Thursday, December 18, 2008

He Who Has The Gold, Makes The Rules

The Big Three US automakers will shut their factories starting this month.

Without $14 Billion in government bailout they can’t keep going.

Literally millions of jobs are on the line here – and it’s worse than that.

Far worse.

The collapse of Wall Street was bad enough - but the investment and banking industry will recover sooner or later. With or without government help the market will recover. And if history is any guide, like any forest that burns, the recovered market will be larger and stronger without all the smoldering deadwood.

A lot of former investment brokers and bankers are out of a job. Even if you allow that some of them got exactly what they deserved, a far larger number didn’t – they were just cogs in a machine that’s still tearing itself apart. But here’s the thing, most of those people are educated, and even if they don’t return to banking when the industry recovers, they will still be able to find a way to make a decent living sooner or later. Will those jobs come with million dollar bonuses and complementary rides in the company helicopter? Maybe not, and a rather large number of those people who rode the whirlybird to a weekend home in the Hamptons are going to have to make some serious downgrades in lifestyle, but they will survive. Most of them. If they have the willingness to do what is necessary. Hell, they might even end up happier and more fulfilled for it – probably not, but hey far stranger things have happened.

I have serious doubts that the bailout will do much to stop what’s happening in the banking industry. $700 Billion seems like a lot, but compared to the trillions in play on Wall Street, it’s really like trying to stop a forest fire with a garden hose. That doesn’t mean we shouldn’t try, it’s human nature to tilt at windmills – and sometimes you can put out a forest fire with a garden hose. Yes, you can. The trick is to aim the hose as soon as the first wisp of smoke comes drifting up – not to stand around toasting your marshmallow until the whole damned forest is a hellish conflagration.

And that takes us to the auto industry.

The auto industry bailout is different in one significant way. Wall Street isn’t going anywhere, it may be smaller, it may be more lean, but it isn’t going away and it will continue to grow. The auto industry? When is goes, it goes. Once the factories are shut down, once the supply chains are gone, once the dealerships are bankrupt – it’s over. The industry is gone. Look around, see any textile mills? Electronics manufactures? Steel mills? Same deal here.

We’ve known for a long time, all of my life in fact, that the oil is going to run out. This year, next year, a decade from now, a century. Whatever. Sooner or later we’re going to have find a different source of motive power for our civilization, or go the way of Rome. Now, a hell of a lot of people seem to think that until the oil does indeed run out, well, we’ll have plenty. The pumps will keep pumping, the tankers will keep tanking, the refineries will keep refining – all at full capacity – until the last barrel is sucked from the sand of Saudi Arabia. And until that happens the price, the demand, and the politics will remain pretty much the same. We know the low fuel level light is on, but we just keep driving 70 miles per hour until the tank runs dry. This attitude shows an astounding lack of understanding when it comes to the laws of supply and demand in general, and scarce commodity/critical commodity macro economics in particular. Maybe we should be worried less about whether or not the schools are teaching about Rachel’s Two Mommies and start making sure people have a reasonable understanding of basic economics – but I digress. The warning signs, the little wisps of smoke, have been around us for thirty years now. Embargos, price hikes, lack of capacity, increasing difficulty of supply, conflict, outright war – all of these things are indicators.

Now, those executives who run the auto industry do have an understanding of economics, they just don’t give a damn – as long as they’ve got a fiddle they’re going to keep playing while Rome burns around them. They also understand the basic rules of supply and demand – and have bent those rules to the breaking point in an effort to manipulate demand into something they could supply at maximum profit. Now, before you start screaming and sending me email, I’m all about capitalism and I don’t think it’s any kind of crime to maximize profits. Profit is what makes the wheels of business turn. But there comes a point where the pursuit of profit becomes all consuming greed, and that all consuming pursuit of maximum immediate return will destroy you in the long run. And that’s what’s happened in the auto industry (and Wall Street, for that matter). Unlike the old days, CEO’s don’t own the companies. Modern CEO’s have no long-term interest in the company. They’ll run the place for a couple of years, long enough to reorganize a few things, liquidate a division or two, make a few acquisitions and pull in a twenty or thirty or fifty million bonus – and then move on to some other CEO position in another industry, or a million dollar motivational book deal and speaking gig. They don’t give a damn what happens to Ford, or GM, or Chrysler (or Lehman Brothers, or Merrill Lynch or…) ten or twenty years from now. That’s somebody else’s problem. And it shows.

Twenty years ago, there really wasn’t anything like the SUV. The Jeep Cherokee and Wagoneer, the Ford Bronco maybe, but those were working machines – bare bones, minimum amenities and accessories. Only hairy legged women and cowboys drove those things. Unless you were a construction worker, park ranger, or oil rig wildcatter on a remote site in Alaska, you probably never rode in one of those monstrously ugly Chevy Suburbans (which all seemed to come pre-rusted and with a missing window covered in plastic sheeting). The average commuter sure as hell wasn’t interested in 4x4 or cargo capacity. The young ones wanted sports cars – Cameros, Mustangs, Firebirds. The older ones wanted something safe, reliable, roomy. The problem was that the car companies didn’t make much profit on those types of vehicles. The profit margin was fairly narrow – as it always is. But then, some bright guy noticed that the profit margin on those Cherokees, Broncos, and Blazers was huge. Huge. See those machines didn’t cost nearly as much to manufacture as the Firebirds, Novas, and Pintos – remember they weren’t making a lot of them, they didn’t have fancy paint jobs, or chrome, or plush upholstery, at best they got an FM radio and a cigarette lighter – BUT they could be sold at twice the price of those fancy cars – and that difference was pure profit. In 1995 it wasn’t unusual for a car dealer to make ten grand on an SUV, when the profit on an average sale was more like $1500 to $2000. And once the industry realized that, everybody jumped on the bandwagon, exactly the same way everybody on Wall Street jumped on the mortgage bond idea. Everybody started making SUVs and convincing the public that in order get that anorexic centerfold in the bikini on the car commercial you needed one. Then they added chrome. Then they added stereo. And cruise control. And then entertainment systems. And they keep making them bigger. Until even Cadillac had a gargantuan, gold plated, limited edition luxury cruise ship on wheels – and dealers are back to making less than a grand of profit again, a lot less actually. This is a tenuous situation. One market sag, one poor investment, one bad quarter, one spike in material prices, one major strike – or a failure on Wall Street – and you’re bust. There is no margin.

Just like the investment market, and for many of the same reasons in microcosm, the auto industry is going belly up. Millions of jobs hang in the balance. But unlike the vast majority of former brokers, bankers, and investors – those auto factory workers aren’t well educated (look, we can talk around it or we can be blunt about it. And the truth is that most assembly line workers barely have a high school education. If it makes you mad to hear me say so, tough, getting offended won’t change the facts or solve the problems). They don’t have a hell of a lot of options. A lot of them have worked in the auto industry all of their lives, just like their folks before them, and their grandparents before that. That limits their options. Their union isn’t helping matters. For the UAW it’s all or nothing, no compromise, no concession – but when those factories do close (and some of them will, bailout or no), well, the union really isn’t going to be a hell of a lot of help. The UAW isn’t going to pay for a million mortgages, or a million pairs of braces, or put food on a million tables. What will happen is this – several million folks will suddenly be jobless. That’s several million not paying taxes, local taxes, federal taxes. That’s several million not paying union dues. That’s several million folks who will need tax-payer funded assistance. It’s likely that some towns based around the auto industry will become ghost towns – just like when the steel industry went belly up, or the textile industry, or when the mine played out, or, well you get the idea. Drive through Rome, New York sometime, or any other boarded up single industry cowtown, if you need an example of what I’m talking about. The ripple effects from a collapsed auto industry, combined with the disaster on Wall Street, could very well be the final straw – the push that sends us out of recession and into a full blown depression.

We’ve been surrounded by those wisps of smoke for a long, long time. We’ve stomped out a few brush fires here and there – and we’ve let others rage until they were out of control. It’s long past the point where a garden hose and a couple of squirt guns will have any effect. We’re going to need to get off our collective asses and break out the shovels, air tankers, pumper truckers, the 3” hoses and get dirty. We need to start cutting some fire breaks.

First, it should be fairly obvious that we have to bail out the industry. It’s in our best interest. We either pay those people to make cars, or we pay them not to make cars - i.e. we pay them to collect unemployment and welfare, we buy their houses when they default on the loans. We pay their medical bills when they lose their insurance and have to start taking their kids, all five million of them, to the local emergency room instead of to the doctor. And like that. Letting the industry go bust is cutting off our nose to spite our face.

Second, what may be less obvious is that we have an opportunity to fix the real reason for this economic crises, energy. After twenty years of cranking out increasingly larger SUVs, after twenty years of a dedicated information warfare campaign to make Americans want increasingly larger SUV’s, there’s a hell of a lot of inertia in the industry. Changing direction isn’t something that any CEO can undertake solo. One manufacturer takes a risk on smaller, more economic, more energy efficient vehicles and it’s career suicide. The stock holders aren’t willing to take a risk, especially a major risk, like that.

Congress wants to attach strings to the bailout package, but what they really keep talking about is paying it back. Usually they wouldn’t care, it’s not their money after all, but voters have recently demonstrated what happens when you piss them off. Congress wants some insurance they can use to placate the angry voters. The CEO’s aren’t happy about that. And neither is the Union. Give us the money and let us go back to building SUVs. Again, a remarkable lack of understanding of basic economics and the basic causal effects that precipitated this crisis in the first place: i.e. if the industry isn’t making a profit, and you loan them money, and they don’t change anything – they are very likely to remain unprofitable and therefore even more likely to never pay back the loan. And they are very likely to go out of business anyway, because is addition to their poor business plan they’re now saddled with a fifteen billion dollar debt on top of their other bills.

And that’s the lever, right there.

We’ve got all three of the American car manufactures, and by extension a large part of the energy industry, over the barrel right now.

That’s right.

We have them over a barrel, they don't have us.

Note the title of this post. We, the taxpayers, have the gold, therefore we make the rules.

And the rules should like something like this:

We’ll give you the money. That’s right, give. But:

1) No more short term CEOs. No more swoop in, pillage, and depart. We give you money and we buy a controlling interest, you sign for it personally. Take charge of your organization and more importantly take responsibility. If you pay us back, well, then you can do whatever you like. But until you do, you’re going to play by our rules.

2) The union needs to compromise. No, shut up. The union needs to compromise. If you’re my relative and you’re in financial trouble and I loan you money to help you out, money I really can’t spare, money that puts a hardship on me – well, you’d better be making some sacrifices too. In this case, the union can start by waiving union dues until the industry recovers. And the union needs to talk about negotiating a pay cut for the duration of the crises – yes, that’s right. In fact that pay cut should be exactly the amount of each worker’s union dues. You tell me what you’d rather have, a pay cut, or no job and no chance of finding a job because you’ve got no education and there’s a million other swinging dicks looking for unskilled jobs too? Yes, both options suck, but one sucks a hell of a lot less than the other. The union needs to get humble real damned quick. Because, frankly, if the industry goes bust – well, there aren’t going to be a hell of a lot of dues paying auto workers, are there? But here’s the thing, if the union waives its dues, and the negotiated pay cut for each worker is the amount of his or her union dues – then the worker see no change in take home pay. If the union has the best interest of labor in mind as they claim, well, they need to put their money where their mouth is.

3) No bonuses for executives. None. Once you pay back the bailout, you can do what you want. But until then no bonuses. No corporate jets. No corporate retreats. No company cars. Start selling those assets boys, you need to have a yard sale. Same as with the union, sacrifice is required. You make the big bucks, you make the bigger sacrifice.

4) Stockholders. Time to reinvest back into the industry. Until the loan is paid off, a percentage of your dividends belong to us. Put it back into the industry for retooling and reorganization.

5) No more SUVs. No more purely petro-fuel internal combustion power plants. No more nine miles per gallon and no exceptions. Everything coming off the assembly line gets 30+MPG for the next five years, then 40+MPG or the equivalent, then 50. Tough? Yep. Technologically challenging? Yep. Remember, we’re the country that got from zero to the moon in nine years. It can be done. Now’s the time and there will never be a better opportunity. Crank up America’s vaunted technological superiority and get to work. If we can build a Predator that can loiter for twenty hours over the battlefield, we can build a car that gets 35MPG (and I’m not talking that bullshit MPG rating that dealers give, I’m talking real MPG). Give a bonus, tax break, loan payment relief, whatever to the manufacturer that produces the highest product net energy efficiency for each year, i.e. not just the most efficient vehicles, but also making people want them. Make competition work for us, screw Dr. Demming and his competition is bad bullshit TQL business model. Again, it can be done – we’ve convinced people that putting a paper tube of burning leaves in their mouth is a good idea even if it kills them, we’ve convinced people that rocks are pets, we’ve convinced people that they need a four ton, 4x4, four door behemoth that gets nine miles per gallon. Zoom, zoom, baby, call marketing and figure it out.

6) The petroleum industry needs to pony up. Exxon made $36 billion in profit last year. But their wagon is coupled to the auto industry. Now even if the American auto industry goes bust, Americans won’t stop driving cars, they’ll just buy them from somebody else. However, sooner or later the oil is going to go away and it’ll be the energy companies pandering for a bailout. The auto industry and the oil industry are coupled at the hip, and the oil industry is solvent at the moment. It’s in their best interest to make some loans, refloat the car makers and start figuring out what the motive power of the future looks like. Then build it.

We either stand here and watch our country burn, or we can do something about it.

We’ve got the gold, we make the rules.

We give them the money, then they work for us.

We can retool, we can make our industry more efficient and competitive, we can make people want American made cars again, we can fix our energy problems, we can create new jobs in the supply industry for the new cars and in the energy sector.

Fifteen billion dollars ought to buy us something better than a bankruptcy postponement.

Fifteen billion dollars ought to buy us the future.


  1. So, you're sending this to the Big 3, Congress, and Exxon/Mobil, right?

    *thunderous applause*

  2. *applause* I really like a lot of what you said, wish it could be sent to the pres-elect.

    of course its all just wishful thinking, the auto makers have learned its much cheaper to keep doing what they do, pay off the gov to keep from having to do anything difficult - look how the legislation for fuel efficiency went, and now they have learned that they can get free money by "acting" contrite. "I gave up my jet because you got mad, now give me money". Sadly, no changes will come from this at all, the union isn't interested in any concessions, the industry isn't either..sigh.

  3. Can we have all the people who own Hummers flogged? I have never understood why anyone would need one of those. They get horrible gas mileage. They can't tow shit. Hell, they don't even carry that many people. What's the point? They might as well scream "Please, forgive my lack of a dick".

    I do admit to owning a small SUV. I own a Jeep Grand Cherokee, which is essentially a jacked up sedan. It gets decent gas mileage for a SUV because I don't have the 4x4 package. (I live in the city. I don't need some stupid gimic that has repair problems.) At the time I bought it (used), it was all I could afford. I knew I wanted kids, and I figured it would easily hold me and any children I had. The irony is that when I married my husband, he came with three children. We got custody of all three in May. Add in our new baby, and we've outgrown my Jeep. We're now looking at a Honda mini van. We want it because of the repair record and for the great gas mileage. We're going to be getting rid of my Jeep.

    On a side note, my parents actually had a Suburban. (It was the only car that would carry all seven of us kids. It was that or a school bus.) I know what you mean about rust. It seems Chevy got cheap with the paint. They were all designed to rust. As for the windows, I remember a few cracks, but we never actually had a window break. That thing was great. It was an '85, and my parents bought it used. I remember tons of family trips in that thing. I learned to parallel park that behemoth. And for a behemoth, it had pretty good gas mileage. It's highway miles were insane. It finally died after years of faithful service last year. It lasted just a few months longer than my Dad. I sometimes wonder if it finally died because it missed him.

  4. Jim,

    In general, you write many things here I can agree to. Especially the part of taxing the windfall profiteering oil corporations and bashing the "kings of industry" who drove the ship right into the shoals.

    But, my friend, I have to tell you, the unions have already given up enough. Just this year, before the seizure in the financial market (and the end of credit), the UAW agreed to wage concessions (lower wages for all and especially for new hires) and a massive re-do of union employee health care (borne on the backs of the retirees). General Motors OWES the UAW health care fund something on the order of $45,000,000,000 (yep, billions) to buy out the OBLIGATIONS the company made for more decades to its employees past and present. And the retirees? They are the ones who are going to feel the brunt since the fund is STILL UNDERCAPTALIZED. And by the way, GM has yet to put a single cent into the fund, since, you know, they're almost bankrupt.

    When the union and companies talk about legacy costs, they mean health care. And today's mess is exactly WHY health care reform 15 years ago was necessary. In the past 7 years alone, health care premiums are up 90% (now average about $12,600/family). That's a whole lot more than the Tricare costs you and I are paying!

    Well, the hens are home to roost and now all will pay the piper - 'cept of course those who really do have the gold (the top 1-2% of America's families). Those would be the folks who's actual share of all of America's wealth GREW (up to 22% of all this country's money is now held by just 1% of Americans) since 2000. Those union workers? They are part of the bottom 50% of America - who's wealth - you guessed it - fell (they now have about 12.5% of the country's money).

    So, as I see it, let's see those other recommendations become reality before we ask more from the UAW. They've already given at the office. Let's put them at the bottom of your list of who has to give something rather than up near the top, eh?


  5. I forgot to mention that I spent two summers riding in Chevy Suburbans in the early-mid 90s. It's what the summer geology field camp used to transport all the students around the wilds of Montana. We had a whole fleet. ;)

  6. People who don't agree with you should ask the United Rubber Workers about their history.

    The URW? You know, the union that doesn't exist any longer because they wouldn't make concessions, drove the rubber plants out of Akron and eventually out of the US - that URW?

    The UAW is slitting its own throat. Just ask the people from Akron, Ohio. We can tell you all about it.


  7. There are some problems with the laws of thermodynamics in terms of going completely cold turkey. The Predator, you mention, has great loiter time because unlike an F-16, (a) it has no need to go supersonic, (b) it has no need to support and carry a pilot and (c) it has no need for a pilot to pee. Also (d), the forces it goes up against aren't sending up Anti-Predators, so instead of building a Porsche 911, you can have a Dodge Omni.

    My first vehicle was a 1979 Chevy Suburban. The day I bought it was the last time I paid under a buck a gallon for many years. At the time I had a night job in college as a relief driver for suburban Chicago home delivery of the Tribune. You can get 450 Sunday Tribs in a weatherproof interior of a Suburban without breaking a sweat. And in college, you get to move a LOT of people when you own a 'burban.

    I can't drive the N number of 50 mpg vehicles to do the work of the Suburban.

    Now, if you want to bitch about the L.A. exec sitting on the I-10 in his Ford Excursion 4WD, carrying nothing but him and a slender briefcase just big enough for a sandwich, except he doesn't bring his lunch from home, then we can talk.

    As for the marketing and economics bits, I'll leave you with a link to a rant I left in the comments on another blog.

    Dr. Phil

  8. Jim, I might have less of a problem with the bailout if it meant we were semi-socializing the auto industry, which is really what you're talking about. Not because of my lefty leanings and sympathies to mixed and semi-socialist economies, but because my basic problem with the auto bailout is that it's an utter failure of one of the main principles of capitalism--that consumers vote with their dollars.

    Like a lot of people, I could have bought American when I was in the market for a car earlier this year. With the financing incentives the automakers offer, leasing or possibly even buying a new car might have even been cheaper than buying a used foreign car.

    But part of my purchasing decision was the fact that American automakers make vehicles--SUVs, specifically--that have been known to make me irritated or even furious to see on the highways, while the Germans and Japanese and Koreans have been making safe, fuel-efficient, nifty little cars.

    I have utter faith that if Detroit had wanted to, they could have made a sexy, affordable little hybrid or electric car and convinced everybody it was the best thing to happen to the human race since opposable thumbs--they certainly didn't convince millions of city folks to buy trucks and utility vehicles because of all the off-roading and scrap-hauling the average downtown worker does. But, as you say, they noticed the profit margins on the light trucks were double what they could get on sedans and compacts, and the Detroit automakers ignored the advice of everybody--from conservative fiscal wonks to liberal tree-hugging greens--to do something different.

    I don't like the idea of all those blue-collar workers being out of work, and my ideals say there ought to be a social safety net for them; I don't mind them getting unemployment or being sent back to school at the public expense.

    But I really hate the fact that those of us who thought we were playing by the rules--who thought that the way to show what we wanted by way of goods and services was to buy the kinds of goods and services we wanted and turn our noses up at junk--are now being forced to give money to the companies whose goods and services we eschewed. In a way, the auto bailout is no different from telling somebody who, say, is boycotting McDonald's for whatever reason that it's all well and good for them to do so, except that they're going to have a value meal deducted from their salary whether they eat the Big Mac or not. Or insert any other company of your choice. Somebody makes an inferior tool, you wouldn't buy it for your shop--and you wouldn't much appreciate it if the owner of the company responded by mugging you because you didn't buy his crappy product.

    I'm not happy about people being out of work. But I'm also not happy about being abused. And it only adds insult to injury to know that steps like most of the ones you suggest will never be implemented and the American automakers will continue to make the same inferior products that encouraged consumers to make Toyota the number one car company in the world. It's not that Detroit can't make as good a car, if not a better one--it's that they won't. As for the workers, maybe that's who they ought to be working for--Toyota, or Honda or some company that doesn't suck.

    Also, the reason I say "most of your suggestions," Jim, is that SP is absolutely right: the unions have given up a helluva lot already, including deferring or giving up things their members were entitled to under prior agreements. And while I suppose one might argue that those prior agreements are a part of the problem, if there was a time to play hardball it was years ago during earlier contract negotiations. The automakers agreed that the union members were entitled to certain benefits in exchange for their work--at that point, the employees were entitled to receive the consideration they'd negotiated for, it's an enforceable right against the other party. As things stand, the unions have foregone some of these benefits and expectations of late, which is something they've done to help their employers stay in business, and not because it would have been unreasonable for them to say, "You promised me A if I did B; I did my part and now you owe me." If you agree to clean my yard for $50 and a chilled six pack, you're not going to be happy if I come to you when you're half finished and tell you I'm broke and there will only be five bucks and no beer in it for you, sorry, and would you be willing to finish the other half of the yard for the change I can scrape together off the nightstand because seventy-three cents and a Canadian penny is better than being unemployed.

  9. American roads are also home to Japanese and German SUVs and full-size pickup trucks. They've spent more than ten years trying to break into the truck market. Why? Because it was profitable and during the era of cheap gas it was what people wanted.

    Exactly why would the Americans want to hand over that market?

    The real problem is that too much of business and banking has forgotten how to run a business. And given the past ten years, the Big Three are not as bad or as stupid as everyone wants to make them.

    Dr. Phil

  10. Dr. Phil, the Big Three invested a considerable amount of money and effort into making SUVs appear to be an attractive option to consumers who didn't need that kind of vehicle for practical reasons but could be convinced to want it as a symbol or that it possessed non-existing features like added safety or stability on the road (early SUV ads became notorious for showing SUVs performing maneuvers in terrain that the real SUVs could barely handle without rolling over in the unlikely event a bold city-slicker decided to take his SUV outside the city limits).

    As Jim said, before about 20 years ago, the only people who drove light utility trucks were people with lifestyles that called for light utility trucks, and they didn't drive light utility trucks that were SUVs, they drove light utility trucks that were actual trucks or civilian models of military vehicles.

    You're right that the SUV market was and remains a lucrative market. But it wasn't a "natural" market--consumers didn't start going down to their local car dealerships saying, "Hey, we want a fuel-guzzling, inordinately large vehicle that's kind of top-heavy and imbalanced and maximizes your supplier's profit margins!" Rather, the Big Three noticed how much they could make on SUVs (partly because light trucks weren't subject to the same Federal regs as consumer vehicles because there weren't that many light trucks on the road and it was assumed the majority of light trucks were commercial vehicles of one sort or another; and SUV's, as I'm sure you know, are classed as light trucks). And so the Big Three began running lots of TV ads suggesting that the SUV was perfect for men who wanted to be rugged and at least look like they were outdoorsy, and perfect for women with children as a replacement for the much-unloved station wagon.

    Because I think the Big Three are smart, albeit foolish-as-hell, I think they could have applied that marketing savvy to making and selling a desirable electric or hybrid years ago. They didn't, and even helped foster a sense that electric vehicles were ugly, silly little cars driven by Hollywood eccentrics--nothing like the big rugged American vehicles that show how American its American owner is.

    I don't blame foreign automakers for wanting to hone in on the market the American automakers invented. But the Big Three brought that market into the world and they could have helped take it out. They didn't. And now people who didn't buy into their marketing campaign will be supporting the Big Three's misfeasance, if you will, anyway, even after they tried to buy more wisely.

  11. Jim:

    First, full disclosure. My dad and two uncles are GM (salaried, not union) retirees, so I am hardly unbiased.

    Having said that, I think the one key factor you're missing here is that the American public has wanted large cars. In the 50s and 60s, European cars didn't sell in the US, because they were too small.

    It wasn't until gas prices spiked in the 1970s that small cars sold. And as soon as gas prices went down, Americans bought big cars.

    So Congress tried to legislate Corporate Average Fuel Economy (CAFE) standards. To meet the standards, the Big Three made small cars. But Americans wanted big cars, so the Big Three had to discount their small cars heavily.

    SUVs, because they were trucks, came under different CAFE standards. Even better, they were big, and once you made them comfortable, Americans loved them. This is why Toyota makes SUVs, and why Mercedes built a factory in the US specifically to make an SUV not sold in Europe.

    Marketing is a wonderful thing, but if people don't like the product, you can market until the cows come home and not sell anything. (See, "Coke, New.")

    Bottom line - you want more fuel-efficient vehicles, raise the price of gas high enough to make folks buy small cars.

  12. I'm pretty much in Eric's camp. I feel like I've had the Capitalist Dogma screamed into my ear for my entire life (that and it's sister theory, The Trickle Down Effect). This is what Capitalism looks like folks. It's essentially an economic version of how nature works - survival of the fittest. You produce a product no one wants you don't succeed. Period.
    I don't consider myself a Socialist and having just come through an election season where Socialist was being used as a bad word (along with Elite), it makes me wonder how some can rationalize socialization of failure.

    I feel qualified to say this as a person whose job is in the construction industry, which is in peril, even though I don't have a union and my industry didn't try to sell a ridiculously extravagant image as the only way to go. Bottom line, if investors can't get financing, I can't design buildings for them. Do I get a bailout?

  13. Well, see that's the problem with writing for educated, opinionated, alpha personalities - every once in a while they disagree with you en mass and then you've got a revolt on your hands. :)

    I waited to respond because I wanted to see what would happen this morning with Bush's bailout plan. GM and Chrysler get $13.4 billion now and possibly $4 billion in March. They have to become "viable' by March 31 or the loans get called in and they have to go into Chapter 11.

    Unions: Full disclosure: I was born and raised in Western Michigan. My dad worked for GM. I worked for American Seating (briefly) before I joined the Navy. AS made car seats and was a UAW factory, I worked on the paint line. I'm familiar with the UAW.

    First, I'm not out to get the unions in general, or the UAW in particular. However, I do think that a case can be made showing that unionized labor has often pandered to the lowest common denominator within their ranks and is responsible in large part for a dumbed-down labor force monoculture. I also think it can be demonstrated that unions have in large part contributed to the hostile us/them mentality of American industry. I think it can be shown that this makes American labor less efficient and far more expensive - or basically non competitive in the global market. I also think that it has led to the perception that American products, particularly cars, are inferior to imports (and this perception is widely held both domestically and abroad).

    However, on the other hand, I do understand why labor unions like the UAW are necessary and I can understand the UAW's position regarding concessions - especially in light of the 2007 VEBA plan for UAW retirees that remains unfunded by GM and Chrysler (as SP pointed out).

    Here's the thing, the only way that VEBA is going to get funded is if the Big Three stay in business and become profitable. If they go bankrupt, the first thing the judge is going to do is tear up the union contract. VEBA will never get funded. All those retirees (about 5 million) will lose their pensions. Period. There's no way around it - there's no money. Fully funding VEBA requires what? $33 billion from GM and Chrysler? (mostly GM). By far and away, the biggest single reason for the industry's current insolvency is the crushing debt they owe to the union. Now don't get me wrong here, the union is owed that money. The big three negotiated that settlement with the UAW - and the union has every right to expect them to make good on it. But if the industry goes bust, it isn't going to happen. There might be some small stipend after years of liquidation, but those five million retirees, and the additional two million UAW workers now will just be screwed in large part.

    Is it fair? Hell no, but if the Union doesn't compromise - they're going to get nothing.

    This is why I said - the Union must give something up. The union, not their members. There are three people in this bed, the Auto Makers, Labor, and the Union. The Union is an entity unto itself - and it's the only one that never compromises. The union itself as an organization needs to make some sacrifices - that's why I suggested dropping union dues for the duration. Union dues from active UAW workers average around $600million per year (according to the UAW's own disclosure sheets). That's half a billion and change, used to fund the union's activities, the strike assistance fund, and purchase bargaining units among other things. Suspend union dues for a year, drop the employee wages by exactly that much - that gives the automakers $600million from the union without affecting union member take home pay. The UAW agrees not to strike for the duration of the bailout, and uses the money from the strike assistance fund to fund itself.

    The taxpayers contribute. Labor contributes. Management contributes. And the union contributes. We save the jobs, we reorganize the industry.

    (continued in the next comment)

  14. As to socialism. Whatever.

    Look folks, we've got two options here:

    Bail out out the industry and make it profitable - basically a socialist solution. There's the (significant) danger that the bailout won't save the industry and we'll get stuck with the tab, $20 billion in loans plus the fallout in lost jobs, pensions, assistance, and etc which could run over a trillion dollars. Now if the bailout succeeds and the industry pays the money back, well it's temporary socialism - I can live with that.

    Don't bail them out and let two million Americans lose their jobs (and five million more lose their pensions) - and more importantly, lose an entire industry (again). It's more than just cars folks, those companies make military equipment too, a significant chunk of the military hardware supply line goes with the industry, not just the Big Three you understand, but in the hundreds of parts suppliers that will also go out of business. Speaking as a military guy, it's probably not a good idea to axe that supply line in the first place, but especially not in the middle of a war.

    Let me give you an example: there's one Chrysler plant in Warren, Michigan that make the hub seals for all military vehicles equipped with CTIS (centralized tire inflation system - a tire pressurization system used to change the tire traction/friction properties on the fly in motion) - that's basically everything, from trucks and motivators to hummers. You need to replace those seals every couple of hundred operating hours, more if you're operating in a hostile environment, say, like sand. There aren't any in the supply chain, we've used them up. All of them. Chrysler goes, so do the seals. Nobody else makes them. Nobody. Nobody makes US military equipment. What now? Because in about three months every vehicle in the inventory is going to running on flat tires. That's one example out of literally tens of thousands.

    I agree with Eric in principle. But the situation is more complicated than classroom capitalism.

  15. Strangely enough, I agree with the President's plan, and the concessions he wants from all the stakeholders.

    I know - alert the media.

    But the bottom line here is that everyone must sacrifice if the Big 3 are to be saved.


    The stakeholders, for sure, but also the taxpayers.

    I think whether the Big 3 ought to be saved is an open question, but if the answer to that question is "yes," and I believe it is, we're all going to have to pony up.

    Does is make me happy? No. No, it doesn't.

    But I think it's necessary.

  16. From what I can tell, I actually agree with the plan too, Janiece.

    Strap in, and prepare for heavy rolls as the ship comes about. :)

  17. I don't disagree with the marketing effort to make big vehicles and SUVs attractive. Hell, most of the Blazers and Suburban we've owned were old enough that no one called them SUVs. In fact, our newest, bought after Thanksgiving, is a 1999 Bravada. Not a single 21st century SUV on the property. So I personally haven't even gotten to the bloatware boats.

    But which came first? Marketing or the pressure from customers? Remember the El Camino? It was a pickup truck based on the Chevy Malibu. Ford had the El Ranchero or something similar.

    Dreadful pickup trucks. They sold because they were classified as light trucks and not the cars they were based on. And that meant that they used leaded gasoline longer than cars and had truck style seatbelts. Perfect for a lot of people who hate government interference. Marketing or give the customer what they want?

    Point is, unlike some of the financial mess, this wasn't illegal. You'll also notice Chevy doesn't make an El Camino anymore. Doesn't need to, they have better products available.

    Chrysler saved itself not so much with the K-car, but the minivan they built on the same platform. So successful that the Japanese fell all over themselves trying to compete. As nice as the Honda Odyssey is, the early Toyota minivans were ugly, dangerous, bad and their mothers dressed them funny.

    Lost in the SUV and minivan craze? The station wagon. And guess what kind of gas mileage a full-size station wagon got in the hey-day of the big family woodie. That's right, worse than minivans and most SUVs. So we traded one family vehicle for another.

    I'm all for good, clever, fuel sipping, small commuter vehicles. But until we change the transportation infrastructure, this country still needs family vehicles.

    Unless, of course, you hate family values. (grins) (ducks)

    Dr. Phil

  18. I don't disagree with the marketing effort to make big vehicles and SUVs attractive.

    I meant to say I didn't disagree with the argument that marketing helped make big vehicles and SUVs attractive.

    Also, in my Physics classes I point out that m.p.g. is not a measure of efficiency, per se. And then talk about the amount of useful work being done. A family of nine in one large SUV with 15mpg, or a family of nine in three four-passenger compacts which get 45mpg each -- or an aggregate 15mpg per family, but also requiring three drivers. And chariot style towing... (grin)

    Everything is Physics.

    Dr. Phil

  19. And chariot style towing...

    Clearly we should start investing in horse farms...

  20. Everything is physics

    Ain't it just?

    Phil, I agree with your physics, or rather I'm not so stupid as to argue physics with you :)

    However, how many SUV's are owned by families of nine people? Really? And how many are owned by DINKs who feel that the size of their enormous SUV reflects the size of their manhood? How many families with nine kids do you actually see on the highway packed into those Excursions and Denalis? Or rather how many of those giant beasts do you see with one dipshit talking a cell phone while swerving in and out of traffic?

    Additionally, even if you allow that there is a need for larger "family sized" vehicles - the vast majority of those machines could be made far, far, far more fuel efficient - start by deleting 4-wheel drive and that monster 0-60 in 4 seconds 400ci motor. Seriously, how many of those $60K Caddie Escalades with the gold trim actually go off roading or need to run the quarter mile at indie speeds? Really? How many actually need to tow a 747 or a fully loaded cargo train? And how many carry just that one dipshit to and from work every day and spend most of their time idling in traffic?

    Seriously, Doc, I agree with your physics, but there's more to it than just physics - and a lot of that is being driven by aggressive marketing. Look at what's being emphasized - right now, even now - in the adds. Size. Power. Room. 0-60 in x seconds. Off-road 4x4 utility. Luxury. Amenity. We may be in a recession, we may be facing an energy crisis, but that's no reason to scrimp on size, power, and luxury!

    That needs to change.

  21. Well, it may be less heavy seas than you think, Jim: I'm a little furious that I may well be buying an imaginary car from a company whose products I rejected--unless, of course, this "loan" really gets paid back. However, I didn't see a fleet of Secret Service limos pulled up in front of my condo this evening full of government officials soliciting my opinion. This bailout will go on whether I like it or not.

    I understand the national security arguments, believe it or not; I'm not sure that doesn't reflect a breakdown of purchasing or a need to diversify or maybe a need to nationalize certain assets (granted, Truman failed to nationalize the steel industry, but that was due more to the ham-handedness of his efforts and the questionable justifications for it than anything).

    The irony of my taking a hardcore capitalist position on this is that I may be one of the most socialistic people around here. My issue with the auto bailout isn't an ideological one--I'd easily live with it if it was announced that the government was buying Chrysler and that was the end of that. My issue is that these companies have made a bed that they'll never have to sleep in and my choices as a consumer are almost irrelevant--I'm not only buying something I Do Not Want, I'm buying something I specifically attempted not to buy.

    This feels like the moral equivalent of being mugged by the owner of a restaurant I chose not to patronize because of their lousy food and poor health rating, and being told it's okay if he jacks me because his kids have to eat and if his shitty restaurant closes other tenants in the same strip mall might leave plus the city needs his property taxes. I don't even get a crappy meal out of it. Thanks.

    You know, there are other options. I understand the arguments against letting the poor companies go bankrupt, but you could do it anyway and tough out the consequences. You could salvage only the parts of the companies vital to national security. You could accept, however reluctantly, that just as many countries purchase military parts and weapons from the United States, it might be time that the U.S. sucked it up and accepted the necessity of purchasing some systems and parts from allies that can produce the parts more reliably at a lower bid. Any of these are ugly alternatives and have repercussions and consequences and risks--I'm not offering "pretty" today.

    But I do not expect this bailout to be a solution. I fully expect this loan to come due and the still-struggling corporations who received it to collectively shrug, and the loans will be written off and the companies will be again claiming they're too crucial to die the next time gas spikes. I hope I'm wrong, but I'm resigned to the idea that all we did today was prolong the inevitable.

    I have to ask myself why am I furious and bitter? I'm a white-collar middle-class childless American. In terms of consequences and so on, there's really no good reason for me not to go see if I could get a deal trading in my Bug for the least-fuel efficient, most-emitting SUV on the market. Then I'd be supporting the American worker--I mean the ones who work in Michigan, not the ones who work for Toyota and Honda et al. in Tennessee and Alabama, etc., because they're not actually American workers (it's true, I read it in Salon and there's a blog entry about that scheduled at Giant Midgets this weekend). I'd be propping up these bastions of the American economy and military supply chain, and it's not like I have any kids who may have to deal with the ongoing problem after I kick the bucket.

    Between that and the fact my opinion holds no weight whatsoever with the Executive or Legislative branches, I should probably quit my bitching--I mean, I know the folks around here enjoy the interplay and discussion, and I'm not trying to cheat you guys of a friendly debate, I'm just saying I can't beat them, so I should have joined 'em instead of attempting to be responsible or something.

    Oh well.

  22. Geez, Eric, now I'm depressed. Let's go have a beer. :)

    I find it funny that we're on the sides of the this arguement that we are - funny amusing, not funny weird - considering that you're a hell of a lot more liberal/socialist than me.

    And I actually agree with everything you said - especially the part about being mugged into buying a product you didn't want in the first place, and not actually getting the product. I also agree with your observation about the free market - the basic tenet of which is built a better mousetrap and people will beat a path to your door, build a shitty mousetrap and you'll be listening to the crickets while people go elsewhere for their vermin control.

    Unfortunately, for the reasons I've outlined, I don't think we have a lot of choice in the matter, and frankly I'm a lot less reluctant about the auto bailout than I am about the wall street bailout.

    Which is what prompted the post in the first place, if we have to do it, then we should get something out of it. And if it's not a cool new car (as you've pointed out), then it should at least be something in the national interest like a hard push towards energy restructuring.

  23. Jim, I don't disagree with you on the fact that SUVs get overused by people "who don't need them", but up until now, in a so-called free market economy, no one got to choose who did or did not get SUVs. (grin) I mean, I've never seen a Board of Escalade Ownership rule that so-and-so isn't allowed to spend his NBA/CEO/Drug money on an Escalade this year. (double-grin)

    But mainly I was arguing against your point (5) above. To blanketly rule a minimum m.p.g. on EVERY vehicle without regard to function is not physically possible.

    And yes, the case of the nine-person family is extreme. But I use it in class because seats are a fixed quantity, whereas carrying luggage and/or towing for a family of five is a debatable issue which merely muddies the waters of argument.

    The other side of the equation is the fact that the Japanese manufacturers do not come into this debate with clean hands. In the 1970s, a friend of mine drove me home from high school in his dad's car, a Toyota Crown, which Toyota was desperate to buy from his dad so that it "wouldn't exist in the U.S."

    The Crown has evolved into a line of full-size luxury sedans by Toyota. The range was primarily available in Japan and some other Asian countries, originally designed to serve as a taxi. It was in later years sold in the United States during the late 1950s and up until 1971.

    Why the problem? See, the 1970 Crown my friend was driving got 9 m.p.g. And Toyota didn't want Americans to know that they could build big iron, too.

    But wait, you say, a 2009 Crown won't get 9 m.p.g. Right, and neither does a Cadillac sedan.

    Anyways, I'm arguing side points here, in part because I'm tired of people ignoring everything, good and bad, since 1970, and only wanting to focus on old bad news.(/rant)

    Dr. Phil

  24. Jim and gang,

    So the deed is done and the makers get a few more bucks (and months?) to please a whole new set of masters.

    And all the anti-labor, anti-union people can be happy that instead of lifting up workers, we're going to let foreigners dictate how American workers will be compensated in the good ol'USA.

    But heck, that's the "free market system" we have here right? Frankly, I see this as the crowning achievement of a 30-40year campaign of confederate demonization of northern industry and workers. Funny coming from the southerners since so many of them migrated North in the 30s-50s and took those "good union jobs" there at that time. (And now are the same "retiree legacy costs" that are part of the basic imbalance between "foreign" and "domestic" auto manufacturers in today's USA.)

    And don't even begin to get me going on how Federal (and some state) tax policy decisions incentivized the purchase of SUVs (mainly by so-called "self-employed" tax filers) with a generous tax deduction that nearly equaled the cost of most luxury SUVs!

    Like Jim sez, "... the situation is more complicated than classroom capitalism." Most of us are viewing the elephant thru the various straws of our own perception and NO ONE is going to be happy no matter the outcome. If you want to broaden your view of the elephant, take a gander at Warren Brown's commentary of late on the domestic car industry. Unlike the ideological and dogmatic punditry, Brown offers balanced, fact- and reality-based information that sentient citizens can digest.

    Now that we might have a small amount of breathing room, we gotta ask ourselves, what is the better outcome? Keeping people employed? Or breaking a couple of eggs and calling it an omlette (no one has yet explained how those broken eggs will be cooked)? Myself, I am for employment. I puts money in people's pockets, it keeps them busy and it satisfies their basic needs. (Anyone ever see what widespread unemployment looks like? Go to any Middle Eastern country and see it for yourself - not pretty and actually quite dangerous!)

    We should also keep in mind that we're taking about in the auto industry is almost nothing when compared to the $1,300,000,000 (and climbing) federal "bailout" (now called "rescue") of the financial industry. There again is another uncooked omlette lying on the floor... only its more like 2,000 broken eggs instead of 2! And NO ONE has any idea how those eggs are gonna get cooked!


  25. SP, don't even get me started on the financial bailout. No one has managed to explain to me how that is supposed to work. It certainly hasn't trickled down to my industry yet (we are dependent on investors).

    I personally have been trying to get myself in the mindset of broken eggs are OK because I am approaching the time when my job will be a broken egg and I will have to find another one, possibly in another industry because there is very little work in mine. This is after 6 years and a licensing process. I sympathize with the autoworker (who, because of the union probably makes more than I do with significantly less education). But it is really hard for me to cheer on their rescue at my expense because there is no cavalry coming to save me. There will be no bailout of the construction industry. So, I'll agree that I'm being mean spirited, but essentially I'm in the water next to the autoworkers being asked to heft them into the life boat and then see them row off into the sunset. I'm not anti-labor, but everyone is having difficulties and the UAW seems to think they are the only ones.

    Dr. Phil, in a way you're right. Cultural norms, such as impressions of what is acceptable personal space, do inform our decisions on how much cabin space we want or how much towing capacity we might need. Being in the construction business means that my friends often have big trucks partly because they sometimes have to haul big things (of course, the rest of the time, it's an empty bed and one passenger, the driver). However, your arguement breaks down when faced with the information that if so many people want and need SUVs and trucks that the American auto industry can make that the core of their business plan, then why are they failing so badly? Because their insistence that the American buyer wanted the image of a Hummer more than they wanted good gas mileage broke down when the inevitable happened and the oil industry got greedy. They could see this coming down the pike (the foreign companies certainly did) and chose to a) continue in the rut they'd made for themselves and b) run advertisements that they hoped would counteract the changes they saw coming and convince people they didn't want to change.
    What happened in the 50s (planned obsolescence, anyone?) and 70s is nothing compared to how they F'ed up in the last decade.
    I have an all-wheel drive myself (better for the winters here) and as I said, have friends who own trucks for their loading abilities and SUVs because they like being up high and able to see. To separate out cause and effect of marketing vs. cultural norms is impossible this far down the line. To argue that the consumer demand for pickups and SUVs is so high whilst the American automaker that depended on that demand is failing undercuts your otherwise valid argument.

    Jim, I agree that pure capitalism is not the way to go and that intelligent support of key systems is a sound strategy. I'm just cranky because of two things: a) we just had an election season where socialism was being used like a bad word (when it's not bad or good, it's just a frigging system) and b) I'm looking down a long barrel with no bailout coming for my industry and trying to find the bright side. (Oddly enough, when you force that attitude on yourself, it makes you MORE cranky.) People who want my sympathy better get in line, as I'm using it up on my friends and coworkers who are trying to figure out what we're going to do.

    It's a little like too many wolves and not enough moose out here.

  26. Socialism: it's not bad or good, it's just a frigging system

    Exactly, Anne, exactly.

    And you've all put you finger directly on the real issue, which is the camel's nose parable. I.e. once you bail out an industry, Wall Street, the Auto Makers, whatever, where does it end? Where do you draw the line and say, well, this industry is in the nation interest and this industry is not?

    I don't know what the answer is. Ultimately, anyway.

    I see two options:

    1) We become essentially a socialist nation, with government as the ultimate backstop, both in business and for individuals.


    2)adhere to the strict capitalist model and let buyers determine what industries survive and which don't.

    Ultimately I suspect the later is the best approach for a number of reasons, but I suspect we'll go with the former.

  27. Anne,

    Believe me. I understand your point about everyone hurting. Well, almost everyone since I continue to read in my newspapers everyday about how some of the "masters of the universe" up on Wall Street are STILL GOING TO GET A BONUS THIS YEAR!

    And this ain't no Clark Griswold jelly of the month bonus. We're talking hundreds of thousands and millions of dollars here! Again, more of the same old same old. Those that HAVE take care of those that HAVE... the HAVE NOTs must have something wrong with them (or else they would be HAVES).

    Trust me when I say I sympathize with the plight of so many of our citizens. A lot of folks are being hurt pretty much everywhere. Purposefully pulling the plug on one of the few remaining manufacturing segments of our economy just does not make any sense to me. We must start helping real people (HAVE NOTS) somewhere. But right now, those that HAVE are happy to see you and I (HAVE NOTS) squabble with each other. They most definitely fear the country where we work together to make more HAVES out of HAVE NOTS - and this is one of the main reasons why in their scheme of things, unions=BAD and the UAW must die (preferably a painful, public death).

    Jim, as for your choices, just like you, I've lived pretty much my whole adult life under this:
    We become essentially a socialist nation, with government as the ultimate backstop, both in business and for individuals.

    It ain't all bad is it? Its pretty meritocratic, no? People generally rise to their level of potential (and maybe then some). So what if it a little inefficient??? No business is ever going to do what government does - especially not for a loss. That's what "free market" dogma is all about.

    So HECK YEAH - I vote for #1!!! Besides, that last three months are all the proof one should need to see that #2 simply does not work.

    Now, all we have to do is get the government's true owners (also know as the People) involved in managing their nation. Of course, being involved means WORK and we are so often told that "no one likes to work." Right? Right? Hmmmmmmmm.


  28. Anne, I think my point is that auto makers work on long range planning. The $4-plus/gal gas was a surprise to everyone, and right now, just a bad dream. But the high gas prices, which torpedoed SUV sales was just one part of the problem. The second was the inability for people to get financing for new cars. And that one ain't GM's fault either.

    For years many good companies have been ruined because of the short-term mentality for profits this quarter. Now we have a financing problem where we've bailed out the banks, so they'll lend money, but they don't want to lend money, lest they get saddled with bad loans. Would that these financial geniuses have come up with those ideas five years ago.

    Instead, we get bankers who don't want to write car loans for U.S. cars because the value of a car from a bankrupt auto maker might make a 60 month car loan upside down. Gee, way to turn bad predictions into reality.

    Actually, don't get me started on Hummers. I never brought them up because they're a whole 'nother kettle of fish, to the point where I don't even put Hummers into the SUV equation.

    As for 4WD SUVs in use, it is frightening to realize that the local West Michigan road commissions are having to cut back on plowing because the economy is so bad. I am a big believer in systems analysis, and systems get complicated with a lot of interactions.

    Dr. Phil

  29. SP - I don't think anyone here is saying the UAW is bad. Jim didn't say anything about disbanding it, rather that they ought to contribute financially towards a solution. For an organization that claims to be for the people, I don't think that's asking too much.

    Dr. Phil - I disagree that no one could see $4/gallon coming. They just thought it would be related to oil shortages. Instead it was oil company greed (hence the quick return to cheap prices). It's coming back. It would be nice to be prepared.

  30. What I meant was no one was expecting $4/gal at that time. Long term, yes. But that's what I'm talking about -- long term planning versus short term reactions.

    And you're right, it's going to come back. In fact, I was sure it'd jump back after the election. No matter who won.

    Interesting to read that compact hybrid sales are way off, too. Since it costs more to make a hybrid that a regular gas drive, the tight economy is making it hard on people sort of interested in environmental issues.

    This means that plans to rush more hybrids into production, those aren't working either. Could it be that the Japanese are making too many cars that people don't want to buy right now?

    Okay, I'm being facetious here, but hey -- this has been a really great and fun argument.

    Dr. Phil

  31. Dr. Phil,

    Hybrid sales are off.

    SUV sales are off.

    All car sales are off because there is a major lack of consumer credit available to prospective car buyers. This includes all the transplant's sales. And not just in USA but worldwide.

    That is the primary reason Detroit's car companies are today reduced to begging for handouts. Prior to the credit crunch, they were already re-structuring towards product lines that reflected changed consumer sentiment towards efficiency (courtesy of the unexpected $4/gal gas). Since almost no one in the USA buys a car with straight up cash, frozen consumer credit = NO SALES.

    Couple the consumer credit crunch with frozen commercial paper market and these companies (like many others) simply do not have cash to run day to day (or have to take what cash they had in the bank to make it day to day).

    Were they not making money before? Yes. Were they taking actions to change? Yes. Did the union workers ALREADY make major concessions to keep the companies in business? Yes - see the VEBA agreement!

    A good question to ask though is what have the salaried classes in these companies given up? How many of them were bought out? Paid to "not work"? What about the company's engineers, marketers, accountants and administrative staff? Why is the only focus in this national discussion on the line-workers and the "failure to adapt"?


    1. SERIOUS CAFE STANDARDS--hybrid should be the basement-level.

    2. Real tax credits for electric vehicles. It is possible in urban areas--just look at what they are planning to do in HI. Then make sure the electricity is from renewable resources.

    3. AN HONEST EFFORT TO GROW PUBLIC TRANSPORTATION--bus riders who have to go from one suburb to downtown to another suburb are going to drive, if they can. Subway and light rail riders who can't find parking at the hub are going to drive into to the city.

    4. CARROT AND STICK-- Major tax credits for electric and hybrid vehicles, and a significant tax on gas-guzzlers.

  33. The trouble with electric vehicles is that they aren't good for long distance. So if you do any amount of roadtrips, and you can only afford to have one car, they're basically out of the question.

  34. Dr. Phil pointed out that the physics of pulling 30+ MPG out of a gallon of gasoline for a large vehicle is difficult.


    With the caveat of "using traditional technology."

    However, technology is advancing rapidly. Take this example, Proterra has a hydrogen/electric hybrid transit bus. This isn't pie in the sky prototyping here, the bus is in production and is scheduled to begin service in Burbank and LA first quarter 2009. Now, it doesn't get 30+MPG equivalent, but it does get double to quadruple the normal transit bus diesel mileage for a transit bus in city driving. Considering the weight, size, and driving type - that's pretty damned good. As an added bonus, it's zero emission, range is 225miles on a charge, and it can be recharged in 4 hours. It ain't cheap, $2M per copy, but that's expected to drop significantly as the vehicle hits full production.

    It this the answer to SUV motive power? I dunno, but it does show that 30+ MPH is possible using production technology and some innovative thinking.

  35. "but it does show that 30+ MPH is possible using production technology and some innovative thinking."

    Why Jim, that's crazy talk. Soon you'll be talking about cars goin' a mile a minute. And you know, someone wrote a Physics paper in the 1840s saying that you'd DIE if you traveled that fast, because all the air would be sucked out of the carriage.

    Unfortunately, then the Antelope ran the rails at a mile a minute for five miles in 1848. Sometimes you just have to do the experiment.

    Similar to Yeager's Bell X-1 flight to Mach 1+. (grin)

    Dr. Phil

  36. You know, Phil, I think I'd love to sit in on your classes.

    A while back I was reading a piece on the history of technology which included widely held beliefs that were soundly proven wrong by the simple expedient of doing the experiment. Both the 60MPH will suck the air out of the carriage and the Mach "Barrier" were included. Also the "can't swallow in zero-gee" and "the moon is covered fifty feet deep in talc-like dusty quicksand which will swallow the landers..."

  37. Anytime you find yourself in K-zoo I'd be honored to have you come by.

    Ever read Hal Clement's story "Dust Rag" about 2 astronauts getting covered in moondust and trying to use battery contents to kill the static electricity?

    Dr. Phil

  38. I may be in your neck of the woods next summer, in the Hastings/Middleville area, about 30 miles from Kalamazoo.

    And yes, I've read Dust Rag.

  39. Ultra cool, Jim. Don't know my summer teaching schedule, if any, yet. Usually I teach in the May-June first track and play hooky the July-August track. If I have a job for 2009-2010 in place, we might go off to Finland in the summer and go to Finncon 2009 -- government considers a SF con to be part of the arts and so it's all free. George R.R. Martin, who looks remarkably like me, is GoH.

    But I'd love to meet you in meat space and show you some physics class if I'm teaching.

    Dr. Phil


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