Six Ideas for President Obama to Help the U.S. Auto Industry.

Wednesday, April 01, 2009

Unless you live under a rock, you know that on Monday President Barack Obama announced the rejection of General Motors and Chrysler’s restructuring plans. In his statement he spoke of the need for government to act as a partner in assisting the auto industry, which seemed to go beyond just billions of dollars in loans.

Because I am sure that President Obama and his staff are a few of ATKs 1.5 million loyal, daily readers, here are a few suggestions for how the U.S. Government can become real partners in job creation and the rejuvenation of the United States auto industry.

Create a trade policy that protects the environment and workers around the world.
Demanding that countries that sell here observe higher standards for employee pay and environmental protection could start to equalize production costs and make the U.S. more competitive. It would start to create world-wide markets for everyone’s products, protect individual rights and raise standards of living. Protecting the planet should not only apply to the United States nor should a lack of environmental protection elsewhere undermine our own environmental policies.

Reduce dealership power.
Do you think the United Autoworkers have too much power over the big-three? The dealerships might be stronger. The domenstic auto industry needs to reduce its number of dealership drastically if it is to imporve profitability. Standing in the way are strong dealership rights in law in each of the 50 states. Case in point, when GM killed off Oldsmobile, it spent over a $1 Billion to dealerships to pay them off. Dealership power is one of the main stumbling blocks to reduce the number of brands. GM can't afford to engineer or market the number of brands it has, nor can each brand be a full line of cars and trucks. If GM wants Pontiac to only be a nitch brand of performance cars, it will have to overcome the whining on the dealerships that results in Pontiac econoboxes and minivans coming to market.



Open markets to U.S. products.
The U.S, has some excellent trading partners. We should support them by buying their products, including cars and trucks. Japan is not one of them. General Motors and Ford are two of the biggest companies in European and Chinese markets, but last year GM sold only 2,000 cars in Japan. Ford is prohibited by Japanese law from buying more than 33% of Mazda. Due to Japanese proetectionism, Japanese companies can subsidize the price of cars and the costs of R&D by increasing prices in their home market. It makes small models sold in both markets more profitable where big-three cars sold only in the U.S. market less profitable. If we cannot sell there, they shouldn't be able to sell here. That's not protectionism, that's sanity.

Replace the Corporate Average Fuel Efficiency (CAFE) standards.
Creating a mileage-boosting plan that doesn’t require car makers to sell small cars at a loss could help us invest in small car efficiency. The American consumer continues to see small cars as a penalty. Until they see them as something more than an economy car, these models will remain unprofitable. CAFE is a failure. It doesn’t help the environment and kills the U.S. auto industry. Raise the gas tax if you seriously want to increase mileage, change consumer behavior, and help the environment. If not, admit it is politically unfeasible and move on.

Standardize safety and emissions requirements with Europe.
Car aficionados in the U.S. often gripe that they cannot buy one of the sweet, tiny diesel cars sold in Europe that get a billion mpg. As it turns out, theses cars don’t meet the United States safety and emission regulations, so they cannot be sold here. Cars in the U.S. have more expensive diesel equipment making diesel options very, very expensive. Cars are bigger and heavier here to comply with our safety standards, which in turn makes our cars less efficient, and also makes them less marketable in Europe.

Create a national health plan that will make the Detroit car maker's health and retirement cost equal to the competition.
Think that only the Big-Three are getting loans from their government? Toyota, Honda and Nissan are set to receive billions from the Japanese government, but their assistance doesn’t end there. The cars built in Japan get an automatic profit advantage because the government is picking up the health care tab and takes care of the Japanese retiree too.
It is time to create a sane national health care policy that will make our companies more profitable. Health care is not just about doctors, it’s about economic development.

14 comments:

Sopor 10:25 AM  

I think that overall, this is a very sane group of ideas. But I've got some comments, questions, etc:

Reduce dealership power.
I'd like to know more about this... but I feel like this point is lacking evidence and facts to back it up? I see your examples of the Oldsmobile incident... and references to whiny dealerships who want Pontiac minivans, but do you have some links or something with some more info? I would love to learn more. And to comment on Pontiac minivans etc... this is and issue that I see tied in heavily with blind brand loyalty. Some people want a Pontiac, NOT a Chevy, and so they insist that their minivan be a Pontiac! Why? No good reason that I know of...

Replace the Corporate Average Fuel Efficiency (CAFE) standards.
I can't agree more that we need some MAJOR overhaul of fuel efficiency standards. The funny thing is that I don't feel like it would be a big deal... little things, like say requiring turbo-chargers on automobiles (you don't HAVE to tune a turbo for power, it CAN be tuned for efficiency!! Potentially 10-15% gains in efficiency in for example a 1.8liter Turbo compared to a 2.2 liter non-turbo with the same power output, then we just have to convince insurance carriers that turbo != bigger risk all the time) can have a big impact, on the engineering side.

Standardize safety and emissions requirements with Europe.
I haven't made this EXACT point here before, but I know I've commented on the fact that I drive the smallest (frame) VW available for sale in the US, while in Europe they have 2 smaller models with massive improvements in efficiency over mine! And I know I've made it clear my feelings on Diesels... if only we could convince the American car-buying public that these are NOT the same Diesels the Big-3 tried to push in the 70s and 80s.

Create a national health plan that will make the Detroit car maker's health and retirement cost equal to the competition.
I'm leaning further from my "Libertarian" beliefs every day. If we create a national health plan with coverage similar to my private health insurance at costs similar to my private health insurance... then what do I really have to complain about?

steves 10:45 AM  

Create a trade policy that protects the environment and workers around the world.

IN terms of environmental impact, I can see the logic, as it impacts the rest of the world. I would like other countries to do things like improve wages and working conditions, but is this something we should demand? Is this setting up an expectation where other countries or groups, such as the EU, can make demands on how we look at certain rights?

If so, then I see this as a bad thing. We may be far from perfect, but the US respects things like free speech and private property better than most other countries. Maybe I am just being paranoid.

I agree with your other points and they make great sense.

Andy 3:08 PM  

I agree with almost everything here, Bob. Good insigts. I am not sure I agree with the CAFE argument, though.

I agree that something needs to be done to make people drive less miles, but the electeds will never do it. Even the Dems don't want to increase the gas tax to do this. Plus, that hurts everyone. Those that drive short and long distances. Maybe you should be taxed by miles driven, but again there would be no appetite for that from congress or consumers.

It seems that CAFE is all we have. And why has it been a failure? Big vehicles have standards as do little vehicles. Even if people are buying SUV's, the CAFE standards have lead to better-mileage. The automakers have been buying up technology patents for years that would accomplish higher efficiency, then not implementing it because they like their old engines. My Jeep had a 1980's engine in it. Strong, sturdy, and completely inefficient. And I got rid of the jeep.

I am not saying CAFE is perfect, but it does increase mileage per gallon in a way that wouldn't happen otherwise for light and heavy vehicles.

We can say that we need a comprehensive solution, but seems to be a good solution until that time.

I know that both labor and the Big Three hate CAFE, but I still an not convinced on why. I look forward to the points of the educated ATK members.

steves 3:27 PM  

Increasing the gas tax also disproportionately effects people that have a hard time paying more, namely people from a lower income bracket. They are the ones that are more likely to be driving older cars that get poorer mileage.

Smitty 9:47 PM  

I am not saying CAFE is perfect, but it does increase mileage per gallon in a way that wouldn't happen otherwise for light and heavy vehicles.

You can't confuse the ability to build a fuel-efficient car with all of the weighty safety and emissions requirements in it with profitability. Sure GM can make their cars meet stricter and stricter CAFE standards, but those cars become unprofitable. Let me clarify: for years, the U.S. market demanded light trucks and SUVs. If those cars comprise the bulk of your fleet of products, it is going to be very hard and very costly to make your averages meet CAFE standards. But Toyota and Honda and others who are selling more efficient mid-size and compact cars, because that's what people who want Toyotas in the U.S. want...well, they can meet those standards easily. CAFE in my mind, discriminates against U.S. full-line producers in favor of partial-line producers from other countries.

So American producers get penalized for catering to market demands. People want trucks, vans and SUVs, and it's your fault Chevy! Why can't you make more cars like Honda and Toyota?

Because that's not what our customer base wants.

Another folly behind CAFE is this: improvements in fuel efficiency reduce the cost of driving and thus serve to increase vehicle miles traveled. If I pay for fill-ups less (not less for fill-ups, but fill-up less times), I will drive more. What have I solved?

Bob's CAFE suggestion is related directly to standardization with European safety and emissions suggestion and the open markets suggestion.

I like this stuff Bob. Great post.

Mike 5:37 AM  

Create a trade policy that protects the environment and workers around the world.

Bring government in to guarantee higher prices for cars? No thanks. I'll take the cheapest car I can get, thank you very much.

Bob 9:34 AM  

"CAFE in my mind, discriminates against U.S. full-line producers in favor of partial-line producers from other countries.

Bingo! You got it. That said, Toyota makes a full line of cars, they have just been unsuscessful in making a decent truck.

So American producers get penalized for catering to market demands. People want trucks, vans and SUVs, and it's your fault "CAFE in my mind, discriminates against U.S. full-line producers in favor of partial-line producers from other countries.

Bingo! You got it. That said, Toyota makes a full line of cars, they have just been unsuccessful in making a decent truck, must to their chagrin.

Another folly behind CAFE is this: improvements in fuel efficiency reduce the cost of driving and thus serve to increase vehicle miles traveled.

Yup, which is why a gas tax would work better. It also reduces the amount of miles people drive.

CAFÉ doesn’t change customer behavior one bit. My next vehicle will probably be an F-150 no matter what CAFÉ does. I live a few miles from work, so I care little about mileage. If gas were $4 or $5 a gallon, I might think otherwise.

”Increasing the gas tax also disproportionately effects people that have a hard time paying more, namely people from a lower income bracket. Increasing the gas tax also disproportionately effects people that have a hard time paying more, namely people from a lower income bracket

Yup. You could offset it by having a write off on the income tax, but it is a problem. It’s not that the gas tax is great, it is just the only option that will work if we really want to change consumer behavior. Note that Europe doesn't have a CAFE-like system, they just have more expensive gas.

Bob 10:11 AM  

"I'd like to know more about this... but I feel like this point is lacking evidence and facts to back it up? I see your examples of the Oldsmobile incident... and references to whiny dealerships who want Pontiac minivans..."

I’d like top point you to some sort of reference, but this is more common knowledge whenever you read any auto industry publications, such as Automotive News, AutoExtremist.com and others. The cars haven’t matched the marketing. Chevy will come out with a minivan, and GM’s “Excitement Division” demands one. Chevy has the tiny Aveo (POS) and now Pontiac is getting a G-3 version a few years later. Chevy got the Equinox and Pontiac more recently got the Torrent. One the flip side, I have reads about Chevy dealers complaining that Pontiac and Saturn got small convertible rwd roadsters, while Chevy did not.

This is no way to run a car company. If a brand is marketed as a sporty brand, the cars should match. If a car is marketed as basic transportation, its cars should match. If Pontiac dealers don’t want to sell cooler, more exclusive rwd cars, they should be shown the door. If they want Chevys, they should sell Chevys.

Sopor 11:47 AM  

Well I can definitely understand that Bob... that's like what I was referring to with blind brand loyalty, some people want the GM Minivan to be a Pontiac, NOT a Chevy! And for no good reason...

But what about:

"Standing in the way are strong dealership rights in law in each of the 50 states."
I'd like to know more about the law in question here, even if just in Michigan.

"when GM killed off Oldsmobile, it spent over a $1 Billion to dealerships to pay them off."
What for?

Just to clarify... I'm not calling you out on this point, just want to learn more about the point that is being made... you mention how much power they have, but then steer towards the fact that is customer brand loyalty that is the driving force... not the Dealerships Legally Protected rights and power.

I frankly can't agree MORE that Pontiac should sell the sports cars. In fact... I know this is Heresy, but there should no longer be a "Chevy" Corvette! Traditions be damned... The Firebird should NEVER have been killed off, the Camaro should have! If I went to E Jefferson ST and shouted this at the top of my lungs, I would certainly be burned at the stake as a witch. But there's some serious confusion in this companies customer bases about who does what.

Sopor 11:51 AM  
This comment has been removed by the author.
Sopor 11:54 AM  

Toyota makes a full line of cars, they have just been unsuscessful in making a decent truck.

I would assert that the definition of "decent truck" is a bit off.

I invite you to take 15 minutes or so and watch Top Gear attempt to destroy a Toyota Pickup truck:

Part 1:
http://www.youtube.com/watch?v=Lrk6vsb77xk

Part 2:
http://www.youtube.com/watch?v=0Uc4Ksz3nHM

Part 3:
http://www.youtube.com/watch?v=YfZDtC9kjVk

;-) (this is slightly tongue-in-cheek of course...)

Bob 12:06 PM  

You have some good questions Sopor, I check it out.

As far as your desire to have Turbo cars, your wish is being granted. Ford is adding a bunch of twin Turbos to their lineup and the Chevy Cruze pictured in this post will be powered by a 1.4L Turbo four banger and will be made in Ohio.

Sopor 5:30 PM  

I couldn't be happier Bob! Turbos are really wonderful devices, I don't see why any car should be without them! More power for the same fuel consumption, or less fuel consumption for the same power... what's not to like?

PSM 6:54 PM  

Good points. Americans can and will do better. I think by bringing the work back to the U.S. will be a huge step in the right directions.

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