December 10, 2008

Save GM: Bring back the Hummer!

The Democrats are now going to run the American auto industry, and they've got a foolproof plan to restore GM's profits: GM should stop making so many big, high-profit vehicles and start making more small, low-profit vehicles. They're going to lose money on each little car but make up for it on volume! You can see now why investors could never come up with such an idea. It just took a business genius like Barack Obama, with his extensive experience at making a profit in so many private industries, to make the auto industry come to its senses.

(By the way, Obama, personally, bought a 4,000 pound Chrysler 300 land yacht when he got rich -- his family's safety is a high priority to him -- but who's checking?)

You might think that with gas at $1.75 per gallon, the smart response would be to suspend temporarily the CAFE rules and let GM make more big high-profit big cars and fewer low-profit little cars. That seems more likely to bring in enough cash flow to get them through the next couple of hard years than insisting that they right now switch over to building go-karts powered solely by the owner's sense of enlightened superiority.

And, why does anybody think that even after GM spent years of government-mandated retooling to make small cars that it would even then be competitive with Toyota and Honda at making small, well-engineered cars? It's not like Toyota and Honda are going to be getting worse over the intervening years. I don't understand how that would work without slipping dumb pills to Toyota's and Honda's engineers. The only policy that would make sense would be a high tariff on the car parts that are imported from Japan (transmissions?).

The reason that Japanese car companies build cars in America is because the Reagan Administration imposed import quotas on them in 1982, which is roughly the equivalent of a tariff.

If we are serious about Detroit carmakers surviving, then protectionism seems like the only alternative. Think about the recruiting problems the Detroit carmakers must have getting young engineers and designers out of college to move to the Detroit area, which a giant ring of suburbs around a central void. If I was a 22 year-old Purdue engineering grad, I'd much rather take a job in Chicago than in Detroit.

My published articles are archived at iSteve.com -- Steve Sailer

28 comments:

SF said...

Sure, if you're thinking next 12 months' numbers, build more Hummers. That's what GM has always done, think about next quarter's profit instead of the long run. Peak oil is still coming soon if it isn't here already. World oil production has been at a plateau for 3.5 years. And the Chevy Volt might actually be a fuel saving winner. I wouldn't mind chipping in some tax dollars for government rebates on this model if it comes out on schedule.

agnostic said...

"go-karts powered by the owner's sense of superiority."

We have to make sure this phrase catches on.

rightsaidfred said...

Congress running the car companies...

I'm trying to think of a historical analogy. Maybe the French army circa 1940.

Anonymous said...

"You might think that with gas at $1.75 per gallon, the smart response would be to suspend the CAFE rules and let GM make more big high-profit big cars and fewer low-profit little cars."

Cheap gas is temporary...for all we know it could shoot back up 2-3 dollars over the next 4-5 months because of unforeseen circumstances.

Better to start conserving now.

testing99 said...

GM, and Chrysler, can certainly get new life by dropping CAFE and offering lower-cost luxury and near luxury sedans that give more pleasant driving experience than an SUV and carry more than a clown car. The Chrysler 300, Dodge Charger and Challenger, the Buick and Caddy sedans, if priced could beat Lexus-Honda-Toyota type of competitors.

But you are right. Obama is obsessed with SWPL redistribution and "being cool" with the "proper" Japanese style cars. This is also pushed by the press which is moronically stupid.

headache said...

Small European cars suck. I never fit into them properly. That's why I take the bus or the train. The funny thing is all the Greens I know here in Germany (just acquaintances, NOT friends) all drive middle size to large expensive cars. The large ones also suck because they are aerodynamically streamlined to make them go fast, the other SWPL status symbol. So, together with the prolls that the SWPL crowd hate, I sit in trains and busses that are anything from 3-35 years old.

Steve writes about this kind of mental illness amongst our western elite. That's why he's required reading.

eh said...

(By the way, Obama, personally, bought a 4,000 pound Chrysler 300 land yacht when he got rich -- his family's safety is a high priority to him -- but who's checking?)

LOL. Yes, who. Reminds me of Al Gore's house (although personally I think reducing 'greenhouse gases' is worthwhile because it would reduce the accompanying pollution).

And I'm not so sure a bigger car is always safer.

BTW, my 'word verification' word was Blase, which is German for bubble. Not exactly the best post for it to crop up, but irgendwie apropos.

J said...

All thing being equal, bigger cars are irgendwie und sowieso safer for the person inside.

headache said...

j sed:
"All thing being equal, bigger cars are irgendwie und sowieso safer for the person inside."

Car safety depends more on the malleability of the material between the crash zone and the person than on size. If you hit a wall in a tank going 60 you will probably be as dead as hitting a wall in a Smart doing 120.

Btw. Blase also refers to bladder, which is more fitting considering the current spate of issues served up by our spie├čige elites.

freeman said...

If I were a 22 year old new engineering grad, rather than a degree-less 47 year old, I would seriously consider moving to Singapore or Thailand or even the Philippines. And definitely before considering Detroit.

At least they are more likely to improve in the future rather than getting worse and worse as the US seems set on doing.

Derek Copold said...

The import quotas of the 80s were a boon to the Japanese automakers. By limiting supply, the government made it possible for the Japanese to jack up their prices and make a greater profit. This profit they sunk into strengthening their domestic positions, and it gave them the money to start up the transplants--which they'd already started in 1982. The quotas weren't really the main impetus behind that, althought they helped.

The main reason the Japanese have been building plants over here and in Europe is because they want to have closer contact with their market. That way they can maximize production of certain units that sell well in one country and then export them to fill niches in other areas.

Funny enough, Ford and GM were ahead of the Japanese in this department, but they never really integrated their foreign components well enough to compete. Ford went overboard creating the Escort--a car designed for everyone but wanted by no one. GM created separate units that never talked to each other. Until recently, companies like Opel and Vauxhall might as well have been their own entities, like Isuzu and Suzuki.

Of course, the biggest thing still killing the Detroit three is the inflexible work rules imposed by the UAW. None of these companies can react to changing market conditions with enough flexibility to compete. This latest bailout simply lets the UAW avoid that reality for a few more months.

Derek Copold said...

The Chrysler 300, Dodge Charger and Challenger, the Buick and Caddy sedans, if priced could beat Lexus-Honda-Toyota type of competitors.

No, they couldn't. Honda, Toyota and Nissan would change their products to match the Detroit Three's, and they'd be making better quality products within a couple of years. Their manufacturing culture makes this possible. If you have a plant that can make anything between an Accord and Pilot, you can easily come up with something to match a Charger.

Only Ford is anywhere close to matching this kind of flexibility, and their still held back by UAW strictures.

Kaus explained it best. In a typical Detroit operation you have all sorts of job titles, and workers do limited and definded tasks. This is a product of the Wagner Act era. In foreign plants, abroad and here, you have one job description: production worker. Everyone does what's necessary to make the line work. No bullshit about "That's not my job."

As long as Congress coddles that culture, the Detroit Three aren't going anywhere.

RobertHume said...

Just on a serious note ... all our bright engineers studied physics and electronics and aerospace in the 50's and 60's and that's why all the bright computer stuff came, and continues to come, from the US.

Nobody bright studied mechanical engineering. That's why Japanese companies are led by engineers, and US companies by marketers and accountants.

In the long term the best thing we could do would be to put lots of money into undergraduate and graduate mechanical engineering scholarships for US citizens. It will pay off in 10-20 years.

eh said...

Democrats Push for Volcker as 'Car Czar'

What the hell does Volcker know, specifically, about the car business?

tommy shanks said...

>>"go-karts powered by the owner's sense of superiority."

The Simpsons were already here, with an episode featuring greenie-weenie Ed Begley, Jr. In the episode, he tells Bart that his go-kart is "powered by my own sense of self-satisfaction"... Then it zooms away, as if it's powered by a lot of fuel.

Reader said...

You might think that with gas at $1.75 per gallon, the smart response would be to suspend temporarily the CAFE rules and let GM make more big high-profit big cars and fewer low-profit little cars. That seems more likely to bring in enough cash flow to get them through the next couple of hard years than insisting that they right now switch over to building go-karts powered solely by the owner's sense of enlightened superiority.


I've read your site almost daily for about six years now, and this has got to be one of the dumbest things I've ever seen here. Really. I think you're letting your own "sense of enlightened superiority" get the better of you.

Gas prices are *temporarily* low. It's impossible to predict exactly what they will do in the future, but 1) peak oil is real, so long term they will generally go up, 2) gas was $5 a gallon less than a year ago so there's no reason to think it can't get that high again in the short term, 3) if we invade Iran, which is at least remotely possible if not likely, expect prices to explode.

Anyway, people buy Japanese cars because they get good gas mileage and they run well. What's wrong with that model? The US car industry should have adopted that strategy a long time ago. What the hell is wrong with building cars that people (yes, including those dreaded SWPLs, who buy cars too you know) actually want?

Has it occurred to you that maybe the SWPLs are on to something here with not liking unreliable, gas-guzzling pieces of crap?

And might I ask, what is so bad about SWPLs generally? For all their faults, they strike me as being a lot easier to reason with on the "iSteve issues" if you will than a lot of the "conservatives" I see. Or what - you prefer John Hagee-watching, evangelical Christian Bush-voters, enthusiastic about diversity to "prove they aren't racist", and itching to see America waste more blood and money on needless wars against Muslim countries for the benefit of God's chosen people?

Argent Paladin said...

SF:
GM *has* to think short term. They don't have enough cash to survive 2 months, let alone twelve. It would be cheaper and better to suspend CAFE standards, taxes and fees, etc on all domestic cars. Consumers get cheaper cars, manufacturers get more revenue and taxpayers don't have to subsidize it. But of course it will never happen, because big government won't get its cut.

Ronduck said...

The Democrats are now going to run the American auto industry...

They've been running the car industry since the unionization of Detroit in the 1930's. This is partly why all of the new car plants built in the US in the last 30 years have been built in the Red states.

kurt9 said...

The greens and other varieties of limousine liberals are all hypocrites. They berate everyone else to accept a reduced standard of living and, yet, they themselves continue to drive big luxury cars, live in big houses, and fly around on private aircraft. Yet, it seems that the West is full of stupid people who continue to listen to these hypocrites.

Yes, Steve's posting is quite good. The automakers made big, expensive cars because people wanted them. That was where the market was. Today, we are in a classic corrective recession, which means that the demand for luxury good disappears. What people want are not the eco-cars the green hypocrites want us all to buy, but inexpensive cars that run well (and keep their value) that are not butt-ugly.

To their credit, the Big-3 (especially Chrysler) has really gotten the styling good in the past 10 years. The quality of the cars is good, too. The problem is the piss-poor management (these companies are "gay" bureaucracies) and the parasitical unions that have sucked all economic value out of the Big-3.

The only way these companies will ever create value is if they are liquidated and the more popular products are resurrected by new companies. Of course, politics will prevent this badly needed correction from occurring.

albertosaurus said...

Steve,

I'm a bit surprised that you haven't posted on the racial and IQ aspects of the Big Three bailout.

If you go to the UC Berkeley campus you notice that all the engineering students seem to be asians. These are the auto design engineers of our future.

IQ tests were designed by Caucasians and standardized on Caucasians. Average verbal IQ was set at 100 as was the average non-verbal score. Asians score a few points lower than Caucasians on the verbal sub-tests but several points higher on the non-verbal sub-tests. Everybody knows this.

Japan started to establish a reputation for superior auto design thirty years ago. Recently they have been joined by the Koreans. Presumably in the next decade or so they will be joined by the Chinese.

Asians seem to have natural advantages in engineering just as they have natural disadvantages in law and literature. In the automobile firm of the future I expect the designers to be asian, the marketing and legal employees to be white, and the shop floor to have a lot of blacks and hispanics. That's the way it already is, I suspect, at Honda plants in the American South.

As you have pointed out elsewhere, most Olypic level athletes used to be white only. Then as the competition matured blacks began to dominate running events because of natural advantages. Similarly we seem to be witnessing racial advantages emerging in the auto industry. Our Congress may have a little difficulty with this phenomenon..

albertosaurus said...

but make up for it on volume!

I believe this quote originated about 1975 by the spokesman for the Bomar Brain who used it to explain the business model of their pocket calculators that - due to the price war - then sold for less than the cost of manufacturing.

He really meant it.

DissidentMan said...

I have to agree with the posters who say this isn't a bright idea. Consumers got scared of big gas guzzlers when gas prices climbed, and they are right to stay scared, since gas prices can go back up again. Gas prices can go all the way to infinity, since gas (in its present incarnation) is a non-renewable resource. American car manufacturers must switch gears. I hope the talk of hummers was hyperbole, but if they continue churning more of those things out it would be almost contemptible, because no amount of sales would outweigh the negative PR. Furthermore, he with the gold makes the rules. The taxpayer just bailed them out. The various governments that signed the cheques now have a right (and a duty) to exercise oversight over product direction, as well as executive compensation.

DissidentMan said...

I realise now that I was a little bit ahead of myself. I just read that the bailouts are now in doubt, but if they do go through then what I said would still apply.

Anonymous said...

Ironically GM & Ford have building European cars for years - in Europe.

There they compete successfully with other European brands and against the Japanese. GM in the guise of Opel & Vauxhall, Ford as, well...Ford.

SFG said...

In the long term the best thing we could do would be to put lots of money into undergraduate and graduate mechanical engineering scholarships for US citizens. It will pay off in 10-20 years.
I don't know. There don't seem to be a lot of jobs for engineers, so who would take them? Everyone wants to be a businessman, and do you blame them when engineering means being tossed out on your ear at 45?

This is America. We respect salesmen, not engineers.

albertosaurus said...

Larry Kudrow today posted these facts -

Average compensation for the Detroit little three is $72.31. Toyota’s average wage is $47.60, Honda’s is $42.05, and Nissan’s is $41.97, for an average of $44.20.

This month Dennis Siamantaitis of Road and Track in an article on variable valve systems mentions:

The Honda/Acura VTEC system
The BMW Valvetronic system
The Mitsubishi MIVEC system
The Audi variable valve system

American Big Three cars just don't have these systems that increase power while they lower emissions and save on fuel.

Its not just hybrids. These foreign car companys, most of whom manufacture their machines in the US, have invested in engineering advances for decades. Detroit rather than investing, allocated its earnings into consumption.

Now after nearly four decades of buying industrial peace by colluding with the UAW rather than reinvesting, Detroit has a lineup that is at least two generations behind its competitors in terms of engineering.

Its too late now. GM, Crysler and Ford can no longer be saved. Chapter 11 reorganization also will not be enough. As their engineering has slipped so has their reputation. It takes decades for a car maker to establish a reputation not just a few years. Detroit simply doesn't have enough time to reverse its fortunes.

But some people think that government and government money can turn it all around.

Michael Moore first acheived fame by roasting Roger Moore, the then GM CEO. In some ways it was deserved. Roger was the epitomy of the new Detroit auto maker executive. He had always been in finance. He didn't know or care much about cars. He was criticized as not being a "car man" 1ike previous generations of Detroit auto executives who had built the industry.

Now we have gone further, we have politicians like Chuck Schumer and Chris Dodd determining the future direction of automobile product development. Both of these men have had no training or experience whatsoever in engineering. Dodd has a degree in english literature. Do you think he could have gotten a job as an executive at GM back in the days when Cadillac was the most innovative car in the world?

Schumer's previous private transportation experience seems to have been banning motorcycles in Brooklyn.

For decades congress has imposed social or ideological mandates on our automakers. In virtually every case the industry has opposed these measures as cutting into sales. Now that battle is lost. The industry will have to respond to every politically attractive idea that can get a congressional majority. A congress that has historically been insensitive to sales and profits is now expected to somehow increase sales?

Michael Harrington, the socialist, remarked decades ago that the great mistake of socialist governments was to nationalize failing industries. With the US Congress now set to in effect nationalize the Big Three we can expect all three to be out of the market in five to ten years.

Congress can always ban all cars for sale in the US except those made by one of the nationalized companies. Other than that, it will have to build more attractive innovative cars than those build by private firms that already have market share, loyal customers and a generation or more of engineering lead. I have my doubts that five hundred lawyers are up to the task.

The best thing that can be presently done today is to sell the Big Three's asssts to Volkswagen, Toyota, Honda etc. People still buy Rolls Royces (owned by BMW) and Bentleys (owned by Volswagen) and Jaguars (owned by Ford).

Voodooman said...

SFG said:
This is America. We respect salesmen, not engineers.

We respect pointy-headed office prostitutes with the right "corporate image", whatever that's supposed to mean.

Voodooman said...

Information Technology as an industry was in bad shape 6-7 years ago. Were there any bailouts? No. Was there any government protection, or other form of mollycoddling? No. Were there any mass concerns that the streets will be flooded by unemployed nuuuuuurds? Hell no.

Now the IT sector is in as good shape as any part of the American economy can hope to be in these sad times.

Detroit, "tough as nails" blue-collar Detroit, can learn from this.