DealersEdge Editorial Government's role in shaping industry is not a new concept, but it does have a history of failure
The Obama Administration's increasing role in the control and planning for the nation's business sectors reminds us of the failed attempts of the old USSR as they sought to mandate all areas of life from the Kremlin.
(5/22/2009)
DealersEdge Daily Headlines
There is an old saying that is making the rounds among the business pundits these days- "When you make a deal with the devil, you will always be a junior partner."
First a bit of perspective - Back in the 60s or 70s we can recall a news story of a Russian truck driver who was honored by the Kremlin for recording the highest fuel efficiency when making his deliveries. It seems he was able to alter his driving practices to reduce the consumption of fuel to the extent that he came to the attention of the central planners. He was honored at a Kremlin ceremony. However, he was able to reach this efficiency by taking some extraordinary actions to limit fuel consumption- like turning the engine off when going down hill and not turning it back on until after coming to a complete stop. The question not answered was whether or not he ever delivered anything on time. Such is the unyielding law of untended consequences.
While watching the President in the Rose Garden this week, with the leaders of the Detroit Three in the background, the thought crossed our minds — There is something very wrong with this picture.
Clearly the CEOs of GM and Chrysler are now junior partners in the U.S. auto industry. And while Ford has yet to make that Faustian deal with the White House, they certainly do not want to burn that bridge if their losses continue to eat up all that money they borrowed.
So there they stood, smiling and apparently in support of the Administration's new much stiffer CAFE standards. This expansion of artificial control over the supply of the vehicles, for which the American consumer has repeatedly demonstrated a preference, has no real history of success. So again, as we did following the oil crisis in the 1970s, the government will be attacking the supply of these vehicles rather than the consumer's demand for gasoline.
Please bear in mind that DealersEdge does not advocate for either a higher CAFE standard, or the increase in gasoline excise taxes. We would prefer that market conditions dictate the need for new technologies and that the auto industry (not just the Detroit 3) be induced to discover and exploit these new discoveries as dictated by the market. However, if the White House is determined to achieve this bit of social engineering, their policies should at least be pulling the same direction.
The lessons of the past year, never mind the 1970s, have demonstrated that the only market force that has any near-term hope of changing the public's demand for larger, high-powered and gas guzzling cars and trucks is the high price of gasoline at the pump.
But apparently neither the President nor Congress has the will to enact gasoline taxes at a level that will impact the demand side of the equation. Clearly if they did, they could engineer the lowering of the demand for larger, less-fuel efficient vehicles and conversely make smaller, gas-sippers more valuable in the consumer's eye.
Will toughened CAFE standards work? At least some are willing to buck the President on this question (and they won't be found among the Detroit automakers). Among those who have questioned the effectiveness of this strategy is John Gapper of the Financial Times.
Gapper wrote in a May 20th blog article that Americans drive 1.7 times as many miles as they did at the time of the 1973 oil crisis. However, the population has only grown by 47 percent over the same period. Others have pointed out that when you make it cheaper to drive, the American consumer will drive more. Conversely, when it becomes more expensive, collectively we start to drive and consume gasoline at a lower rate.
Will this new CAFE standard spur on the development of hybrid, electric and battery powered vehicles? Maybe, but that is by no means guaranteed, especially if gasoline prices remain affordable. We think the reasoning is rather clear in that the only thing that has proven to impact the demand side of the equation is pain at the pump.
The White House appears to be traveling down the same highway at both directions at the same time; hopefully not in the same lane. We believe that the politics and the market realities surrounding this issue are on a crash course.
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Comments:
Friday, May 22, 2009 10:15:05 AM by Anonymous
the government needs to worry about themselves and stay out of the auto industry, they clearly cant manage their own finances
Friday, May 22, 2009 10:20:51 AM by riderjuan
When professional politicians become professional business men they are crappy at both chores.
Friday, May 22, 2009 10:27:46 AM by Clifford Ball
This is no longer a government by the people. It is government by lawyers and beaureaucrats with their only focus is on reelection. As William F. Buckley said, "I'd rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University."
Friday, May 22, 2009 10:35:06 AM by JIM WEST
Now that the Idiots in D.C. have a car company, they will be able to mandate the hiring ot the GITMO terrorists when they release them into the U.S.
Friday, May 22, 2009 10:35:21 AM by Anonymous
As has been stated before, higher gasoline taxes and consequently higher prices at the pump is NOT the answer this would be totally inflationary! How quickly we forget the consequences of the last large upswing in prices on the price of almost every product purchase due to higher delivery costs. This has a disproportionate burden on the lower incomes as they would be spending an increasingly larger percentage of their income just to travel to their jobs.
"Deal with the Devil?" The only entity or person in the entire universe who was willing to take the heat for bailing out General Motors to the tune of $45 BILLION ultimately is Obama. Billion dollar bailouts are very unpopular with the American public. Surely he has earned the right to make demands on private institutions who accept the handouts.
----------------------------- mcfly
Friday, May 22, 2009 11:33:24 AM by Anonymous
Let's see - the government runs the Post Office, a complete monopoly, at a continuous loss every year. They also run Amtrak at a continuous loss every year. They dictated the actions of Freddie and Fannie, which ran at huge losses every year. With this as a resume, would anyone here hire them to work at a dealership, much less run the company!?!!
I received an email today asking that we remember Memorial Day is in honor of those who made the ultimate sacrifice so that we could remain free. Tears welled up in my eyes, not so much because so many young men and women have died protecting our freedom, but because now it is being taken from us right before our eyes. Our country was founded on the principle that we should be free to live our lives without interest from government. That is all being thrown away. As to whether Obama has the right to make demands on the auto companies because he gave them billions, I suppose he does, which is why the government should not be giving (our) money to auto companies, or banks, or any other private entity. If that means bankruptcy, so be it, at least the market will determine who lives and who dies. After all, that is what we as dealers signed up for, not the whims of politicians. The next time you ask for a subsidy or bailout or whatever other theft of money from your neighbor to be handed to you, realize that you will pay with your freedom.
DealersEdge reads a wide variety of news sources. Interestingly enough the article quoted in this piece is the Financial Times.
Other oft repeated sources for our Daily Headlines include The New York Times, The Wall Street Journal, Associated Press, Reuters, and if they have something relevant Fox News.
I seems someone is a bit myopic, bent on branding any analysis that differs from their own- "narrow-minded."
Well, at least one of us is. But everyone's opinion has value including yours.
----------------------------- Jim Muntz DealersEdge
I agree every one is entitled to their viewpoints, but I must say some of the viewpoints are way out of bounds and unfair. That not only inflames the issue but has the effect of polarizing rather than solving. The fact is the last eight years brought us to this situation, the present administration inherited the problems and prosposed solutions in which the majority agreed with, Now it our responsibility to work together and better our situation rather than throw cheap shots and immature comments. Everyone is vested in the same purpose and that is making this country better and learning from our mistakes.
Friday, May 22, 2009 1:05:19 PM by Anonymous
landon:
You seem to be confusing "majority" of lawmakers with "majority" of constituents. The public was never offered the opportunity to agree or disagree just bend over and accept what is being crammed down our throats. As far as "inheriting" the problems, they started long before eight years ago and both parties are equally to blame.
Friday, May 22, 2009 1:20:26 PM by riderjuan
Landon, if you really believe that 8 years of Bush made for: 1) Poorly negotiated UAW labor contracts. 2) The US as a major importer rather then producer of energy 3) A banking industry that is encouraged to lend into bad risks 4) A country of takers and whiners rather than workers and achievers.
Jim Muntz, thank you for setting forth a statement that brings out so many varied reactions! I don't really agree with John Gapper's theory to make it tougher for Americans to be on the road but, it's one of several ideas that merit discussion, as opposed to more government control of "free' enterprise. Socialized industries, socialized medicine, socialized health insurance......where does it end? Not a pretty picture for our future. Still, those who aided and abetted this horrific situation globally are sent away with golden parachutes that make the average person choke! Keep setting forth your worthy opinions.
----------------------------- dbrees29
Friday, May 22, 2009 3:48:40 PM by Anonymous
The price of gas is directly related to America's issues and wars abroad. We must purchase oil for refining from the middle east, where much of it finds it's way into the pockets of terrorists or terrorist-sponsoring states. That money is then reinvested into activities against American interests and national security. Can you imagine the money being raked in by Iran during last summer as oil soared over $100? We hand our executioners the tools to finish us. As a domestic dealer, I'm not thrilled with the prospect of raising the price of gas through higher taxes, but it's much smarter than forcing manufacturers to produce vehicles that don't have a market just to satisfy CAFE standards. Our long-term security is tied to lessening our dependence on foreign oil.
Saturday, May 23, 2009 8:05:03 AM by LEE CANTER
GREAT ARTICLE
UNITED SOCIALIST STATES OF AMERICA-USSA-GOD HELP US!!!!!!!
I rarely find myself agreeing with dbrees, but this time I have to do so. The debate over the ideas is important, whether one agrees with them or not. For the last 8 years, Bush didn't allow enough serious debate of issues without slamming the door closed and making a decision (right or wrong). Obama seems to be heading the same direction, though it is because the Democrats have a large margin of control of Congress that the ideas and policies espoused don't get serious consideration.
I think the current bank/credit crisis has shown us that our economy needs SOME regulation. The point of the debate has to be to find the right amount and direction of that regulation that will continue to support innovation while protecting the majority of constituents (of all races, incomes, and beliefs).
