Saving The Big Three


I have read much and thought hard on what to do to save the Big Three auto manufacturers in the USA. First, I will try to identify the problems that the companies are facing and then address those problems with proposed remedies. The discovery of this investigation was the identification of one main culprit at the core of the collapse of these once mighty manufacturing companies. There are questions regarding the success of foreign owned automobile manufacturers with plants inside the USA; they will also be addressed. Because of the length of this tome, it will be broken into a number of smaller parts.

Here are the main problems I have identified:

CAFE (Corporate Average Fuel Economy) – this government-created monstrosity is pure interference in the once-free market of America. (To digress a bit; I ask, what Constitutional power was given to the government that allows them to control what a company can build? Answer. There is none). In a nutshell, CAFE forces domestic automakers to abide by a formula that dictates that the companies must build enough high gas mileage vehicles to offset production of those that get less gas mileage. Until recently, the largest selling vehicles produced by the Big Three were SUVs and pick-up trucks. These vehicles were very profitable for the companies. However, to be allowed to build and sell these vehicles that the American people wanted to purchase, the automakers had to produce, by government fiat, a specific number of high gas mileage vehicles to “offset” the others. Most of the high mileage vehicles, based on cost center statistics, were built at a net financial loss to the companies. They had to sell them at monetary losses in order to allow production of the vehicles that Americans actually wanted to buy.

CAFE works something like this: for every Viper that Chrysler builds, they must also build “x” number of shoebox-on-a-roller-skate high gas mileage vehicles. Americans were buying Vipers and SUVs and pick-up trucks and did not want to buy the little tin cans, so Chrysler lowered the cost of the latter to get them off the lots and at least recover some of the cost of their production. Remember, if you sell something cheap enough, someone will eventually buy it. CAFE has seriously affected the way the car companies can react to customer demands. It has also affected the appearance of modern cars. There is no wonder why cars are slickly aerodynamic these days; the manufacturers must eke out every bit of gas mileage to satisfy CAFE. Even softer performance tires go into the equation because they technically lower gas mileage through higher rolling resistance.

Consider this. You are Henry Ford in the early part of the last century. You are now building the Model A and you have more orders than you can fill. They are hot sellers. You are making profit and you are building additional factories to produce more Model A cars to meet the demand. Not so fast. The government steps in and orders you to build five Model T cars for every Model A that you produce. You say, “WTF? What power does the government have to order me around like this? The Model T is not what people want to buy!” Of course, the government did not have that power at that time (many argue that they constitutionally do not have that power now, but that is an argument for another time) and it would have been considered ludicrous. Ironically, it was about that time that the government started the dreaded “temporary” income tax, so the camel’s nose was already poking under the tent.

Conclusion: CAFE not only hinders the free market, denying people the cars they want at a market price, but it also confounds the manufacturers’ revenue flow, their ability to adapt to market forces, and their ability to plan for the future.

More to come…
Author: admin