Wednesday, December 10, 2008

Holman Jenkins's Latest on the Proposed Auto Bailout

From his column in today's Wall Street Journal, "A Bailout that Won't":

Forget Chrysler, which has needed a bailout from Washington or Stuttgart in three of the last four recessions. The tragedy of GM and Ford is that, inside each, are perfectly viable businesses, albeit that have been slowly murdered over 30 years by CAFE. Both have decent global operations. At home, both have successful, profitable businesses selling pickups, SUVs and other larger vehicles to willing consumers, despite having to pay high UAW wages.

All this is dragged down by federal fuel-economy mandates that require them to lose tens of billions making small cars Americans don't want in high-cost UAW factories. Understand something: Ford and GM in Europe successfully sell cars that are small but not cheap. Europeans are willing to pay top dollar for a refined small car that gets excellent mileage, because they face gasoline prices as high as $9. Americans are not Europeans. In the U.S., except during bouts of high gas prices or in the grip of a Prius fad, the small cars that American consumers buy aren't bought for high mileage, but for low sticker prices. And the Big Three, with their high labor costs, cannot deliver as much value in a cheap car as the transplants can.


Jenkins puts his finger on a key problem here. If the government's goal is to get Americans to drive more fuel efficient cars, the way to do that would be to raise federal gas taxes steeply. Then, Americans would effectively be forced to buy smaller, more fuel-efficient cars, and the domestic automakers would be able to sell them the sort of more expensive, higher-margin small cars they successfully sell in Europe. Politically, of course, it's easier for Congress to raise CAFE standards than raise gas taxes.

4 comments:

DaveinHackensack said...

I haven't forgotten about Reg. T., btw. Just sent a question to the Federal Reserve about it, to confirm something.

Mberenis said...

Obama did it for us! There is a bailout for the people. Everyone qualifies. I got $750,000.00USD in grants for my bailout.

Claim your free Bailout Grant

JK said...

Friedman's latest. I'd like to learn more about this "Better Place" model he speaks of.

DaveinHackensack said...

I've read about Better Place before -- maybe in Forbes or Fortune or some other business magazine. Israel is a good place for that sort of pilot program: it's geographically compact, sunny, and has plenty of motivation to experiment with a car that doesn't require oil. Friedman is a typical coastal elite who is easily seduced by tech company types with promises of 'clean' energy. Notice he didn't mention whether or not Better Place is even profitable.

Also, his mention of the Model T's fuel efficiency is silly in that it ignores the obvious differences in weight, safety features, etc. between it and modern cars. It doesn't take rocket science to make a car get 50 mpg: just make it tiny, flimsy, and light. Friedman keeps it simple, as usual, and mostly ignores the real world's complexities and trade-offs.