Saturday, November 15, 2008

The Plight of the US Auto Industry.
By John de Waal.
While the prospects for a $25-billion rescue of Detroit's automakers is becoming less certain, because lawmakers are not convinced that the industry deserves the help, GM, Ford and Chrysler and the UAW have two more chances to make their case in 2008. The Democrats seem sympathetic to the plan, but the Republicans raise legitimate questions about how far the government should go. As well, if Congress doesn't act right away, they will most likely not reconvene for a lame-duck session and might wait for the Senate to act, thereby possibly damaging the quintessential US industry.
Thus, to bail-out or not to bail-out is the question. I am an Independent and typically lean towards the Democratic side. I also realize that a decision not to bail-out the US auto industry may result in untold hardship for thousands of workers and do much collateral economic damage besides. Still, I think that the Republicans’ non-interfering stance with marketing processes is essentially better.
The market is a hard task master and can be controlled by government or anyone else no more than can time. Moreover, a bail-out is, at best, justified only if it ‘cures a situation’. However, the bail-out that is proposed will merely postpones the inevitable, i.e. the collapse of the US auto-industry as we know it. It is too late, because the US carmakers have chosen to go for short-term profits by ignoring changing market conditions and passing up market opportunities.
For instance:
Oil on which vehicles depend for power is becoming scarcer daily. This is not a new phenomenon, but the result of finite supplies and rapidly increasing demand worldwide. The US auto industry, rather than responding appropriately, developed and marketed gas guzzling SUVs and trucks. Also, the industry’s bewildering variety of makes and models come at a loss in economies of scale and have resulted in market cannibalism. Finally, instead of making the best product possible, “planned obsolescence” for more profit has cost market share. Of course, there were enormous profits in the not-so-distant past, but these profits disappeared in the collective pockets of management, workers and shareholders, promotion and advertising. Too little was invested in research to improve product, or to study the basic changes in economic circumstances and fuel supplies.
The results of this short-sighted and irresponsible neglect by management are now clear, and handing over a great deal of tax-payers money to this management is throwing good money after bad and foolhardy at best.
Some may say that the economic down-turn is only a temporary glitch and to help this important US industry over this hump makes sense. But the increasing shortage of oil and the increasing demand for it, as well as the pollution the internal combustion engine causes, is not temporary, but is here to stay.
So what will happen if the government stands by and let the industry founder? There must inevitably be realignment in the industry. The need for personal and public transportation will still be there, as well as the movement of materials and merchandise. Parts for replacement will also be needed, and other after-market products will still sell. But there will be changes in society with more people moving away from far-out suburbs and into urban areas, and increased use of rail and other forms of public transportation.
Thus, the auto industry must gear up for making products that are smaller, less or non-polluting, perhaps noiseless as well, and develop schemes that are more efficient than having a vehicle for every person alive. I predict that the street scene in large metropolitan areas across the world will be unrecognizable in less than one generation by those living today.
There is no reason that the industry as it is today cannot respond to these changes, but it is doubtful that they can alter their orientation toward immediate and ever greater returns on investment. It is therefore more likely that - as the automakers as they exist today collapse - their place will be taken over by new entrepreneurs who have a clearer picture of the future of transportation and who are not hamstrung by old contracts and expensive obligations. The existing plants will be refurbished and many of the displaced workers will be able to return to making cars. Universal health care and social security should replace company plans. It seems wiser therefore to use the contemplated bail-out money for facilitating and speeding up this process.