Saturday, December 06, 2008

Comment for Previous U.S. Auto Post

The blog refuses to let my comment go through. So here’s a response to Martin’s latest comment on this post:
Yes, the impact on the entire industry, including suppliers, is noted by US media, but I havn't been able to find anyone talking specifically about the effect on the other car manufacturers, including Nissan, Hyundai, VW etc. with plants in the US.

The "shift" is towards Asian and European cars, which are smaller, smarter (eg. more fuel efficient), but require a new way of thinking. The US is also going to need massive investments in public transportation, when the economy no longer can support the two-cars-per-family lifestyle. Instead of bailing out the Big 3, it would make sense to debate that. Obama is talking about "green jobs" and a new green deal, that has been noted here in Japan as well:
Martin: You can be sure that the Japanese automakers are doing their best to blend into the background and avoid becoming part of the story. They’ve always been careful to act humble while playing the part of the perfect guest for their host states. Now, an American lawyer who is aware of the political score recently suggested that “Japan”—I think that he was being purposely vague—could gain a lot of political points by helping out the Big Three. So I put the question to a friend who is deeply involved in the Japanese auto industry: If the Detroit Three could restructure its legacy costs and existing labor arrangements and commit to product lineups more befitting future market prospects, would Japanese manufacturers be willing to be take over one or more of them? The answer: The factories have to be looked over one by one; some of them won’t be worth the trouble.

Now, GM says that it is going to do all that, if the U.S. government helps out with the financing, including an unspecified amount in the form of preferred stock. If Congress authorizes something along those lines, the political implications—billions of dollars in public funds just so Japanese manufacturers can skim the cream off the top?—and the business considerations—who wants the U.S. government as a business partner and watchdog that will often fail to speak with one voice?—are such that takeovers, or any kind of capital injection for that matter, by non-D3 manufacturers will become pretty much unthinkable. I suspect that even the opportunities for deeper R&D cooperation in hybrids and other next-generation autos will become complicated if the U.S. government becomes involved as a major creditor-equity holder at the other end.

You raise the broader question of the need to reorient the overall transport system to meet environmental and energy-related challenges. Note that it is not just a matter of the public transport system and the overall infrastructure. At issue is the entire U.S. political geography that has evolved around the automobile and the airplane. How are you going to redo Los Angeles and its suburbs? Montana? Because of the enormity of the challenge, I do not think that America is going to “end its dependence” on Middle East oil in ten years or any time soon—ten years is surely sooner than soon where a 300 million-strong nation’s energy profile is concerned—and clean up the environment even if President-elect Obama were everything his staunchest supporters hoped he would be. And I do not think that the American public is ready either. There will be progress. But my guess is that it will be painfully incremental unless there are dramatic technological breakthroughs, or a willingness to rely on nuclear power to an extent that isn’t there yet in the specific.


Janne Morén said...

There is one earlier parallel case I have seen brought up, but with surprisingly little visibility: British Leyland.

In much the same way like the current D3, it was a major automaker with many brands, holding a dominant market share in its home market and big enough to be deemed critical to its host country economy. But it was in trouble, and had been for years as consumer sentiment had shifted away from its offerings and its organization and labor relations precluded any comprehensive reform.

As the crisis became acute, triggered by a general economic downturn, the UK government bailed it out. Some time later, it needed another bailout. Bits where sold off or terminated and still it wasn't enough, since the market kept changing faster than the company. Today it no longer exists, other than as a few brand plates owned and produced by other car companies.

It was all a hideously expensive multi-year version of a bankruptcy that ended up dragging the most affected communities down with the company, rather than forcing a clean break. The overwhelming consensus is that it was not even remotely worth it and that using the money to help the workers and subcontractors transition away from building cars would have been far cheaper and with much better results.

To me it looks like much the same situation with D3 right now. The current financial meltdown is not the cause of the companies' crisis, and trying to help them survive the downdurn does nothing at all to address the underlying issues.

Jun Okumura said...

Thanks, Janne, I wasn’t aware of this precedent in the auto industry. If we go beyond the auto sector, there must be many such examples that date back to the U.K.’s years of rule by old Labor. More evidence that good intentions are not enough to justify state intervention. (Hope this comment goes through.)

Martin J Frid said...

"...the need to reorient the overall transport system to meet environmental and energy-related challenges."

Well, Obama just went on the record to try to start a discussion on that. His radio speech had a focus on "infrastructure projects to repair roads and bridges, while also pushing a federal effort to bring in new-era jobs in technology and so-called green jobs." And, "He vowed to upgrade computers in schools, expand broadband Internet access, make government buildings more energy efficient and improve information technology at hospitals and doctors' offices." Oh, and "Obama has also spoken of retrofitting schools, post offices and other public buildings with high-efficiency heating and cooling systems and cool-burning fluorescent lighting. Money could also go to mass transit and solar, wind and biofuels projects."

Why didn't Taro Aso think of that first?

Jun Okumura said...

Well, in the abstract, those are all things that the Japanese government has been putting money into. (Japanese public facilities and much of private illumination went fluorescent a long time ago.) However, in Aso’s case, I don’t think his mind works that way; he’s more clever than intelligent. And he clearly lacks an effective surrogate or puppet master who can do the thinking for him.

With regard to Obama, it’s not difficult to guess that he’ll have smarter and better-motivated political appointees across the board to develop and implement his plans. But they will be competing against other priorities at the federal and local levels. I wish him luck, and it’s encouraging to see many conservatives who opposed Obama through the election welcome his appointments and turn cautiously optimistic (relatively speaking). Still, it’ll be a massive turnaround effort if it’s to be a meaningful one.

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