Why Government Management of Auto Companies Will Not Work

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Ohg Rea Tone is all or nothing. He is educated and opinionated, more clever than smart, sarcastic and forthright. He writes intuitively - often disregarding rules of composition. Comment on his posts - he will likely respond with characteristic humor or genuine empathy. He is the real-deal.

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Why Government Management of Auto Companies Will Not Work

The advocates of government intervention in our lives are having a great time.  They are advocating the regulation of banking, which seems to be smart in light of recent revelations about banking management.  And they are advocating dictates of management for the auto industry, this is not nearly as smart as they think.

History for a nickel:

Here is the 5 cent tour of recent automotive history.  WWII ended and the auto makers retooled for commercial production.  They built big heavy luxurious cars that used a lot of petro.  And they were not particularly efficient at producing quality vehicles.  In the mean time Japan retooled with efficient management practices.  By the early 1970′s the Japanese were building quality autos in the mold of Toyota, Nissan, and Honda.  But they were smaller and more fuel efficient – Americans liked the luxury of big heavy gas guzzlers.  Then the first fuel crisis of the 1970′s hit and there was a big shift to fuel efficiency – people realized the Japanese cars were of higher quality.  The American Auto makers retooled again – this time with an emphasis on quality.  But with the fuel crisis over, American consumers continued to think that bigger is better.

Enter Global Warming – so what – I just drive one car at a time, the American public insisted.  The American public continued to demand more.  The world of the SUV was born:  Big, luxurious, four-wheel-drive, country cadillacs.  The Auto Makers met the demand, even Toyota and Honda and Nissan began building full sized four-wheel-drive trucks and SUV’s.

Back to the Future:

The problem was that no one was paying any attention to George W. Bush not paying attention.  The housing market crashed.  Then the credit market crashed.  Then the banks crashed.  And at the same time the price of oil jumped four or five fold.  Your fault, my fault, nobody’s fault – the economy tanked.

Two major economic factors directly impacted the auto industry of 2008.

  1. Gas prices killed the demand for the big SUV’s on the production lines.
  2. Money available for lending dried up.

We submit here that the Auto makers were managing according to the rule of capitalism.  And we submit they were efficient managers – they were building quality vehicles that met the demand of the market.  How is that not good management?  How is that not good capitalism?

The problem lies outside of the control of the GMC, Ford, and Chrysler.  But the hand-wringers in congress are quick to blame the auto industry management.  How many times in the last few weeks have we heard, “Why should we lend money to poor management.”  We should not reward poor management?”

What the law makers are really saying is “How come the auto makers were not building fuel efficient cars?”  Well let me just give you the answer:  The American public did not want fuel efficient cars!  Successful capitalism is the ability to measure public demand and to meet that demand.  This is not rocket science.

The problem is that the public and the lawmakers are singing from different hymnals.  The lawmakers have been tooting their horns for ten years about Global Warming, and this writer is in total agreement with the validity of that science.   But we do not believe that the lawmakers should bail out the auto makers with fixed mandates on what type of autos they can manufacture.  This is a total violation of the rules of capitalism- and it is just plain foolish.

The lawmakers do have the power to direct or influence.  We see two or three immediate options.

  1. Create a national Gas Tax.  Force the price of gas to be at least $4.00 a gallon.  Whooee, I can hear people screaming right now.  This would be so unpopular that the lawmakers would never attempt this.  And that speaks to the problem.  They want the automakers to build fuel efficient autos that no one wants to buy.  But high gasoline prices would change the demand for gas guzzlers.
  2. Dramatically raise the emission standards for all automobiles sold in the United States.  That would include the imports from Japan.  The playing field would be even – let the most efficient auto maker win.  This would address environmental issues and protect fair trade.
  3. Tax imported oil to force the price up – thus increasing demand for fuel efficient vehicles.

It is not enough for the lawmakers to blame the auto makers for poor management.  It seems to this writer that the Government has not been well managed on two fronts:

  1. - Failing to regulate the banks and the credit markets, and
  2. - Failing to require tougher emission standards.

We need to stop accusing the auto makers of not doing their job.  Their job was to meet the demands of the auto mobile driving public – they did that very well.

The United States Government should loan money to the auto makers to cover their own innefficient process – then the government should address the issue of demand rather than the issue of auto maker management.

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There Is 1 Response So Far. »

  1. One job of management is to innovate, which American auto companies failed to do. If you only think about making the immediate dollar, pure capitalism, then you have failed. Look at Apple, who redefined the music industry. They created a platform for digital music. Automakers should have done the same for energy efficient vehicles, but instead kept churning out SUVs. The job of management is to think ahead. There were countless road signs that times were changing and the auto industry ignored them. Bad capitalism is mob rule, which is bad business, but which this article seems to be endorsing. What a mistake we’ve all made. Wake up and see what’s wrong-

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