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Automakers need to face new reality
Robert Reich
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Kai Ryssdal: For all the excitement about the Detroit Auto Show yesterday, today was a bit of a let down. All the opening day buzz is gone and yet the problems of the American car industry are still with us. Today the head of one of Detroit's biggest parts suppliers said he is expecting only moderate sales this year. And that a new Cash for Clunkers program would be a good thing. Commentator Robert Reich says there is no easy fix.
ROBERT REICH: Automakers are trying to be upbeat. 2009 was a disaster, but December sales were up and the auto execs are hopeful this means strong momentum into 2010.
Never underestimate the power of wishful thinking in Detroit.
Auto executives need to face two realities. First, there's no longer an "American" auto industry. The Big Three are selling cars all over the world, foreign automakers are selling them here, parts are coming from everywhere.
That may be good news considering all the Chinese and Indians who want cars. Last year, Chinese consumers bought more cars than Americans did. Three years ago, the tables were reversed. Americans bought twice as many as the Chinese.
But the second reality is there's a giant glut of auto-making capacity. Right now, the world auto industry can produce almost 90 million cars and light trucks a year. 90 million. You know how many were actually sold worldwide last year? 60 million. The worldwide auto industry, in other words, has a third more capacity than it needs to satisfy worldwide demand.
Now sure, demand is growing in China and India. But China and India are busily building new plants to produce even more cars. So even as global sales grow, the glut is growing, too.
All this means the world auto industry -- including GM, Ford, and Chrysler -- will have to rationalize, consolidate, reduce capacity. Bailing out GM and Chrysler, bailing out GM's finance division, giving cash for clunkers, hoping the American auto industry will bounce back, throwing another big auto show in Detroit. All this is irrelevant to the real challenge.
And that challenge is getting new, good-paying jobs for all the auto and auto-parts workers who will continue to be laid off, even when the U.S. economy is fully recovered. And helping Detroit and other auto communities create new industries that move people from place to place at minimum cost, with minimum carbon.
This is what the Detroit Auto Show ought to be about. Not more cars.
RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley.
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One problem with this is that the UAW, other unions, liberals in general, and the government have a very different idea of "good paying jobs" than the rest of us. (And we have a different idea of a "good paying job" than most of the rest of the world, for that matter.)
S.J. Phred makes an excellent point: cars last a long time (mine is a '93) and just how much will demand for new cars fall if everyone decides to keep their current cars just one or two years longer? More people could also opt to replace their old cars with newer, but used cars, further reducing demand for new cars.
People have been really shocked by this recession and I think many car owners will ask their current cars to take them further, which will mean a permanent reduction in demand for new cars.
Same day as this I saw an article positing the current unemployment rate is because companies were over-capacity before recession. It to said trying to stimulate jobs in current industries probably won't work we need new industries.
The first reality: Certainly auto suppliers like Delphi are well aware that the industry is global. Having created a profitable business overseas on the back of their US subsidiaries, this company has now taken these subsidiaries into bankruptcy to shed its obligations to employees, shareholders, suppliers and customers. This touches on the second reality: The idea of globalization was that the US would help nations overseas develop their economies so they would buy US products. Rather than inventing their own products and industries the developing countries instead have copied US products and industries. As a result, the global industry is overcapacity and the US has competitors not customers in the developing world.
I see that I'm not the only one who noticed the math error regarding the glut of auto-making capacity. To be fair, Mr. Reich probably meant to say something to the effect that one third of the world's total production capacity is "excess", or, not matched by market demand.
I've always had a problem with C4Clunkers. It goes against simple supply and demand logic. We're pushing new cars into a market already saturated with countless used and repossessed cars (i.e. repofinder.com). Now new cars depreciate faster, more Americans are in debt, and more repossessions are on the horizon.
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