Cars & Stuff

Once again, I have fallen behind on updating my blog. I haven't even written about the massive government interference in the auto industry yet. It came up again recently when they decided to throw more money into the "Cars For Clunkers" program. Why not just throw money down the toilet? The point of the program is to get people to trade in old, inefficient cars for ones with better mileage standards. It's supposed to help the environment by getting those inefficient cars off the road, and help the economy by getting people to buy cars. I'm failing to see how either can be attained by destroying a perfectly functional car.

Environmentally, what do you get? Some savings on mileage? How much pollution do you create destroying the car and building a brand new one compared to a car that gets 5 miles per gallon worse? And you're probably not getting the cars off the road that you want. It's really old ones that are the big polluters, because cars just lose integrity in their miles per gallons and emissions controls as they age. And those are most likely to be owned by people who are poor. Since the program only applies if you buy a new car, that will exclude them from it. I don't know why this administration hates poor people so much, but this program screws them. More than likely they can't afford a new car so trading in their POS for a Prius isn't feasible. And by destroying all the cars, they're hurting the used car market. With a bunch serviceable cars off the used car market, buying a good used car will be more expensive (lower supply equal higher prices). So, instead of being able to trade their 10 year old car for a 5 year old one that probably gets better mileage, that person will stick with their old beater.

Now, some people who can't afford a new car may decide to buy one anyway to take advantage of the cash. Which means they'll have to take out a loan that has a better chance of defaulting. Do you think a glut of bad loans could be a problem? But that's not the only economically unsound part of the program. Just because people are buying cars doesn't mean it's stimulating the economy. It's just moving money from one sector of the economy to another. That's probably why there was a decline in retail sales last month. People would have been spending the money on something else. Which brings up a very important question? Should the government in a free society be picking which economic sector will be successful by subsidizing it?

Of course, we already know that the present administration has decided to become very involved in the American auto industry. They now own big chunks of GM and pushed Chrysler to basically give itself to Fiat, a company that has never sold cars well in this country. Barack Obama insists that the government doesn't want to run GM and plans to sell it off as soon as possible. Yeah, that's a prize jewel you're putting on the market. I'm sure everyone wants a business that is in massive debt and still tied to a crippling labor agreement. Amtrak was only supposed to be government financed for a few years. We're almost 40 years in on that one. And we'll be stuck with GM. The amount of government money already plowed into that white elephant can probably never be paid back even if it goes private again.

What a great idea this is. Everyone knows what great car designs and quality come out of government owned car industries. Think about all those Eastern European countries with state run economies. Their cars (think Yugos) were in huge demand in the west. Why would anyone think the government can run a lemonade stand let alone a massively large car company? Especially since the decision making so far has been made by a task force that has one person on it with experience in the auto industry. On the labor side. Which happens to be a big cause of GM's competitive problems.

What was one of their first decisions? Closing a bunch of dealerships because Toyota and Honda are being more successful than GM and Chrysler and they have fewer dealerships. Hate to tell these morons, but Toyota isn't out-selling GM because of fewer dealerships. And if your problem is selling cars, having fewer outlets for them isn't going to help. The argument is GM dealers are often competing with each other instead of other car companies so they undercut each other's prices. How is this a bad thing for the consumer? That would be like an appliance company refusing to sell to Meijer because they might drop their prices to compete with Walmart. I'm sure car buyers will flock to the more expensive sellers. Dealers buy their cars from the manufacturer and resell them. GM isn't losing money when one of their dealer drops his prices. They also argue that they have to give incentives to all the dealers. No, they don't. They can let each dealership sink or swim on their own.

And it doesn't account for what you lose. To begin with, a lot of jobs. And for another, they're making an assumption that if one dealership sells 200 and another sells 500, then the larger dealer will sell 700 when the smaller one closes. Yes, people can be brand loyal with cars, but they may also be loyal to the dealership they've shopped at for years. And aren't willing to drive to the next county to buy their new car when there is a perfectly good Toyota dealer just down the road with cheaper cars. Especially when one starts thinking about having to drive to the next county to get it serviced.

And then you get into the whole problem of government decision when they have that kind of power. There are already some people questioning whether dealers that are being closed could be picked for political reasons. Obama states that the government won't get involved in the day to day business decisions, but they already are by pushing for hybrids and more smaller cars. That's a great way to get GM out of financial trouble. Selling unprofitable products. Toyota sells a ton of hybrids but doesn't make money off of them.

As for small cars, American car companies are already having trouble competing with Japanese companies due to labor costs. People who drive Camrys and Accords aren't going to suddenly switch back to a more expensive Fusion or Malibu. And remember how American auto makers were criticized for pushing SUVs which became poor sellers when gas prices soared? SUVs are the only reason GM managed to stave off bankruptcy this long. SUVs and trucks were the only profitable vehicles they had. It's simple economics. SUVs had a high selling price so labor was a smaller percentage of each one. With a small car, it's a much larger percentage so it means UAW built cars are more expensive. And yet, the UAW knows it's power in this relationship. So, GM will be building a subcompact car in the US. If they aren't competitive with the foreign competitors on small cars now, why should we expect it to be better on even smaller cars? Here's a car that's already a top seller and uses no fossil fuels to drive. It's Obama's dream car.