We head down the old road of single industry when we should be diversifying…

June 2, 2009

While I have not agreed with President Obama’s auto company bailouts, with GM going into bankruptcy but propped up by billions of taxpayer dollars and a 72 percent government ownership stake (60 percent U.S. and 12 percent Canadian), and Chrysler coming out of a relative quick bankruptcy – propped up by the government bailout program as well, I sure hope it all works out.

The government has loaned GM nearly $21 billion, but to no avail so the company filed for bankruptcy on Monday and the taxpayers are left with a majority ownership of a failing business.

(And I have to ask why American taxpayers have to fund this whole thing when Chrysler is merging with the Italian car maker Fiat. Also I heard the president say that the government was the only entity that could come up with enough money to bail out GM. And that is probably true since only the government can essentially print its own money – how much that phony stuff will be worth in the long run is hard to know. We are looking at heavy inflation down the road, I’m quite confident.)

I know in times way past I often heard something to the effect that our economy is driven by car production, but it always kind of whizzed by me like so much freeway traffic.

Seems like a lot of us were thunderstruck a year or so ago when we realized that the U.S. economy was virtually totally dependent upon car and light truck production and a super-inflated real-estate market that suddenly deflated.

Going forward it sure seems we need to diversify – never a good idea to put all your eggs in one basket as the old adage goes. Surely we can produce a lot more than cars. We used to.

Rather than go down that wrong road again by bailing out the failing automakers, it seems government efforts would be better spent promoting highly diversified industry for this country, everything from tennis shoe making to highly technical so-called green energy projects. We need to produce things and get people working. How are we going to support the unemployed when too few are employed?

We have come to this pass via the evolving global economy. So many saw the global economy as a panacea, that is as long as the U.S. controlled it, selling Coca-Cola, cigarettes, and cars around the world.

But somehow we lost control of the whole thing. Through inflated real estate values and maybe to some extent inflated wages (and I wish I could have gotten in on more of that) we became a nation of consumers more than a nation of producers.

One of the reasons for all of this no doubt is that capital by itself is not patriotic. Those who have it may or may not be in their own right, but the rules they play by have nothing to do with the interest of their own nation. You invest capital to make more capital. And generalizing here, those with the money found it more profitable is so many cases to invest outside of our borders because labor in less developed nations was cheap. I knew we were in trouble when we no longer made our own Levis here and not even cowboy boots. If memory serves me correctly, Levi Strauss, a company with a proud uniquely American heritage, closed down its last plant in El Paso, Texas and moved south of the border. Justin Boots also moved its production outside the country, as well.

The car production things seems to have gone something like this: American car manufacturers over the years seemed to have decided that the reality of the market and of production costs meant that they would be better off pushing essentially bigger muscle cars and trucks to satisfy a large demand here in the USA and in order to be able to make more money on each unit. They ceded most of the small car market to primarily Asian producers.

And I just heard an auto company CEO concede something we already knew, the Japanese beat us on car quality a long time ago. He claimed, though, that now American manufacturers are catching up (a few decades too late perhaps). To me it is not that we could not produce quality, it is that the automakers did not want to. Planned obsolescence and making money on repairs was long the game plan out of Detroit and its environs and at the old dealership, so many of which have now been closed down.

And I’ve read that investors, such as these so-called hedge funds, look to quick and big profits rolling in each quarter – they’re not big on long-term planning or research and development. As I stated earlier, capital does not think in terms of what is good for the country.

And then there is the consumer. People want what they want. In the case of the United States with the high standard of living it was enjoying, large numbers of consumers went for comfort and did not consider things like gas mileage too much except when fuel prices would spike. The spike last summer really did it. Gasoline approaching or at or more than $5 per gallon, combined with increasing unemployment or fear of unemployment or reduced wages gave the consumer a dose of reality of now and future.

But now I read that although the Obama administration aims to force car producers by way of policy and law ( not to mention ownership – even if Obama vows not to run the companies) to produce smaller and more fuel efficient vehicles, if gas prices don’t go up too much, it might be hard to get folks to buy vehicles smaller than they are used to. And notice, I automatically combined SMALLER and FUEL EFFICIENT. That’s because the assumption always seems to be that in order to get to fuel efficient we have to go smaller.

Well we probably need to go smaller than a main battle tank in the U.S. Army or one of those civilian Hummers you see on the road or those oversized or supersized pickups and SUVs.

But something I would like to look into is just what kind of gas mileage did your average, say, 1956 Chevy get? The reason I ask that is that to me the 1950s really seems the golden age of American cars. I was only a little kid in the 50s, and my folks had a ‘53 Studebaker – kinda small, but more or less a regular sized family car. But seems to me those Chevies and Fords of that era were plenty big for a family and were comfortable to ride – I just am at a loss of what the gas mileage was (see end of blog).

Of course I know they were heavy. They were actually all steel – you had something solid – instead of so much fiberglass.

I do recall that through unfortunate circumstances, an accident with the Studebaker (it survived), we wound up with a second car, a Plymouth station wagon, that began as a temporary replacement car and stayed on as a second car. It was comfortable, had more room, but not so good on gas mileage, I’m sure.

But it seems to me that the consumer ought to be in the driver’s seat when it comes to deciding what the car market should be. Individual car buyers will and should be able to decide what they want and what they need and what they can afford. As for fuel mileage and other environmental concerns, let’s take that on one at a time. We know from last summer’s big fuel spike what it takes for Americans to go for more fuel efficient vehicles and/or cut down on unnecessary driving. – of course we have an indication they will tend to turn the other way when fuel prices go the other way. But on fuel mileage, letting the market dictate seems to have a pretty powerful effect. As for other environmental concerns, such as the amount of pollutants cars put out, the market will not control that, the government does have to set some standards. But those standards have to be realistic and based on hard science and should not be based on some congressman’s idea of, say, pushing corn based ethanol (which really does no good for the environment) because he’s from Iowa.

And standards should be set by the federal government, not states, so that they are uniform across the nation. Once the automakers, to include foreign makers, know what the standards are, they will produce cars that meet those standards – they have no choice.

Something tells me that private enterprise in competition will likely do a better job of meeting consumer demand and meeting pollution standards, that is making cars people will and can buy and use to their best advantage, rather than a government one-size-fits all approach.

I think competition from foreign car makers, to include ones who assemble right here in the U.S., can be healthy for our own homegrown industry. But as long as the government is there to prop up industry, the corporate powers that be will not learn how to compete.

The government set a bad precedent back in 1979 when it propped up Chrysler with loan guarantees. “We’ll do better”, they promised at the time — what happened?

I can only hope we haven’t fallen for that same line again.

P.s.

As to what the gas mileage was on your average 1950s model family car, my oldest brother said his resident expert suggests about 15 to 22 mpg. I’ll bet we could produce cars just as roomy with slightly better or even far better mileage (partly because we use lighter weight materials nowadays) even using the existing internal combustion engine model, with just some slight tweaking. I’m sure we will evolve into another technology, but we need to consider does it really save energy and what unforseen effects might there be on the environment when all things are considered and what it will take to provide the infrastructure (you know, things like electrical outlets to plug your car into and how to make it all affordable).


I resolve some of the issues of the day…

March 6, 2009

(Copyright 2009)

I have some ideas on how to resolve some issues of the day:

THE MORTGAGE CRISIS: President Obama has announced his program, but as far as I can tell it only offers help to a limited few. While at one time I leaned toward thinking he ought to get the foreclosure problem solved first to bring stability to the financial system since we found out nearly our whole economy was tied up in bundled mortgage securities, I no longer feel that way. Let the market sort it all out and somehow get back to a realistic system of financing housing that would probably look like the way it was done thirty years ago or so. Hefty down payment, fixed-rate mortgage, the likelihood one would have the ability to pay a prerequisite.

California, the state that is broke, has an asinine new program to pay a gigantic tax credit for anyone buying a brand new (just built) home. Thousands of empty homes, and we need new ones? That’s the California mentality. (There is also a similar federal program, but I understand it is not limited to new homes.  But here’s the question, why the tax incentives? Finally there are bargains galore out there — except no one knows the future of a home investment now. But we do know the government needs the tax money, to pay off the national debt if nothing else. ) 

THE BANKING CRISIS: Please! Stop the insanity! Let the too big to fail banks fail, because like the small town no government bailout bank official said on ABC News, “they’re not too big to fail, they’re just too big.

Okay, so I’m not an economist, but it would seem to me that eventually some element of capitalism will fill the void left by banks too fearful or too greedy (they want to see how much they can extort from the government first) to do what it is they are chartered to do – loan (not give away) money.

I think all along what we should have done is go around the high flying investment bankers and let them stew in their own juices. Perhaps the bailout money should have been put into a temporary government loan entity.

The government using taxpayer money has showered trillions of dollars on those boo hoo babies who can only fly in private jets away from the riffraff (I feel some of their anticipated pain – in my own world far lower down on the totem pole I find myself going to the freak show that is the low cost supermarket). The Wall Street bankers must use government bailout money to wine and dine at plush resorts because, well in their world that is the way business is done. Of course back in the not-so-old days what happened if you made bad business decisions is you slipped out of that privileged world and, well, went into real estate. But things got so out of hand in the financial industry that the piles of bad debts worked their way into the system like a cancer. But the upside for the investment bankers was that they realized they now had leverage to blackmail the government and the people.

But it’s all a bluff. Call’em on it.

THE DOMESTIC AUTOMAKERS: They were going the wrong direction way before the current economic crisis. They were not flexible enough and let their production costs soar too high. And why would any company be saddled with paying people who no longer work for it? Let poorly managed companies fail and make way for better managed ones.

Actually that does not have to mean the end of the domestic auto industry. It does mean different players, and if the United Auto Workers don’t see reality, it may push the industry into the southern states where the foreign auto makers have found willing and appreciative workers.

I realize that as long as the Big Three were rolling in doe the UAW simply took the opportunity to get in on the action. But when market share plummets, what’s left?

HEALTH CARE: Some Republican lawmaker was quoted in a blog I read pronouncing that health care is not a right. Who said it was? Well, okay, many have, but I support universal health care of some type, but I would never hold that it was a constitutional right. But that does not mean that we as the people cannot provide for ourselves some health security through the structure of government. I have some hope now that the demand from the people is going to outweigh the selfish interest groups who stood in the way of this need for so long. I saw some little sign on the news that the private health insurance industry is in more of a compromise mood now that it has seen the true power of the people and their call for change as was witnessed in the last election. Financing will be the big stumbling block. Making the “rich” pay doesn’t work because that still doesn’t get the amount needed. I hate to say it, but the late conservative William F. Buckley Jr. and the more liberal ousted former Democratic governor of California Gray Davis agreed on one thing: the bulk of the taxes always have to come from the middle class (and don’t ask me for a precise definition of that) because there are more of them. But, although they struggle, all the other industrialized nations of the world finance some form of universal health care. But we wouldn’t want to see how they do it, would we? Okay, I’ll give you a hint: they pay for it by somehow spreading the costs. And why the business community (not really a homogeneous group, I suppose) is not solidly behind universal health care, I don’t know. I realize small business people have to have mixed feelings. That’s because they go to local chamber of commerce meetings where they wear white shoes and start out their presentations with the standby Republican right wing sarcastic joke: “Hi I’m from the government and I’m here to help you.” So the point is, government help is something to shun because it comes with strings attached, that is unless it is a small business loan or a tax credit for hiring foreign workers or moving production overseas. But in reality, employees covered for health insurance without any liability on their (businesses) part would seem manna from Heaven. Then again we could just write off the part of the population that can’t or no longer can afford health care and leave them to get sick and die, thereby saving tax expense and giving us more air to breathe.