, I’m not so sure Maggie and her ministers were correct in breaking the union’s power. In fact, I think that, given the chance to go back to that period, most commentators would consider the break up of the car industry and it’s unions one of the worst things that happened to the economy of Britain in the twentieth century.

Here’s why: Not only did that Conservative government break the power of the unions, they also stopped all the taxpayer’s subsidies that had kept British Leyland, a conglomerate of basically money losing car factories, afloat and, naturally, they all went to the wall. Names such as Austin, Morris, Triumph, MG, Jaguar and Rover disappeared, or were bought up by the likes of Ford and BMW. Aston Martin was later sold to Ford.

I’m not going to pretend that the quality of the cars that Leyland was producing in the 1970s was good; it wasn’t. But considering that these companies were using outdated old machinery, and that their management was successively beaten up by the unions on one side and the Government on the other, should we be surprised? So they went, and the British car industry as such, disappeared.

The result was economically catastrophic and jobs (particularly amongst the innocent parts suppliers) were lost in great numbers. The British public were assured by Mrs. Thatcher and her cohorts that: “Financial services will fill the gap”. Partially, they did but look what’s happened there only recently. What’s going to replace them?

So now let’s come up to date and take a look at what’s happening to the American car industry today. It’s pretty much the same picture as the British industry in the 1970s: Most observers seeing the unions to blame, plus bad/lax management.

What to do? Undoubtedly, the directors of the American companies did both the companies and the workforce and shareholders no service when they lobbied congress to stop it passing laws that would have raised CAFE (MPG) standards over the years; hence we were saddled with ridiculous sized SUVs and pick ups, being told that: “This is what the public wants”. As an aside, it has always seemed to me that the public is always forced to buy what companies decide they are going to make and sell. I mean, if you wanted to buy a small, economical four seater car at any time over the last twenty years, who did you buy it from? Why, either Europe or the Far East.

As far as I can see, the only thing wrong with the American car industry is the management, not the unions, hell, American cars are CHEAP by any country’s standards. No, the fault lies directly with top management. Their outlook for years has been short term; build whatever crap we can foist off on the public for a quick profit; and they have, in spades – only now the problems have come home to roost and they can’t get away with such short-termism any more. So okay, replace the management; there’s nothing intrinsically wrong with the factories and the workforce, they’re good. Why shouldn’t workers have long term goals such as a decent pay, pension and health insurance? Unless, of course, when you’re up against countries in Europe and Asia who have National Health Insurance, something America needs badly for lots of reasons but I’ll go into that another time.

Oh, by the way, Detroit already had a good plan going... By 2012 the labor costs (already agreed with the unions) are going to be the equivalent of the Japanese/Korean/Chinese costs.

There’s something else that doesn’t get mentioned in the media either: Tariffs on imports into the U.S.A. versus importing an American car into other countries. If you take an American car and try and take it into Europe to sell, it will cost you over 30% in import duties and taxes. Into Australia? 100%. Into China, 3 or more liters is 47%. Japan: 10% duty plus minimum $7,000 charges, in addition to shipping, plus street tax per year.

BUT: If you want to bring a car into America, how much import duty will you pay? 2.5%. That’s it, 2.5%. And they tell us it’s a global playing field now. Baloney. Hence cheap Japanese/Korean cars able to compete with American cars, not only on quality but also on price.

So what to do with the big three over here?

First of all, strip out the directors. Substitute these dead beats and their accountants with real car people who think and plan long term. Second: Put these companies into Chapter 11 bankruptcy to do their re-organization. Give that Federal bailout money to the parts suppliers. Third: Set lofty, long-term goals such as a truly economical car, getting minimum 40 mpg. No matter what else happens, oil will still be our principal means of private car propulsion for at lest the next five years and probably a lot longer than that. Fourth: increase import duties on all cars coming into America. Make it, what? Equivalent to Europe? 30%. Now see what your friendly little Honda/KIA/Hyundai costs at the dealers. And no... I hadn’t forgotten that the major Asian companies are making cars here in American factories, employing American workers. That’s okay – just place a $1500 tax per car on them to make them comparable with American cars until America gets it’s own National Health Service.

The news media never tells us about these import tariffs. Isn’t it about time we the people were told ALL the facts, instead of just the convenient ones peddled by the media?

Finally, there’s lots of talk about making and using plug-in electric cars. Sounds great but there is one problem: The Electricity Companies will become the next “Big Oil”. And how do these companies generate their electricity? A lot of them from coal! So I’m sorry, but if you think you’re doing your bit to combat global warming by buying electric, you're wrong.... Get you every way, these big companies, don't they?