Tuesday, December 30, 2008

The Truth Isn't That Far Out There

I've often wondered why the American car industry has kept churning out enormous gas-guzzlers year after year. I've even entertained the notion that the oil companies influence auto design in some under-the-table, backroom, behind-the-green-door sort of way. I'm backing off from that theory.

Probably the truth is this: auto makers accurately read the market and supplied it. Look, gas is cheap in this country. Even during the summer it was cheap, compared t0 the rest of the world. In London gas was $4 a gallon when I was a kid. Given their narrow roads and easy access to the tube ("mind the gap!") there's less demand for your own car there, thus they sold less volume at higher prices and maintained profit margins.

Here, gas flows like water. We'd rather have our own transportation, and we'd rather have it big so we can see around the big cars in front of us.

Of course, we'd also rather have efficiency in our enormous vehicles. Foreign auto makers, who had to think that way to sell to the natives, were more easily able to supply it. American companies could do the R&D but making wholesale changes in design is expensive. You have to shut down factories and re-tool them. And sure they can do it, but they will tend to wait as long as possible because there's still enough demand for the old-style cars to make waiting a good option. Or at least, there was enough demand.

In the last six months, the market has radically changed. True story - in the early eighties IBM wanted to get into the personal computer business. They were the biggest company around and they wanted in on that action. They did a study and determined that, using proper channels, it would take them nine months from planning to execution... to produce the carton the computer ships in. Big companies tend to take a very long time to change course, the same way that big ships do. Speedboats turn on a dime.

Foreign auto makers are comparative speed boats, to boil it down for ya.

I bet when the smoke clears, GenaFord will be making cars the same size with slightly better milage, and they will continue to cede market share to the wiley Japanese. If we're really interested in efficiency we'll buy cars that are half the size. I don't think that's going to happen. We're Americans and consuming more than we need isn't just a tendency - it's a trademark. If we stop that, the global economy is toast. If that happens, who will we outsource to?


wamk said...

Doesn't Ford have 2 models in the Top 10 sold in Europe in 2008?

Danielk said...

Do they? How's the milage on those?

wamk said...

The Ford Fiesta does great "over there" because it fits the needs of the buying public.

The Ford Expedition/Explorer/Excursion do better over here because they fit the needs of the buying public.

The Market will take care of itself. The car buying public in the US will not buy hybrids in large numbers until the car makers make a hybrid that the masses want.

And gas also needs to be over $4 a gallon.

Danielk said...

You know what? I think we're agreeing on this one.

wamk said...

So how does a bailout, which forces the Big Three to make cars Americans don't want and won't buy, make any sense?

Danielk said...

It keeps Americans employed. As I've said, a better use of the money would be to pay it directly to those workers until another employer (like a nimble new car company) springs up to take them on, but I bet you're not thrilled with that idea either.

wamk said...

The problem with paying them to make a product no one wants?

Where do you draw the line? When does it stop?

And what happens to the next industry that "needs help"? Do we bailout Hollywood for making movies no one wants to see? Retail for making clothes no one wants to wear? Musicians that make music no one listens to?

Danielk said...

I wouldn't worry about the entertainment industry... all those people can get jobs as waiters.

Bailouts are treacherous, but so is a great depression. Ideally, you avoid the worst excesses of each.

Publius said...

One word explains why American auto makers are failing....


wamk said...

Ahh, Piker, but you neglected to answer the question. As usual.

Where does it end?

Who decides which industries survive, and which do not? Which companies?

Oil has been under $40 a barrel for some time. Do we bailout Big Oil next? Their profits will be down, which will limit exploration, which will limit new oil finds. Do they get a bailout?

I posted over on my blog today that the monies from the $700 billion bailout have already been promised in an amount greater than the original sum.

So how do we bailout the bailout?

Danielk said...

You tell me pal... where do you want it to end? Do you think tax cuts and market forces alone will smooth all this out? It could happen, but it didn't work in the thirties.

wamk said...

Yes, I do.

The only question is, will it take 6 months, or 6 years?

We can't put off the inevitable by throwing money at it.

Detroit has made bad cars for decades. A short-term loan from Mama Government ain't gonna change that.

Banks have been making bad loans for almost a decade. It's impossible to tell right now exactly how much any given home is worth. The Market hasn't been able to correct itself.

Every Governement in the US right now (Cities, Counties, State, and Federal) are having budget issues.

We as a Country, State, City, and as individuals have been living life to the extent of our credit limit.

Any now it's time to pay the bill.

Detroit is using a thimble to bail the Titanic.

There is no magic bullet here. If the Depression happens again, it will happen. It's just a question of when.

skot said...

This whole notion that “Detroit is making bad cars” is completely bogus and ignorant of history. Am I the only person left who remembers what American cars were like in the 1970s? Does anyone remember the AMC Pacer, the Chevy Vega, the Chrysler Cordoba, or the godforsaken Ford Pinto? These were terrible cars, unreliable and cheaply built, and had cheesy knobs that came off in your hand. The Japanese rightly kicked everyone's ass with quality imports.

Big three cars are considered “bad” only because they didn't all magically turn into Priuses last summer when gas hit $4 a gallon. True, there are way too many piggy SUVs out there, but has everyone noticed how Hummers sort of vanished off the roads?

But you know what? Detroit learned and the cars improved. Any American car new off a lot now are as solidly built as any in the global market. The average new car is more fuel efficient as a function of weight ratio, requires less maintenance, and will last about 200,000 miles. In the 70s, a new car was designed to last as long as it's warranty, no longer.

A lot of this has to do with technological upgrades. An engine with computer-designed tolerances will last a lot longer than one that was made from actual drawing-board specs.

I've been fixing cars for thirty years. I own a '56 Chevy truck, which I rebuilt myself. I've seen the crap that the big three have made in the past. I also know they have improved their products. Those big ol' car makers can change, it'll just take a few years. We're basically back in 1980, when Lee Iacocca wheedled a billion-dollar government bailout for Chrysler.

I HOPE they can change. If they can't, we are all well and truly boned.

wamk said...

Pontiac Aztek?

Chevy Avalanche?

Dodge Neon?

Chevy Lumina?

Buick Ranier?

Correct me if I'm wrong, but those vehicles all "happened" in the 2000's, not the 70's and 80's. The Neon came into being in the mid-90's.

Skot said...

I never said Detroit has achieved Nirvana. But overall the quality of American-made vehicles improved vastly over the nadir of the 1970-early 80s, and unlike that era are comparable to imports in reliability and engineering. The Ford F-150, the rejiggered Mustang, and the new Malibu are some good examples. Jeep products like the Grand Cherokee and Wrangler have strong international sales.

Yes, the Neon was crap, and Luminas had some shaky years as well. But the Honda Del Sol and The Geo Metro were equally horrible imports.

As for the SUVs mentioned, that's the heart of the problem isn't it? Too many friggin' SUVs. The Big Three are guilty of preferring quarterly profit over sensible long-term planning, and with cheap gas and people using imaginary equity to buy cars, they thought it would never end.

And mind you: even unimaginative, pointless SUVS like the Ranier and the Lincoln Navigator (or phenomenally ugly ones like the Aztek) are fundamentally well-engineered. When was the last time you heard of a massive 70's-style product line recall?

SUVs have been uncool for a few years now. Detroit can shed them like it shed tail fins and running boards. Actually, I miss those things.