Thursday, December 04, 2008

The evolution of the car industry

From Carpe Diem:


Anonymous said...

Martin, the figure states, in no uncertain terms, that unfettered capitalism = communism.

Is this what economic reality has come to?

Lee said...

The U.S. has never had unfettered capitalism. In any event, there is nothing uncapitalistic about having fewer producers than many. The question is what car-buying options buyers have available to them.

Capitalism has spoken: left to the marketplace, the Big Three would soon be out of business.

But socialism carries guns, and socialism says we will be forced to buy their products even if we choose not to own them.

Socialism wins.

This was never a failure of competition, only a failure of certain competitors. Peter Drucker said that, to survive, every successful company has to reinvent itself every 35 years or so. Detroit never tried to reinvent itself. For the past four decades, they have made a living by pursuing profit margin per unit sold, and to accomplish it, they have been squeezing their suppliers.

This strategy presumes the possession of unassailable market share, which Detroit had in the 1970s. But it eventually wears thin on your customer base when the parts get cheaper and cheaper, and begin to notice when the Japanese cars don't seem to have the same quality problems.

The single biggest mistake Detroit made was back in the 1970s, when they decided to go into the small car market to compete head on with VW and the Japanese makers. Maybe it was a mistake to begin with. But it certainly was a mistake to produce cars of such dubious quality as the Ford Pinto or especially the Chevrolet Vega, probably the worst American-made car ever built. They were aiming these horrible products at young buyers, with a lifetime of car-buying ahead of them. For someone struggling to get a Chevy Vega to work well enough to drive it, it probably didn't escape their attention that the Toyotas and Datsuns bought by their friends never gave them any problems.

First impressions count.

Anonymous said...

Unfettered capitalism = monopoly

Communism = monopoly

You wouldn't like Obama dictating to you what OS to use. I don't like Bill Gates doing the same (if he had his druthers, that is).

Same difference, as far as I can tell.

Anonymous said...

Louisville car dealers charge 500 dollar doc fees for the honor of buying from them. A lot of lot pirates in this town.

David Adams said...

With all due respect, Art, your analogy bears little resemblance to reality because a monopoly never really existed in the car market, either. Market dominance isn't the same thing as a monopoly. It just took on some of the same qualities because the big three had such political power. Had we stuck to market principles, the current state of affairs could not have happened because the feedback to the big three would have been loud and clear decades ago. We tried to out-muscle the market with confiscated taxpayer dollars and it worked the way it always works. The market won. The only remaining problem is big three and the politicians they own are making their last stand. The resulting collateral damage is not the result of a market failure.

Lee said...

> Unfettered capitalism = monopoly
> Communism = monopoly

Only if you measure "monopoly" not by how many options are available to the buyer, but how many *American* auto companies are still in business.

You have far more buying options today than were available in the 1960s or 1970s. In 1968, you could buy GM, Ford, Chrysler, AMC, Checker, VW, and (if you were adventurous) MG, Austin, Mercedes, Volvo, Saab, and maybe a Toyota or Datsun (Nissan) if you could find a dealer. In 2008, subtract AMC, Checker, MG, and Austin from the list; add back into the list: BMW, Audi, Mini-Cooper (actually a BMW take on an Austin design), Mitsubishi, Mazda, Isuzu, Suzuki, Honda, Hyundai, Kia, Smart car.

On top of which, more different kinds of cars are available now, with better technology. Back in 1968, you bought a big, rear-drive sedan or coupe with a pushrod engine, live-axle suspension, and drum brakes; an even bigger rear-drive sedan or coupe etc.; a big pickup truck or full-size van; or a small putt-putt foreign car that was good around town but would beat you to death on trips. Today, subtract none of those options, but add in: smaller sedans and coupes with much better mileage and performance, and with more creature comforts, featuring overhead cam engines and four-wheel disk brakes; smaller pickup trucks; and high-tech hybrid cars that get better mileage than was dreamed of in 1968.

Buyers today have more options than at any time in history. The only option arguably not available is buying a competitive car from a U.S. maker, and whose fault is that? This is not a "monopoly" situation in any way, shape, or form.

Anonymous said...

Um, people, I'm just observing what the cartoon Martin posted is saying.

All this talk about what capitalism should be like is nice, but I believe the landscape would be very different without the antitrust regulations we have today. We'd have one computer company, one OS, one phone company, etc., etc. etc. And yes, eventually, one car company. (That's where Martin's cartoon goes.)

Not much different than having one government-owned institution, if you ask me.

Lee said...

> Um, people, I'm just observing what the cartoon Martin posted is saying.

Fine, but you keep using it to make some sort of economic or social point which seems dubious to me, and is at the very least debatable.

> I believe the landscape would be very different without the antitrust regulations we have today.

Such as this one. Regarding antitrust law, there is an illuminating discussion in Thomas Sowell's book, Knowledge and Decisions. According to Sowell, antitrust law pretty much (like so many government laws and programs) accomplishes the precise opposite of what its framers intended.

The idea behind antitrust legislation is to prevent monopoly because of the fact that the monopolist would then hold its buyers hostage. This has largely (according to Sowell) been a theoretical position rather than a practical one, as is borne witness by the fact that the economics texts have to go all the way back to the 19th century to cite the examples of such a horrifying travesty.

But just because government regulators have nothing to do doesn't therefore mean they do nothing. Not when their jobs require them to do something. It isn't lost on regulators that it's a lot easier to win in court against small fry than it is to beat professional lawyers working for large corporations. It is also not lost on regulators that many regulators wind up, after so many years, getting plush jobs in the industry they regulated.

The result of these incentives? Most antitrust cases have been against small companies, with 5% or even less of market share. How do they justify that? Simple: if a small company is undercutting a big company, the government claims that they are "harming competition" -- when in fact, they are only harming certain *competitors*, which is quite the opposite of harming competition.

Most monopolies have been, in fact, government-induced. Such as the phone company for years and years. Cable companies, in certain venues. Somehow, monopoly is okay when the government pulls the strings.

And, to be sure, there are certain other companies which have enjoyed a "technical monopoly" -- again, the phone companies until about 1985, but also certain railroads -- where the costs of duplicating the infrastructure could, or could have at one time, outweighed the costs of monopoly. When satellites began to obviate the need for more and more cable, the market was allowed to open up.

One of the biggest antitrust cases ever took place (I think) in the 1930s. That was Alcoa, which did (and I think still does) enjoy a monopoly in the sense that they're the only American firm that does bigtime aluminum processing. But even monopoly aluminum companies have to worry about substitutions of other commodities. You don't have to use aluminum foil; if it gets too expensive, you use plastic or waxed paper. You don't have to make engine blocks out of aluminum; you can use cast iron. Etc. So Alcoa can't let their prices get out of hand, or their market would still decline.

Even Microsoft has to weigh the costs of maintaining a monopoly. For myself, I have decided that my next machine will be an Apple or a Linux box; Microsoft's stuff is simply too painful for me to deal with. I work with it for a living, and don't want to have to think about software glitches and irritations when I get home. But they've made it (up until now) easy to get up and running, and as friendly as they know how, and kept the product inexpensive to further increase market share. I do have to consider some serious personal costs -- inconvenience, mostly -- if I decide to toss it out. But it's not like there are no alternatives.