Saturday, December 13, 2008

Detroit Big 3 Bailout Misses Supply-Demand Big Picture

Rescue Chrysler/GM = Kill Ford

Auto Dealerships Offering Buy-One-Car-Get-A-Second-Car-Free Expose Bailout's Folly

The people crying that the automobile industry is X-million jobs or X-percent of the economy should have bought a controlling interest in GM a decade ago and reformed it, instead of trying to rob the public today.

The odds that every single job would evaporate are remote.

There are 2 basic possibilities:

1. If bankruptcies collapsed production below demand, other companies would hire new employees or contract new parts suppliers to pick up the slack. Jobs could shift to a remaining US legacy company (Ford?-which said it does not need the bailout), or Toyota (in America), or new electric vehicle (EV) startup companies such as Tesla Motors, or new industries not anticipated by the Luddites.

2. If current capacity/supply/production is higher than demand, then a reduction in production is welcome and a reduction in producers is understandable (actually, even with higher production, it is better to make more things with less labor—have you noticed that 98% of Americans are not farmers (not in an agricultural job of the labor force)?). Treating the current automaker size or number as a static, sacred, magic number is ridiculous. People allege that autos and “related” companies take-up 1/7 of the economy—but trying to freeze that number in a dynamic economy can damage you and the whole country if the proper, wealth-maximizing proportion is only 1/21 of the economy (1/3 of the current size).

Weeks of public debate overlook the main point:

GM exists to provide cars to consumers, not jobs/health-care/pensions to employees.

If we have an automobile oversupply (do not need new cars):

  • Making more unwanted cars is a waste of resources, including unnecessary pollution and oil depletion for the workers to drive to work to waste resources.
  • Any car sale that the government guarantees for Chrysler or GM probably steals that car sale from Ford.
  • Any Chrysler or GM job the government saves probably takes a job away from a Ford worker.
Automobile Oversupply Indicators:

We already have an oversupply. Why build more? Why bailout Chrysler/GM by killing Ford?

If Detroit had a solid plan to make and sell good cars at a good price, it would attract private investors (dismiss the "only government can do it" ploy and look at the dollar amount of money on the sidelines that pumps even a +1% stock-market rally).

Imagine if Detroit’s auto executives and the United Auto Workers (UAW) union spent as much time trying to build good cars as they spend trying to break into your bank account for a bailout.

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