Leverage
Josh Marshall says an auto industry bailout could lead to electric cars:
More to the point of creativity — one of the things about crisis is that it opens opportunities would never exist in normal times. People have been looking for ways to get Detroit to get serious about developing cleaner, more fuel efficient cars for years. At this point, we’re beyond that. We need to get serious about cars that don’t use gas at all. If the whole domestic auto industry is all but asking to be taken into federal receivership, that tells me that the people running the federal government now have quite a lot of leverage.
A few things in response:
1 — I sure hope this is right, since it seems to me we’re probably going to do this!
2 — I think this sense of leverage is a bit illusory. If today Detroit has the political clout to get billions of dollars from politicians, then this is really Detroit having leverage over congress and not the reverse. And once important politicians have committed themselves to the idea of an auto bailout, it gets harder and harder for them to say “no, this isn’t working, we need to pull the plug.” And whatever leverage congress has is predicated on being seriously willing to say no.
3 — A lot of this talk has an air of socialistic hubris about it. If this line of thinking were correct and the primary impediment to the production of technological miracles was a lack of government leverage, then state-owned enterprises would have been a smashing success. In reality, outside of a relatively narrow range of utility-type activities, they’ve been flops. If the negative externalities associated with carbon emissions were correctly priced, I’m quite sure that would lead people in various places to develop lower emissions cars. But is just sort of pointing at GM’s engineers and telling them “make low-emissions cars!” really going to lead to the intended result?
UPDATE: Let me further add that the risk here, as I see it, isn’t that we’re going to waste too much money on a Detroit bailout. Rather, the risk is that we’re going to slide into a situation where big swathes of the economy are dominated by zombie firms. If firms with unviable business models are prevented from failing, then other more successful firms can’t arise or expand to fill the niche and the whole sector goes dysfunctional employing tons of labor and resources but not creating real value.
And then you have other sectors that are being productive but that are burdened with taxes that are being used to prop up sectors that aren’t creating value. Then, even if we manage to halt the slide into recession we’ll have created a situation in which it’s difficult to return again to growth. By contrast, even the total liquidation (as opposed to reorganization under chapter 11) of one or more of the “big three” wouldn’t cause all the resources as the liquidated firm to vanish. Rather, if GM vanished from the earth that would be an opportunity for the other car companies and whichever of them is best-situated to expand to fill the market share void left by GM could profitably some of the capital and labor currently in use. But if a dead firm is kept on life support, that weakens all its competitors’ positions without offering any promise of resurrection.
107 Responses to “Leverage”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
November 14th, 2008 at 8:32 pm
It’s so wrong we should even be worried about what I’ll call negative leverage. Right now, the GOP is blocking any aid to those union-prone states, and the Democrats are pleading. What are the odds the Democrats then won’t have to give in on what actually matters, the quid pro quo including move to new technologies. And we’ll then be back where we started, with not only the environmental downside, but also the political downside of the GOP chortling that oh it’s really the Democrats that are the party of special interests.
November 14th, 2008 at 8:46 pm
This is the most sensible thing you’ve written all year. If GM can’t make decent fuel-efficient cars, there’s no fucking way the federal government is going to do it any better.
November 14th, 2008 at 8:54 pm
Matt, keep this up and you won’t be a Democrat in good standing for long. They’ll Lieberman you.
BTW, creating zombie firms is a waste of money.
November 14th, 2008 at 8:57 pm
It’s not enough to save the world or even GM, but there is something that can be done. Giving GM inside info on new extreme (reasonable) regulations is a way of helping GM relative to Toyota (why?).
For example, once upon a time, California had a law that by Year X 10% of cars had to have zero emissions (that is be electric). GM designed an electric car. California repealed the law. GM decided they would lose money making electric cars and didn’t produce them (they still have the designs). Obama can ask GM how much they expected to lose on each of those cars and then introduce (as an economic stimulus and anti pollution measure) a subsidy on electric cars.
My just so happens that this is good for GM.
The DOTransportation made a car which can run into a cement wall at 50 miles per hour without being damaged. They have the design. They can sell it to GM for pocket change. Then there can be a subsidy for super safe cars (reduce medical spending too).
Subsidy for *increased* hybrid sales (with 300,000,000 in subsidies Detroit lost that one to Toyota OK make it an order of merit to be late to the party).
There are many things that we might do which have huge benefits for some car companies. They can be done so that they benefit the one who is in on the deal.
Now always a gamble. No one can guarantee delivery of the promised regulation. However, when the alternative is certain bankruptcy a bit of gambling is in order.
November 14th, 2008 at 8:58 pm
“If GM can’t make decent fuel-efficient cars, there’s no fucking way the federal government is going to do it any better.”
Getting companies to make fuel efficient cars has never been the problem. There has never been a time in the last 40 years when U.S. consumers could not buy them (e.g. the Honda Civic has been available here since the early 1970s). Want all cars here to be fuel efficient? Tax gas so it costs as much as in Europe and Japan. If the pols don’t have the courage to do this, I wish they would just STFU about the issue.
November 14th, 2008 at 9:05 pm
What’s with this obsession with electric cars? People should sober up about this stuff. Electric cars means lots more copper for the motor windings, more exotic elements for whatever battery technology (forget fuel cells: platinum/palladium, nuff said), more money for precision manufacturing techniques to make the vehicle efficient enough, and the damn thing will be too delicate to take on poor quality roads, whcih is to say 90% of our roads in a few years after the municipalities neglect them for financial reasons.
The middle and lower classes are going to have to find decent arrangements without relying on personal automobiles. The upper classes will do fine no matter what. So we do not need to make these electrc cars a priority.
November 14th, 2008 at 9:12 pm
I’m pretty certain that pretty much every talented engineer currently employed by GM is already working on alternative energy projects (ie the Volt).
If GM is really in such terrible condition relative to other domestic manufacturers, why not have the feds buy them out entirely, auction off their manufacturing capacity to other companies, and turn their development operations into a Federal alternative energy transportation development program of some sort that’d be a public/private partnership with the goal of subsidizing develop of increased transportation efficiency and alternative energy w/ costs partially recouped by licensing developed technology. This sort of massive R&D operation would still require a substantial in-house manufacturing capacity.
November 14th, 2008 at 9:14 pm
Right on Matt. Today, electric tech is expensive and delicate. But, if we let companies like Tesla compete fairly, in ten years, they’ll produce inexpensive, practical electric cars.
If we really need to spend $25-50bn on cars, why not see what MIT, Caltech, etc could do with that money. I guarantee they’d do a lot more that GM.
November 14th, 2008 at 9:17 pm
The European subsidiaries of GM and Ford have been making vast numbers of small, fuel-efficient cars for decades. The reason we don’t have so many of them here is not that U.S. automakers are unwilling or unable to produce them, but the market. Americans wanted bigger and more powerful cars, and that’s what the automakers gave them.
If GM survives and manages to produce the Volt and its follow ons, and Obama comes through on his pledge for subsidies, it probably has a decent chance of selling a lot of PHEV vehicles. And, eventually, all-eletric ones. Otherwise the market will go to the Japanese and European carmakers.
November 14th, 2008 at 9:21 pm
The big technical obstacle to electric cars is low-cost
high-energy-density high-power batteries. And God knows
the laptop computer and cellphone guys are working as hard
as they can on that already: getting the Feds involved isn’t
going to speed it up.
And as it happens, GM is already pushing the Chevy Volt darn
hard. Probably too hard: it isn’t obvious to me that an
electric drivetrain is going to make any headway if the battery
pushes the vehicle price up to around $40K – especially when
it’s going to be competing against a third-generation mature
Prius with Toyota reliability and a much lower price.
I think Ford has a chance to survive and compete. I think GM
is a zombie, still twitching but with little chance of
regaining market share or profitability: in a market with
overcapacity, a company with weak products, a poor reputation,
and no cash is just about doomed.
November 14th, 2008 at 9:30 pm
“The European subsidiaries of GM and Ford have been making vast numbers of small, fuel-efficient cars for decades.”
Very true. The Ford KA, as an example, was introduced in Europe in 1996 and has been a top seller ever since. If the pols in D.C. want the big 3 to make these cars here then (1) get the UAW’s ridiculous legacy benefits off their backs and (2) raise gas prices to European levels.
Our pols want it both ways. Pander to the UAW and the public desire for low gas prices, then run around and blame the automakers for the inevitable results. Typical D.C. bullshit.
November 14th, 2008 at 9:30 pm
Heaven forbid that we do a bailout to make America the world leader in green cars…
http://www.sunstateactivist.org/ssablog/
November 14th, 2008 at 9:39 pm
I get really tired of people complaining about GM not having a viable business model.
The Malibu is currently considered one of the best sedans on the road for the price.
GM has turned the Cadillac back into a premium brand that is competing and winning in it’s class
The Corvette blows away cars with twice the pricetag.
GM is the only major manufacturer that has built an all electric car and they now believe that they can do it again after having learned lessons that no one else has.
GM’s greatest problem is the damage done to the brand during the late seventies and eighties. It got so bad that when GM and Toyota shared a plant in California – GM’s rebadged Corollas (the Chevy Nova) received lower quality ratings than the identical Corollas coming off the same line.
GM and Ford have been getting leaner and are capable of competing anywhere but they need help right now. If they are liquidated in this market there will be massive job losses – not just at GM proper but three and four tiers deep in their suppliers.
November 14th, 2008 at 9:45 pm
It costs GM 53% more to build a car than Toyota. That’s what they need to fix. If they don’t, there is not enough money in the world to keep them around another 5 years. There is some good on-going info on the bailout at: http://www.thebailoutblog.com
November 14th, 2008 at 10:07 pm
If GM can’t make decent fuel-efficient cars
Chevy Celta: flex-fuel, sells well, not available in the US. And there’s this as well: while GM has been slower than Ford to unify its lines and incorporate the cars it sells in the rest of the world, it’s finally heading that way.
November 14th, 2008 at 10:10 pm
If GM went tits-up, who would buy their factories?
Would Honda buy them to produce Hondas in Detroit?
The biggest deadweight loss might be all the additional companies that supply parts to cars no longer being produced. All those things would become scrap. What actually might happen in a chapter 7 liquidation?
November 14th, 2008 at 10:13 pm
If GM went tits-up, who would buy their factories?
They don’t own the goddamn factories.
November 14th, 2008 at 10:20 pm
“The Malibu is currently considered one of the best sedans on the road for the price.”
Sure. But the trouble is that when GM finally gets its act
together and produces a decent car, it’s still only “one of
the best”, along with Accord and Camry. So GM doesn’t
actually regain market share, it just slows the decline.
“GM has turned the Cadillac back into a premium brand that is competing and winning in it’s class”
Yes, but that’s a low-volume niche. For GM to get back in
the game, it needs superior products in the high-volume
markets. And they haven’t had a plausible compact or
subcompact since … well, never. In the midsize, Malibu
has gone from lousy to decent, but it still isn’t a home run.
I still remember a Malibu rental I had a few years back – it
felt as though there was a soggy sponge between the
accelerator pedal and the engine.
“The Corvette blows away cars with twice the pricetag.”
Again, that’s a small niche. A few good low-volume models
can’t save a massive company like GM: they need to regain
market share in the high-volume segments against the Civic
and Corolla and Accord and Camry. And that isn’t happening:
Toyota continues to eat their breakfast, lunch, and dinner.
This seems to be a management failure: GM evidently puts
resources into glamorous products like the Corvette and the
Cadillac CTS, and the upcoming Volt. But it neglects the
unglamorous high-volume business of building small reliable
comfortable fuel-efficient cars. Maybe they’re trying harder
now, but Toyota and Honda don’t stand still, and Hyundai/Kia
are getting much better too.
November 14th, 2008 at 10:22 pm
Business entities that reach a certain size (particularly banks) become, effectively, public-private organizations. The public, like it or not, has a defacto interest in their activities. Therefore it’s appropriate that the public would have an ownership interest in their activities.
This isn’t “socialism”, and thinking of it in terms of socialism vs. capitalism isn’t very useful. Does anyone believe that Toyota achieved it’s dominant position in the auto market because it operated in a laisse faire environment? Of course not. Everyone knows Toyota is heavily supported by the Japanese government in R & D and many other ways. The German government owns 20% of Volkswagen.
These countries recognize that the capitalist-socialist way of thinking has no relevance to our current situation. Yet in America we carry on this 19th century conversation
November 14th, 2008 at 10:26 pm
But it neglects the unglamorous high-volume business of building small reliable comfortable fuel-efficient cars. Maybe they’re trying harder now, but Toyota and Honda don’t stand still, and Hyundai/Kia are getting much better too.
Until recently, the U.S. market for small, fuel-efficient cars was very limited. It’s still quite limited. And profit margins are thin because of intense competition, which is especially hard on GM and Ford because of their very high labor costs.
November 14th, 2008 at 10:39 pm
Matt, I’ve read you for a long time, and I know you couldn’t manage this level of Friedmanesque economic bullshit over any other subject than cars. Take a step back.
November 14th, 2008 at 10:46 pm
Does this mean the whole “green jobs” idea is a sham?
November 14th, 2008 at 10:52 pm
kafka: it’s semi-true. The ongoing issue has been Detroit taking the easy route, exploiting the light-truck classification for SUVs (and things like the Sec 179 write-off on vehicles over 6,000 lbs) to keep them viable. There are also barriers to entry for new platforms.
The market didn’t necessarily ‘demand’ small homes on wheels. The Big Three wanted the margins , and allowed dealers to offer the most attractive (gimmick-laden) up-front packages on them. You generally don’t see red-tag/cashback/employee discount stuff if you’re buying a new Civic.
Friedman compared GM to a crack dealer. There’s a better analogy: it’s America’s crackwhore. What differentiates a crackwhore from a mere crack addict is that the crackwhore gets fucked for money.
If GM went tits-up, who would buy their factories?
The foreign ops would probably sell before the US ones.
November 14th, 2008 at 10:54 pm
What if the US financed – on patient terms – a leveraged buyout of GM by Tesla? Would that satisfy your concerns regarding the creativity of public enterprises? Also, CERN is an international governmental organization (a public enterprise) that seems reasonably innovative to me. And I can’t help but to think that the people at DARPA had one or two good ideas. Plus don’t universities do a lot of innovation? I think this may have to do with the mission that these organizations are given. Generally speaking, publicly owned manufacturing firms have not been given the mission of being innovative. What would happen if we gave one that mission?
November 14th, 2008 at 10:59 pm
You say if carbon emissions were “correctly priced” the problem would be solved. Many agree with you. Per EPA, a typical gallon of gasoline yields 19.4 pounds of CO2, which is just under 1/100 of a ton. The highest CO2 fees or tax rates I have heard discussed as appropriate are about $100 per ton. That would be less than $1 per gallon of gasoline. Clearly, that would not induce the dramatic changes that are required. As a thought leader, you should get specific about this. What price and what result?
On the question of US government support for the auto industry, the auto companies have to come forward with business plans that show how much they need, how they are going to use it, detailed pro forma cash flows several years into the future, and how at the end there is success. Such plans are required by all sane investors. No plan, no discussion.
November 14th, 2008 at 11:08 pm
The market didn’t necessarily ‘demand’ small homes on wheels. The Big Three wanted the margins , and allowed dealers to offer the most attractive (gimmick-laden) up-front packages on them. You generally don’t see red-tag/cashback/employee discount stuff if you’re buying a new Civic.
Whatever the automakers did or didn’t allow their dealers to offer, they sold large numbers of SUVs and trucks and made big profits from them. They couldn’t have done that if there weren’t a large demand for such vehicles. Americans abandon large vehicles only when gas prices become prohibitive. If new technology allows real fuel costs to maintain their long-term average, you can expect to see lots of SUVs and big trucks in the future. If GM and Ford aren’t making them, Toyota and Nissan and Volkswagon will.
November 14th, 2008 at 11:14 pm
You know what, Mixner? Grown ups are talking. No one gives a fuck what you think. Elect someone and get back to us.
November 14th, 2008 at 11:17 pm
They couldn’t have done that if there weren’t a large demand for such vehicles.
In other news, when the 32oz soda is priced 20 cents higher than the 16oz soda, people gravitate towards the bigger one. You’re saying nothing substantive here.
November 14th, 2008 at 11:35 pm
In other news, when the 32oz soda is priced 20 cents higher than the 16oz soda, people gravitate towards the bigger one. You’re saying nothing substantive here.
You’re just demonstrating your ignorance now. Automakers didn’t create the demand for SUVs and trucks through lowball pricing. They charge a premium for large vehicles. That’s why they’re so profitable.
November 14th, 2008 at 11:35 pm
even if we manage to halt the slide into recession we’ll have created a situation in which it’s difficult to return again to growth.
We ain’t halting this slide. Every volcano must run its course, and right now the pyroclastic flow is still not near completion.
Also, government proving funds for an end result is different than government paying off the debts of the company, or buying the shares of the company, or appointing officials to the management of the company.
Acting like this is a fluke or an historical aberration is indicative of someone who doesn’t know the history of laws and government interaction with the legal basis of the marketplace over the last 350 when we were a few British colonies on the East coast, or the same said history for the entire 4,000 years of human civilization.
Corn is subsidized by the government. So are you. That’s why you get “deductions” and “Standard deductions” on your tax form. So are various vegetable crops, and peanuts, and steel, and even the big daddy, oil. More than 1,000 companies are allowed to use Bermuda banks to skirt the tax laws. When toxins from China were found in baby food, when spoiled meat and poisoned spinach spread across the nation, government actions had everything to do with the banning and recalls.
Selling government bonds and using government debt instruments as elements in the portfolio baskets of companies is an inescapable fact.
And don’t you ever wonder why a lot of “public service ads” appear on radio shows and various advertising outlets, … yes, just like the favored national newspapers back to the Andrew Jackson days, government business is another form of subsidization.
Government is always involved, one way or another. We however make the choice as to how government — we the people — is involved and to what extent. We can choose the best use of resources or we can deny that those resources exist and call it socialism like it was a whore.
And furthermore … as for this comment you made …
A lot of this talk has an air of socialistic hubris about it…outside of a relatively narrow range of utility-type activities, [state-owned enterprises] are collosal flops
Utility-type activities??
The post office
The FAA
The DMV
The Police
The National Forest Service
OSHA
The Coast Guard
The National Guard
CSPAN
The GAO
With all due respect, Mr. Yglesias, Me-thinks you applied the philosophical principle to thickly.
November 14th, 2008 at 11:43 pm
But SUVs were fashionable in the late 90s and early 00s, so people bought them whether or not they actually needed those capabilities.
That’s been true of car sales for decades, if not forever. Carmakers have been selling their products on the basis of fashion, styling, driver self-image and other non-utilitarian factors since at least the 50s.
November 14th, 2008 at 11:48 pm
“Corn is subsidized by the government. So are you. That’s why you get “deductions” and “Standard deductions” on your tax form.”
Do yourself a favor. Right away. Tell us you were joking.
November 14th, 2008 at 11:48 pm
In reality, outside of a relatively narrow range of utility-type activities, they’ve been flops.
Outside of a relatively narrow range of utility-type activities, what has the government attempted?
They couldn’t have done that if there weren’t a large demand for such vehicles. Americans abandon large vehicles only when gas prices become prohibitive. If new technology allows real fuel costs to maintain their long-term average, you can expect to see lots of SUVs and big trucks in the future.
I’m a grown up. Hell, I’m middle aged and I think that’s a good point.
November 14th, 2008 at 11:53 pm
Kafta,
I’m not joking.
You are just stupid.
Learn something for once and look it up on google.
Or you can avoid the reality and insinuate that I’m a fool.
I’m not a fool.
Trust me.
— God bless.
Peace out.
November 14th, 2008 at 11:53 pm
Oops. It looks like I didn’t close the tag. The comment
…was mine.
November 14th, 2008 at 11:55 pm
Government is always involved, one way or another. We however make the choice as to how government — we the people — is involved and to what extent. We can choose the best use of resources or we can deny that those resources exist and call it socialism like it was a whore.
That’s my main point.
November 14th, 2008 at 11:55 pm
What if, instead of a carbon tax, the US government purchased oil for the Strategic Petroleum Reserve to drive the price up?
This would turn the US government into another OPEC. This would be something like the FED interest rate mechanism.
They could even “buy” production, essentially banking the oil, natural gas or coal in the ground. Maybe call it an energy savings account.
The problem with a carbon tax is that you have to impose it globally, which is difficult. Controlling supply, at least of oil, could work very easily and have a global price impact.
November 15th, 2008 at 12:00 am
GDP almost doubled in this country between 1939 and 1844, when the US economy was mobilized for a concerted and coherent national project. It had taken about 40 years for the previous doubling to occur. Yet the economy was never more planned and government directed than it was during those war years. An intensely energized and organized project for national transformation built the industrial and infrastructural foundation for almost three decades of prosperity, and turned the US into a colossus.
Governments are not good at sustaining and planning a prosperous economy over the long run. You need a lot of creativity, entrepreneurial activity and a decentralized, localized, market-aware decision-making functioning within a supportive infrastructure and broad economic framework – the latter being things that don’t emerge efficiently and rationally from purely decentralized free market activity. What a government can do during periods of acute national need is to restructure the broad national economic framework, and provide the incentives that liberate the suppressed creative energies of the next generation of innovators, who are trapped by an antiquated chainwork of prisoners dilemmas where, given the unlikelihood of other sister and cousin industries making certain major changes, no industry or company finds the individual incentive and necessary capital to make the kinds of long-term transformational investments which would only make sense if everyone changes at the same time and moves in roughly the same direction.
The government can set up systems of legal and tax incentives that help to liberate this trapped potential economic energy, and can subsidize particular enterprises that will be cornerstones of the new economic order. It can do this in a way which doesn’t rely only on the chaotic and remorseless creative destruction of the private enterprise economy, but keeps people working on the national project, and either restructures the industries that they are already working in, or facilitates and supports their rapid and fluid moves to where they are most needed. The government has (in principle) deeper pockets and a longer attention span that can sustain a large industry at a loss at it makes expensive and fundamental changes.
The point isn’t to literally take over the car industry and start designing cars and setting production quotas in Washington. It is to work with a new management team to broad strategic targets that dovetail with other changes the US economy needs to make at the same time, and that are coordinated and incentivized by a broad national policy agenda. (Those incentives include seeding entrepreneurial activity, and funding basic research too – activities with a lighter government touch.) It is to demand slightly more cooperation than usual with strategic national economic plans, and accountability to those plans and the national treasury and taxpayers in return for assistance. When the project is done, we withdraw the government oversight and involvement. It’s not socialism in the sense of any permanent and long-term national approach to economic organization. It’s organized, rational transformation over a limited time. There is a time for reliance on a more laissez faire approach and the creativity of individual entrepreneurs. But there are also times for large, cooperative social projects. And I would argue we are in such a time.
There is no more reason to think the result will be a zombie than there was reason to think the US would be doomed to fight the Second World War with a zombie war machine. We’re better than that. “Yes we can”, and all that.
November 15th, 2008 at 12:18 am
Deductions and Standard Deductions on your taxes are the same thing as the government giving you a subsidy.
Think about it.
You’ve already paid the money. When you fill out the tax forms, you applying to receive some of this money back or — god forbid — how much you owe. But you already gave the government the money last year.
Subtracting from something you’ve already paid is the same as someone giving you money to pay for something.
I just thought I’d make this thought process clear for anyone out there who cares.
– god bless
Peace out.
November 15th, 2008 at 12:28 am
Cemmeks….
The post office
The FAA
The DMV
The Police
The Fire Department
The State Department
The National Forest Service
OSHA
The Coast Guard
The National Guard
CSPAN
The GAO
Now let the record show I’m not saying that government needs to own everything and do everything. Capitalism is the historical norm. But government operations are effective and efficient at much more than “utility-type” operations.
There is a broader place for government, but there is also an equally large place for small private business operations. The purpose of government is to maintain the stability of the whole for the good of all.
Which is my main point.
–god bless
Peace out.
November 15th, 2008 at 12:55 am
DTM wrote:
Matt seems to think that if GM disappears, all those people working for GM and its massive supply chain will get picked up as employees by some other competing car company.
…actually, Matt IS mostly right about that. The media likes to make it sound like Michigan and Ohio will fail without GM, because that sells papers. BUT, the reality of what happens in big bankruptcies like a would-be GM one is that 95-100% of the company gets sold rather than just all shutting down. GM assembly lines, employees, and product names all have value, and WOULD be mostly sold to entities who believed they had uses for them, and would mostly continue to operate them revamped. Parts would continue to flow (though they would flow to mechanics anyway).
Something else the media leaves less-than-obvious is that there’s a huge difference between designs and products that sell, especially sell well. Universities supply the former, and really do badly and distort their missions when they try to make stuff beyond licensed logo t-shirts. Companies must supply the latter or go out of business.
November 15th, 2008 at 1:07 am
The specific category SUV may be a fashion, but I don’t think the desire for large and powerful vehicles is. Cars and trucks in general have been getting bigger and more powerful over the past 20 years. The only thing that seems to inhibit this demand is high gas prices. For families with children especially, large vehicles simply are more practical. And of course there’s a status symbol aspect to the demand too.
If the PHEV SUVs of, say, 2015 get three times the mileage equivalent of today’s conventional SUVs of comparable size and power, then even if the real price of gas has risen to, say, $10/gallon, they will still be affordable to middle-class Americans. The only thing that’s likely to cause a dramatic and permanent downsizing in American vehicles is a dramatic and permanent increase in energy costs that cannot be offset by advances in efficiency from new technology.
November 15th, 2008 at 1:12 am
The disconnect here is the idea that we’re going to do a bailout for just business as usual–we’re going to give these guys a bunch of money to just keep doing the same stuff that’s caused them to fail, as opposed to the model where a venture capital firm comes in and says “Yeah, OK, we’ll give you money, and here is your CEO and here is your operating model.”
If we do the former, we’re just screwed. If we do the latter, that doesn’t make us socialists, it makes us venture capitalists. I think the US auto industry is failing because they are both completely focused on oil and they are looking in the rear view mirror. There is no reason why an investment in GM can’t lead to General Wind Motors as well as General Motors cars. There are all kinds of opportunities here. But it can’t be just “Okay, give me money and I’m going to keep doing what I did that failed.” We need something different.
November 15th, 2008 at 1:37 am
“If firms with unviable business models are prevented from failing, then other more successful firms can’t arise or expand to fill the niche…”
If GM, Ford, and Chrysler disappear, the niche will not be filled by newly arising and better run American firms. It’ll be filled by the Japanese and the Germans. It might be instructive in this regard to keep in mind the complete disappearance of the British car industry.
So this is about whether there will be an American car industry in the future or not. If I were an American, the prospect of an America without American car makers would bother me.
November 15th, 2008 at 1:43 am
…actually, Matt IS mostly right about that. The media likes to make it sound like Michigan and Ohio will fail without GM, because that sells papers. BUT, the reality of what happens in big bankruptcies like a would-be GM one is that 95-100% of the company gets sold rather than just all shutting down. GM assembly lines, employees, and product names all have value, and WOULD be mostly sold to entities who believed they had uses for them, and would mostly continue to operate them revamped. Parts would continue to flow (though they would flow to mechanics anyway).
This isn’t a regular big bankruptcy. It’s not going to happen like that. Who is going to extend DIP credit to GM? I don’t even think I want anyone to. You don’t understand what you are proposing. No one ever gets credit for averting a catastrophe but what you seem to be proposing will have an affect you don’t understand and blame does get assigned.
November 15th, 2008 at 1:47 am
Both the pro-bailout and anti-bailout sides have been making good points in these columns. It seems that the problem is that the automakers are huge companies that employ lots of people, but which for whatever reason (bad management, bad reputation, bad unions, bad health care system or bad consumers, take your pick) either can’t make products as cheaply as their competitors or which don’t sell as well as the products of their competitors. Normally, in a free market, these companies would go bankrupt, we would continue to buy cars from their competitors, and taxpayer money that could have gone to the bailout would be freed to turn into capital available for new companies. However because of the size of the automakers, letting this happen would have very negative short and medium term consequences. High barriers to entry in the market keep newer, more nimble, American auto manufacturers from emerging.
In addition, oil powered engines are currently the only practical means of powering single occupancy vehicles like cars. Oil production has been dropping for the past few years, and since this was bound to happen at some point anyway, the whole future of the product is questionable.
Maybe we shouldn’t let private companies get to the size where they can’t fail, and are able to command government support any time they fail? In this case, its too late for that, but at least government intervention should be in the form of a kinder, gentler, bankruptcy process. Nationalize the automakers, sell off the plants and machinery, have the taxpayer assume the pension and health benefits of the contract workers and pay their salaries over the next two years. This means moving the big three to a hospice as opposed to putting them on life support. Life support means we are following a version of late Soviet industrial policy, where the government funded all sorts of pointless industries in order to maintain plant and keep people employed.
“GDP almost doubled in this country between 1939 and 1844, when the US economy was mobilized for a concerted and coherent national project.”
Was the national project time travel? Sorry, I couldn’t resist. Otherwise a good post.
November 15th, 2008 at 1:48 am
They charge a premium for large vehicles. That’s why they’re so profitable.
When you always gravitate towards that 32oz regular Coke, Mixner, you’re not thinking of future medical bills either.
During the SUV/truck boom years, the margin was massaged through financing, and by market distortions such as the Sec 179 deduction. In 2002-3, you could buy a monster SUV and write it off at 100% in the first year. Even now, the depreciation deductions on a car or light truck are about 10% of those available for a vehicle over 6,000 lbs GVWR, so there’s a perverse incentive for, say, a mobile pet groomer to buy a Suburban over an Aveo, or a self-employed plumber to buy a Super Duty when a F-150 or Ranger would do the job. (Who makes most of the qualifying leviathans? The Big Three.)
Market demand is never pure, and it’s especially impure in the American auto market, so passing it off as some kind of distilled expression of personal consumer preference is just bullshit.
Like I said, GM is America’s crackwhore. Crackwhores have johns.
November 15th, 2008 at 1:52 am
Chrysler already got bailed out once in 1979. Why not let them go bankrupt and maybe GM would pick up enough of their market share to survive if it ditched Buick and GMC, and focused on Caddies, Vettes, Chevy trucks and the new hybrids.
November 15th, 2008 at 2:02 am
n this case, its too late for that, but at least government intervention should be in the form of a kinder, gentler, bankruptcy process. Nationalize the automakers, sell off the plants and machinery, have the taxpayer assume the pension and health benefits of the contract workers and pay their salaries over the next two years.
They don’t own the plants. They are leased. There is nothing to sell. They may or may not own the machinery. We should have figured this out years ago. We didn’t. If you throw your hands up, the fallout will bury all sorts of things you never thought of. The massive legion of unemployed will keep knocking down dominoes that have nothing to do with the auto industry.
November 15th, 2008 at 2:14 am
Bob Herbert’s column tomorrow is on this, and it makes the same point: just because you’re mad at the American auto industry is no reason to let them fail and take us all down with them. This isn’t the tech industry; smaller, more innovative car companies are not going to rise up from the soil.
I hold out hope that in a day or two Matt will say that his posts for the last few days have been an ironic demonstration of how silly it is to use pejorative terms like “socialism” when you’re talking about basic economic survival.
November 15th, 2008 at 2:45 am
During the SUV/truck boom years, the margin was massaged through financing, and by market distortions such as the Sec 179 deduction. In 2002-3, you could buy a monster SUV and write it off at 100% in the first year. Even now, the depreciation deductions on a car or light truck are about 10% of those available for a vehicle over 6,000 lbs GVWR, so there’s a perverse incentive for, say, a mobile pet groomer to buy a Suburban over an Aveo, or a self-employed plumber to buy a Super Duty when a F-150 or Ranger would do the job.
The vast majority of SUV buyers were not business owners who got special tax or financing breaks for buying a “monster SUV” rather than a car. They were ordinary middle-class Americans, and they were willing to pay a large premium because they valued the size, power and comfort that SUVs offer. That’s how GM and Ford were able to make huge profits from SUV sales even as they lost money on passenger cars. Over the last few years, GM is estimated to have made a profit of $10-15,000 on every large SUV sale. Your claim that automakers manipulated hapless American consumers into buying SUVs they didn’t really want through lowball pricing is complete and utter nonsense. As always, you don’t have the slightest clue what you’re talking about.
November 15th, 2008 at 3:12 am
And your evidence for that bit of subjective ‘values’ projection, Virgin Mixie No-Friends?
Ah, right.
Mix*Mart: Always Complete Bullshit, Always.
November 15th, 2008 at 3:25 am
And your evidence for that bit of subjective ‘values’ projection
As I just told you, you obsessively masturbating escaped lunatic, you don’t get to demand evidence until you provide evidence for your own claims. Get to it.
November 15th, 2008 at 3:29 am
The major problem is the the GM workforce. They are incapable of being trained to do anything else and their skills are not needed.
But useless people who are destitute is a recipe for violent instability.
November 15th, 2008 at 3:31 am
LOL. Virgin Mixie No-Friends is five tropes, three macros and no clue. Poor thing.
November 15th, 2008 at 3:54 am
LOL. Virgin Mixie No-Friends is five tropes, three macros and no clue. Poor thing.
I’ve long noticed that your insults become increasingly incoherent as the evening progresses. Alcohol is involved, no doubt.
November 15th, 2008 at 6:33 am
My understanding is that letting one or two of the big three fall into liquidation, rather than restructuring stands a good chance of cascading into bankruptcy for primary and secondary suppliers. This would, in turn, create supply disruptions and drag the remaining member or members of the big three down with them, as well as interrupting production at Toyota and Honda’s North American plants.
If I believed it was feasible to shepherd one or more of the big 3 through a Chapter 11 based restructuring and end up with a viable auto company at some point, I think it would be worth considering– but what I’m hearing from a lot of parties is that this would be economic suicide.
It’s ideologically wrong, and it does create a zombie scenario. But the alternative looks worse by no small margin.
Matt, I feel a little like I’m arguing with a brick wall. I get the moral hazard and the distorting effects on the economy in the long term– I do. The onset of this disaster has been obvious for an astonishingly long time. But is the supply chain really going to be well positioned to absorb the shock in the short term, given the current credit conditions and the medium-term economic outlook?
November 15th, 2008 at 7:36 am
The fuel efficiency of GM’s car fleet is on par with the other manufacturers. For any given segment, compact, full size etc their cars get the MPG of others in the segment. I will make a caveat that in the compact segment the Civic and Corolla come out better because they have kept selling despite their small engine size. US auto maker s have been loath to sell sub 2 liter engines and perhaps they couldn’t sell them. Chevy’s Cobalt replacement however will be a genuine 40mpg highway car with a now radically small 1.4 liter and a turbo. Which is the best possible engineering solution now available.
The dirty secret of the car business is that it isn’t very profitable. Neither is the manufacturing of virtually every large complex mechanical product in the entire world. The world has an overcapacity in almost everything. There is at least a 33% excess of auto making capacity worldwide. Thus cumulatively there is perhaps no profit in auto making. Toyota and Honda have been making profits due to superior manufacturing techniques and execution and with growth. Sans growth they too will be rendered profitless.
It is little known that Chinese manufacturers who have taken so much of US manufacturing don’t make much if any money. They took the work and could sell cheaper because of low labor costs but now make precious little profit. Throw in the externalizes like massive pollution and maybe it’s no profit at all.
It is extremely difficult to make a profit in manufacturing complex mechanical consumer goods or even capital goods. It always has been. Since the day WWII ended American corporations were dissatisfied with their manufacturing profits and started cutting capital investment. That in turn starved the capital equipment makers like the machine tool industry. There is now virtually no American machine tool industry.
Some profit can be made in manufacturing if done well but just some has not been enough for US investors. They want to get hugely rich quick and the way to do that was to inflate the prices of the stocks other financial assets. The beauty of this was that it was so very clean and easy too. No dirty hands.
The fabulous wealth of the top 10% still wasn’t enough you know. The idea that they should invest to get a 4% dividend, a dividend from real cash flow earnings, was and is considered bizarre. They will bring the whole system down and bankrupt the Treasury attempting to reinflate the asset bubbles rather than settle for 4%.
November 15th, 2008 at 8:02 am
DTM is largely right about the collapse of GM acting as the negative absorption of excess capacity in the industry. Cadillac and the truck division might get bought, but that it. In addition many of the suppliers would go out of business, perhaps taking Ford with them.
So Matt’s being more than a little Pollyanna-ish about the effects of a GM Capter 11, which most likely would lead to a Chapter 7. The fact that he wrote, “even if we stop this slide into recession,” leads me to believe he has no idea what he’s talking about, we are in recession and it’s already going to be a long and deep one, likely with 10% unemployment without GM, Chrysler and Ford going under. Something like 12-14% with it.
There’s a number of cases to be made against government involvement in the restructuring, however, you have start from a clear understanding of the stakes, which Matt clearly lacks.
Also, I think the leverage point comes largely from putting new management in place, if that happens all the debate about current management’s failings would seem to be moot.
November 15th, 2008 at 9:29 am
Was the national project time travel? Sorry, I couldn’t resist. Otherwise a good post
Oops. Matt’s influence continues to be felt.
November 15th, 2008 at 9:45 am
To all you folks bleating about the joys of electric cars: would you take one on the freeway?
November 15th, 2008 at 10:06 am
@tomj (#39):
Buying oil to fill the Strategic Petroleum Reserve may be a good idea for other reasons, but unfortunately it’s not sufficient to get oil prices up and keep them up. We only have room to store about a billion barrels of oil, and the inventory is currently at about 600M barrels. World oil production is on the order of 80-100M barrels/day, so filling up the reserve would only take 4-5 days supply off the market. I doubt you could get the price up significantly even in the short term, and once the reserve is filled up, you’re done.
Regarding the larger point, I think the wisest course of action would be to facilitate a merger between a couple of the big 3… say, GM & Chrysler. Then the combined company could cut excess capacity while the government provided support for the resulting unemployed. Hopefully this could be done in a gradual way, which would ease the pain for all concerned.
November 15th, 2008 at 10:27 am
The big problem with government support is that you end up with corrupt, ignorant Congressmen running things instead of engineers with deep enough knowledge to foresee problems and make complex tradeoffs.
You end up with political calculations ruling the day — like the deal Big Oil Republicans and Israel Lobby Democrats made to invade Iraq.
You end up with disaster because politicans willingly cause great harm to the national interest just for short term personal gains. The people like Hillary Clinton who deliberately sacrificed 4500 US soldiers for the sake of Haim Saban’s campaign donations are not Philosopher Kings operating with rational logic.
Corporations can be regulated for the public interest — Congress, by definition , is largely above any legal constraints.
The issue re “central Planning” is largely a delusion. You have intricate planning in corporations — no one is going to risk $Billions in capital on a whim. A nation of 300 Million people heavily dependent upon a complex, technologically advanced economy requires sophisticated planning. But that planning has to be honest and based upon deep technical knowledge — not the idiotic cartoons put out by technically ignorant political advocates on both the left and right.
Electric cars , for example, have been around for decades. They are used in coal mining to hauls tons of coal every day from the mine face to the outside conveyors. Because of the danger of gas explosions if gasoline engines were used.
But electric cars are not totally clean when you look at the full life cycle. The Problems that arise are:
a) You need heavy ass lead batteries –so you incur energy costs in refining the lead. Also, they eventually go dead because of the buildup of sulfur — although I think you can treat/recycle the plates but they have to be hauled to a recycling center.
b)You also have the issue of what to do with used sulfuric acid. In real life, much of that has ended up polluting the land of Appalachia.
c) Yes, I know they are working on new battery technology. But is there anything that can be charged day in and day out for months and which is as cheap on a massive scale?
November 15th, 2008 at 10:33 am
tomemos has a good point — we can’t run basics industries like national defense, farming, the power grid or automobiles based upon Silicon Valley bullshit.
We can live without computers and the Internet. We can’t live without food or transportation or electricity.
November 15th, 2008 at 10:36 am
As an “average Joe-six pack American” the bailout debate is enlightening. The millions of us being viewed by the Matt’s and Krauthammer’s of the world as ants in a bottle is truly discouraging. I’m not an experiment. My life and the lives of my family and most of my friends (the whole damn country?) is at stake here. If this bailout isn’t viewed as an opportunity like Josh Marshal suggests, the death of the big three will become the death of (whats left of)the American middle class. I hope you’re all ready for it.
November 15th, 2008 at 10:37 am
Make no mistake — the issue of what to do about the auto industry IS a matter of National Security.
FAR more so than Iraq ever was. We MUST HAVE automobiles.
I personally don’t think we want our supply of a critical product to be 100 percent under the control of foreign owners.
November 15th, 2008 at 11:05 am
Copper prices soar; Chile elects Peronist (a genius for finally resolving the contradictions between the military and working people not – you understand – for simply exploiting an unusual export boom which happens to resemble the west’s need for Argentine cattle immediately after WWII); recession comes, copper prices fall; Peronist resorts to bizarre political theatre to deflect attention from falling export prices, goes into exile in Uruguay
PS Which fails first your starter motor or engine?
PPS If American cars are so bad why do the rich and super-rich still buy them?
November 15th, 2008 at 11:17 am
Re: In 2002-3, you could buy a monster SUV and write it off at 100% in the first year.
Was this true for everyone? It’s my understanding that this only applied if you had a business reason for the purchase. Now of course “business reasons can be fudged, but you’d still have to either own a business or have significant self-employment income (not just a sideline selling junk on E-bay) to qualiy.
November 15th, 2008 at 11:20 am
PPPS My guess is American cars are a better deal over time than Japanese ones – especially if you buy them slightly used (American cars tend to lose more value in the first couple of years than Japanese ones but then decline in value at a more even pace). A majority of American cars are as (or nearly as) reliable or only slightly more likely to have significant problems in the first 100k miles than Japanese ones. The cost of parts and labor on Japanese cars (including routine maintenance) tends to be higher than on American cars and shops that work on them fewer. Those reliability surveys tend not to account for long-term (200k+ mile) ownership and American (and European) cars continue to have a better reputation for long-term durability than Japanese ones.
November 15th, 2008 at 11:55 am
Can I have metric cars?
We are the only country that does not use the metric system(Their might be a pacific island nation or two).All the foreign cars are metric. So it is not like Americans will not buy them.
The cars sold in Erope are all metric. Even the Ford, GM and Chryslers. It would save them money if they did not have to make a standard car ad a metric car.
November 15th, 2008 at 12:06 pm
Two words: “Manhattan Project”. One word: “Apollo”.
Get enough smart people together in one place who think that something is Very Important, give them tonnes of money, ignore safety to some extent, and you’ll get something. I knew some of these people (long after the fact) and know them to be human beings—very bright ones, but humans much as we have around today. Maybe some of the physicists seduced into hedge funds firms, or languishing as programmers in f#$%ing TELECOMS, could be of use.
(crossed fingers)
November 15th, 2008 at 12:16 pm
ginardo
I see those as a relatively narrow range of utility-type activities and I think the goverment has done a pretty good job with them.
November 15th, 2008 at 2:10 pm
JonF: yes, you needed a ‘business use’. But if you have a look around the various tax-prep / small-biz forums, especially before the $25,000 threshold returned, you’d see people being directed towards the 6000GVWR category, regardless of their specific business needs. it made more economic sense to buy a vehicle that was eligible for rapid depreciation, and served as a tacit subsidy for the Detroit makers of the high-margin behemoths. (Discussion here.)
It’s a very simple point: demand in this sector is never a friction-free expression of consumer preference. The American auto market is distorted one way; other auto markets are distorted other ways. If you want a Japanese-market small laptop, you can import one relatively inexpensively. If you want a Japanese-market small car, you can’t.
November 15th, 2008 at 2:30 pm
JonF: yes, you needed a ‘business use’.
No, you don’t just need “a business use.” To qualify for the deduction, the vehicle must be used for business at least 50% of the time. Commuting to and from work doesn’t count as a business use. That essentially eliminates all businesses except those in which the vehicle is driven around throughout the day for business purposes. The deduction is also limited to the first $25,000 of the vehicle’s cost, and the only SUVs that qualify are the handul of models with a GVW over 6,000 lbs. The vast majority of SUV sales do not meet these conditions.
November 15th, 2008 at 2:44 pm
Matt,
Every once in a while I write in to quibble with you on a point or two. Still none of that changes the fact that I think you are producing an impressive quantity of high-quality analysis here. I am grateful for your blog. Your insights, approach, and technique are, in my opinion, first rate.
Thank you.
November 15th, 2008 at 4:24 pm
I’ve said some harsh things about GM. And I stick by them. But I’m also persuaded that a GM bankruptcy right now would be a very bad thing that would hurt a lot of innocent people. So much so that it may be worth $100B or more just to push any such bankruptcy a couple of years down the line to a time when the general economy is not in a severe recession.
As for the idea of having “leverage” over GM’s actions, it’s
just bunk. Congress can change the damn CAFE standards any time it wants to, GM never had a veto. And the Clinton administration already tried the
whole “here’s a pile of money to design fuel-efficient cars” approach, and they designed something stupidly expensive,
never sold it, and pocketed the subsidy.
The only leverage is to demand a change of management. It’s
a little interesting to wonder what might be left of GM if
you sold the whole thing to Toyota – who probably know better
than anybody how to run a profitable auto business – but
they probably aren’t interested in such a big can of worms.
I’m not sure who knows how to clean up the mess, but leaving
the current management in charge would surely be a bad idea
(and would encourage Ford and Chrysler to come for the same
painless bailout).
November 15th, 2008 at 5:38 pm
If I were an American, the prospect of an America without American car makers would bother me.
Well, I am an American and the prospect of an America without American car makers doesn’t bother me one iota, but the idea that I’m going to be bled for even more tax dollars to keep companies in business that would have already gone into bankruptcy years ago but for all sorts of tax code and tariff shenanigans bothers me quite a bit. It’s time for the idea of “too big to fail” to die.
November 16th, 2008 at 12:02 am
Of course size can be the subject of passing fashions as well
It doesn’t seem to be for private passenger vehicles. The size only seems to go down when fuel costs go way up. Even before the advent of hybrids, incremental improvements in engine and powertrain efficiency increased the amount of power cars could produce per cubic inch of engine displacement, which allowed automakers to provide more size and power per unit of fuel consumption.
In any event, I mentioned vehicles like minivans, station wagons, and family sedans above specifically to note there are a range of vehicles that can serve as alternatives to SUVs if size is the primary consideration. Again, the actual functional capabilities added by SUVs are in terms of things like towing and off-roading, not so much size per se.
I think SUVs have clear practical advantages over station wagons. The latter are rare now and a resurgence seems unlikely. And auto analysts also seem to think the rise of SUVs was in part a response to the wimpy image of minivans. SUVs combine a sporty and outdoorsy image with much of the practicality and comfort of minivans, and that appeals to young families, especially young fathers.
And of course the penalty for those added capabilities is weight (because of the truck frames and 4WD).
I think most SUVs are only 2WD. I think 4WD has only ever been a relatively small part of the market.
November 16th, 2008 at 12:07 am
To all you folks bleating about the joys of electric cars: would you take one on the freeway?
The Chevy Volt will be just as capable of freeway driving as any normal car on the road today. Nobody’s trying to bank on a future full of GEM cars.
November 16th, 2008 at 2:41 pm
DTM,
Market shares have been shifting from larger SUVs and larger cars to smaller “crossovers” and compact cars for several years. Gasoline prices may have something to do with that,
I don’t know about “several years,” but, yes, recently there has been a shift to smaller vehicles. But this seems to be entirely an effect of gas prices.
By the way, station wagons are alive and well–they just call them “crossovers” these days.
No, crossovers are not station wagons. A station wagon is basically a regular car with an extended rear end. “Crossover” is basically a marketing term for smaller or more car-like SUVs. As Wikipedia says: “The term crossover began as a marketing term, and a 2008 CNNMoney article indicated that ‘many consumers can’t tell the difference between an SUV and a crossover.’”
As for minivans, you cite “image”, which is a fashion issue.
Yes, but both SUVs and minivans are large vehicles. As I said: “The specific category SUV may be a fashion, but I don’t think the desire for large and powerful vehicles is.”
The fact is that for most mainstream noncommercial purposes, minivans are far more practical than truck-framed SUVs.
I don’t think that’s true at all. But in any case, as I said, both minivans and SUVs are large vehicles. Larger than cars, including station wagon variants.
I would note, though, that many families don’t actually need as much space as a minivan either, so again something like a station wagon (or “crossover” if you prefer) may be a more practical option for consumers shifting out of SUVs.
There you go with the “need” thing again. Motor vehicle sales are only partly driven by “need.” Americans do not view their cars merely as utilitarian transportation. They have an emotional and aesthetic relationship to them as well. Part of that relationship is a desire for power and size. Americans like large and powerful vehicles. The size of vehicles only seems to go down when gas prices go way up. It happened during the oil crisis in the 70s, and it happened more recently in response to the dramatic run-up in gas prices to $4/gallon. But for the 20 years preceding that, vehicles got bigger.
November 16th, 2008 at 3:12 pm
Part of that relationship is a desire for power and size. Americans like large and powerful vehicles.
Project much, Mixie?
Yet another subjective, evidence-free assertion from V.M.N-F that he can’t back up in the slightest.
November 16th, 2008 at 3:19 pm
“Hello, my name is pseudonymous in nc and I live in a permanent state of uncontrollable rage.”
November 16th, 2008 at 9:31 pm
“Americans like large and powerful vehicles.”
Yup, “Real Americans” like big SUVs. And “Real Americans” love Sarah Palin. Actual Americans, on the other hand, want a car
that doesn’t cost $100 to fill up, doesn’t need a new transmission at 30k miles, keeps its resale value, and purrs along happily for 120k miles or more. Which is why so many -
more and more as time goes on – buy a Camry or a Civic.
As usual, Mixner is just completely disconnected from reality
and wouldn’t recognize data if it bit him on the ass – which is
always precisely what it does. If Americans really loved SUVs that much, they’d still be buying the damn things and GM would be fine. But they don’t, they aren’t, and it isn’t.
November 17th, 2008 at 12:10 am
DTM,
First, truck-based SUVs began losing serious market share to smaller vehicles (mostly “crossovers”) around 2003, before gasoline prices really began to spike.
I don’t know why you keep going on about “truck-based SUVs” when the issue here is vehicle size. In any case, your faith-based assertion is, not surprisingly, completely wrong. For about 20 years through at least 2007, cars lost market share to larger vehicles (vans, pickups and SUVs). And within the “cars” category, small cars lost market share to large cars. And the SUV category (including the “large SUV” sub-category) has grown over that period. It reached about 30% of the market in 2002, and held that share through at least 2007. It is only in about the last year that SUVs have begun to lose market share in response to very high gas prices. I have a link to EPA data to back this up, but since you have so far made no attempt to substantiate your own claims, I’m not going to give it to you.
Most “crossovers” are effectively tallish station wagons, just styled to look more like SUVs. Some are effectively minivans, however.
No, they’re not “tallish station wagons.” You might just as well called them “shortish SUVs.” In any case, the point, as I keep telling you, is that they are large vehicles. The crossover example you mentioned, the Chrysler Pacifica, has about the same capacity, same power, and same fuel consumption as the biggest-selling SUV, the Ford Explorer.
Third, minivans are indeed as large or larger than most truck-based SUVs in terms of interior space.
Practicality is not simply a matter of “interior space.” And as I said, minivans lack the sporty and outdoorsy image that attracts many young buyers to SUVs, especially young men. Many young men would simply feel embarrased to be seen driving around in a minivan.
Where we seem to disagree is whether there is some fixed nature to American car fashions such that there will always be a bias toward larger vehicles (in the absense of a utilitarian reason for going larger).
It’s not a “bias,” it’s a preference. And as I said, there’s no evidence that this preference is a mere “fashion.” Vehicles sizes only go down when gas prices go way up.
November 17th, 2008 at 12:21 am
Richard Cownie,
Actual Americans, on the other hand, want a car
that doesn’t cost $100 to fill up, doesn’t need a new transmission at 30k miles, keeps its resale value, and purrs along happily for 120k miles or more. Which is why so many -
more and more as time goes on – buy a Camry or a Civic.
Yes, that must be why the total light vehicle market share of cars fell from 80% in 1982 to 50% in 2007. And small cars suffered the biggest loss of all. There has been a huge shift away from smaller cars towards bigger cars, and away from cars in general towards vans, trucks and SUVs.
As usual, Mixner is just completely disconnected from reality and wouldn’t recognize data if it bit him on the ass
Oh, the irony.
November 17th, 2008 at 12:08 pm
DTM,
I’m not sure why you think you get to dictate the issues at hand.
I’m not “dictating” anything. I’m pointing out that the claim of mine you’re trying to rebut is about VEHICLE SIZES, not “truck-based” SUVs. You have produced no evidence whatsoever to support your hypothesis that the preference for large vehicles is a “fashion.”
As for your market share data, you can provide it or not as you choose. I’d just note that what you described is not necessarily inconsistent with what I posted.
It is completely inconsistent with your assertion. You claimed that “truck-based SUVs began losing serious market share to smaller vehicles (mostly “crossovers”) around 2003.” This is totally false. The EPA data shows that no category of SUV lost significant market share between 2003 and 2007. Large vehicles, including large SUVs, only began to lose market share around a year or so ago, when gas prices hit a new high threshold.
As I noted, the Pacifica is actually a minivan-based crossover, specifically the S platform.
You have yet again completely missed the point. The point is that the Pacifica is about the same size and uses about the same amount of fuel as the Ford Explorer, the best-selling SUV of all time. The Pacifica doesn’t represent a reduction in vehicle size or fuel use compared to older SUVs, just a change in design and styling.
You are consistently describing this “preference” in fashion terms. So again, as far as I am concerned you might as well be talking about the inevitable American preference for large tailfins on their cars.
No I’m not. I’m pointing out to you, for the umpteenth time, that there is no evidence that the preference of American consumers for large vehicles is a “fashion.” Vehicle sizes only go down when gas prices go way up. The EPA data clearly shows that vehicle sizes increased in the 25 years between 1982 and 2007.
January 18th, 2009 at 5:57 am
laptop battery
laptop batteries
February 8th, 2009 at 11:00 pm
laptop battery
March 1st, 2009 at 9:20 am
viagra
Great site. Good info
March 2nd, 2009 at 8:16 am
levitraVery interesting site. Hope it will always be alive!
March 22nd, 2009 at 7:16 am
tramadol
If you have to do it, you might as well do it right
April 2nd, 2009 at 9:23 am
It is the coolest site,keep so!
buy cheap viagra