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TechnoratiDid the Four Horsemen Destroy the Auto Industry?
The day of reckoning has arrived for the U.S. auto industry and much like the four horsemen of the apocalypse (strife, war, famine, death) our nation's policies (tax, trade, health care, energy) have helped decimate American manufacturing. As a result, America has gone from the world's greatest creditor nation to the world's greatest debtor nation.
Let's look at how these long-standing policies have virtually eliminated several industries from the productive side of the American economy – shoes, TV's, textiles, electronics, and potentially the auto industry.
Horseman No. 1 – Tax Policy
Other nations gain an advantage through their use of a Value Added Tax (VAT) system. A VAT is a levy on the "value added" to goods and services as they pass through each stage of the production process. The advantage is gained when a foreign manufacturer exports their goods to the U.S., where at that point the exporting nation rebates the Value Added Taxes back to the manufacturer. This allows foreign goods with no tax cost component to "compete" with American goods that must include U.S. taxes as part of their price. This generally gives goods from VAT nations a 10 percent advantage. To make matters worse, VAT nations assess the tax on American goods entering their market.
U.S. Rep. Mike Michaud of Maine estimates this produces a $375 billion burden on American goods and services. Fortunately, he plans on introducing legislation in the next session of Congress to address this problem. This simple tax issue will immediately assist the auto industry and other manufacturers to be more competitive.
Horseman No. 2 – Trade Policy
America cannot continue to lead a free trade agenda while other nations strategically subsidize, support, and protect their industries at our expense. For example, the U.S. House Ways and Means Committee has found that Japan manipulates its currency to give their vehicles a $2,000 – $8,000 advantage when imported into the U.S. This also raises the cost of American vehicles that are imported into Japan by the same amount.
Currency manipulation and other non-tariff barriers allow Korea to export over 600,000 vehicles to the U.S. last year while only importing 5,000 from America.
We could learn from Europe as well. If a foreign automaker wants to open a car plant in Europe they must use 80 percent locally produced parts, far higher than the 35 percent average content American transplants currently use. This would generate almost two million American jobs. In addition, Europe puts a ceiling on the amount of state subsidies provided so that those plants actually benefit the local economy and not siphon off tax dollars to shareholders.
Horseman No. 3 – Health Care
The United States pays twice as much per person for health care as other industrialized nations. It has been estimated that if GM were a Canadian company it wouldn't be asking for help. Economist Dean Baker estimates if GM had purchased the same health care used in Canada it would have saved over $22 billion over the last decade. In fact, if health care costs were the same here as in other industrialized nations 80 percent of the Big 3 losses would disappear.
Horseman No. 4 – Energy
In the late 1990s a barrel of oil sold for $10. The Big 3 enjoyed strong sales and consistent profits. In 2008 a barrel of oil sold for $147. If legislators had developed an energy policy then, all industry, but especially the auto industry, would have had a foundation on which to design, engineer, and build vehicles.
Instead we watched our elected officials vote to unleash the "market forces" that came with deregulating the futures commodity market (Commodities Futures Modernization Act). This resulted in gas exploding to over $4 a gallon. The consequence of this decision was the entire economy devolving into a recession while oil companies reported record profits.
Obviously,
the financial crisis is the immediate cause of the worldwide auto crisis but
these four policies or lack thereof have long been a cause of American
manufacturing decline. It is time for responsible legislators to take the reins
and look for solutions that will put domestic manufacturing on at least a level
playing field in their own market. Our economic recovery depends on it. No
nation has ever consumed its way to greatness, nations must produce their way
to greatness.
A version of this article originally appeared in the St. Louis Post-Dispatch
17 Comments so far
Show AllI am sorry to see that Darin Gilley has completely bought into the official line of blaming everything and everyone but the 'management' of American auto industry, which has been spending tens of millions in lobbying every year to thwart any upward revision of the fuel efficiency standards. And his arguments on health care and currency exchange rate manipulations carry little merit as well. While it's true that foreign manufacturers do enjoy some pricing advantage due to their domestic policies, do you mean to say that the Big Three would be selling a lot more cars overseas if they had the same kind of pricing advantage? I seriously doubt it. While they have made some substantial improvements in their product line up in recent years, these did not happen due to their corporate culture or vision - they had to be dragged kicking and screaming when it came to developing more fuel efficient vehicles.
It is also a bit disingenuous to only talk about disadvantages to the US auto industry due to certain policies. For years they also enjoyed a nearly protected market for their pick up trucks and SUVs due to some obscure law enacted during an earlier trade dispute with the Europeans. With the help of aggressive advertising promoting a macho image, they sought to earn a major portion of their profits from pickup trucks and SUVs. And using additional loopholes in the tax code, businessmen and 'farmers' could actually deduct the purchase of such vehicles as a 'business expense'. Arnold Schwarzenegger, who hitched himself to the green bandwagon as a Johnny-come-lately was also partly responsible for promoting a macho image associated with these gas guzzlers. He not only bought one of the (or the?) first Hummers and promoted the damned thing, he was actually responsible for their manufacture in the first place, when he apparently convinced AM General to start manufacturing a civilian (!) version of the Humvee.
Several mistakes - blunders, in fact - were made over the years, and there is no excuse for falling behind in development of better products when you could see that the Japanese, Koreans and Europeans going in a different direction - towards a greater overall fuel efficiency for all of their models. Or for not pursuing the electric vehicle (or hybrid) development after actually having a slight lead on this technology - though briefly.
It is also a complete mistake to talk about gas prices - a truly competitive auto industry is supposed to be able to compete globally, irrespective of the gas prices. By bringing up this point, he basically proves the argument that the US auto industry enjoyed somewhat of a free ride by selling gas guzzlers when many people said that oil prices were at an unsustainable low level. Also, as a flip side, it can be rightly argued that foreign manufacturers who had developed more efficient, but also more expensive, product lines were at a disadvantage because they had to compete at a time when fuel efficiency didn't seem to matter much for the general public. I'm sure they had watched the 'waiting list' of buyers for the somewhat expensive Toyota's hybrids at the same time.
Of course, Darin Gilley is from the UAW - and I have no doubt that the workers would have worked just as productively no matter what the designers came up with and management decided to produce and sell. It is therefore sad to see him (and others like him) toe the party line in blaming everything and everyone except their abysmal and irresponsible management. Sad because they are facing the consequences of poor decisions made by their management.
Highintel: Can we do better?
"Strife is not a horseman of the apocalypse. It is Pestilence, War, Famine and Death."
That's what I was thinking. And they told me comics would rot my brain as a kid. :D
I'm so glad I don't own a car and ignore all the people who razz me for not driving.
I would love to buy a car designed and built by the UAW. When are they going to takeover General Motives?
Should one buy a new Honda or Toyota built in the United States or should one buy a new Ford built in Argentina or Mexico? Which would be "buying American"?
-- EKATON --
Was it the plant that builds the Ford Fusion? The Ford Focus is built in Argentina, the Fusion in Mexico, or it was anyway. Ford has also built the world's most advanced auto assembly plant in Brazil.
(So, yes, let's bail out the auto industry with taxpayer dollars so they can build more overseas plants, send the profits back to the U.S. owners, and line the pockets of foreign workers. To hell with American labor. I know Ford hasn't taken any bailout money -- yet.)
I think its pretty funny when owners of "American" cars built in other countries by other countries' workers chastise me for driving a Japanese car built in the United States by American labor. "You know those profits go overseas." Yeah, they do. And the wages go into the pockets of the working class. What a shame.
-- ekaton aka d.k.shaw
The author forgot to mention that the US auto industry managers consistently made stupid decisions, refused to innovate, and continued to make crappy cars.
Very true that's why I drive a 1990 Toyota Corolla even though I live just about literally in the shadow of the Willow Run auto plant in Ypsilanti Michigan, I'd love to buy local but for my less than a 1000 budget there are NO high quality good gas mileage American cars available.
I would argue that the cult of consumerism is largely to blame, and that the Four Horsemen discussed here are but the straw that broke the camel's back.
The cult of consumerism designed built-in obsolescence, which the auto companies used to maximum effect. Change the design of the car every year! Release new models every 4 years that share few parts with the previous model! Appeal to consumer's masculinity and femininity! Offer 10,000 options and colors! Yes, YOU can be different to everyone else!
Such products are very sensitive to an economy's health. Every recession people turn away from purchasing consumer articles, and instead invest in long-life products.
Had cars been designed and marketed as utilitarian vehicles with a life span of 50+ years, with parts/service system to provide support for that long, the auto industry would be relatively small, prosperous and robust. Think tractors and earth-moving equipment. I would like to see such utility vehicles like my axe that has been in the family for 200 years; it's had 2 new heads and 9 new handles!
The only good thing about all of the cars we've made is they may come in handy when folks are seeking new, affordable places to live...maybe we shouldn't crush so many...we may need them again...condo>cardo? We've probably made enough, though...I mean, they seat\sleep 4, 5, maybe 6 folks each (the older models)...
Strife is not a horseman of the apocalypse. It is Pestilence, War, Famine and Death.
Good points all, but the problems won't be rectified for 2 reasons:
1) Protecting domestic industry primarily helps working people, not the plutocrats who run America.
2) U.S. leaders are so arrogant about America being smarter and better than any other country that they can't learn from anyone else.
I guess a public transit system even in the rural South can't hurt.
You're lucky. I live in New Mexico, USA. The nearest gas station and small food-mart is 35 miles away, and the nearest fast-food greasy-spoon/WallyWorld (not that I use them, but they are in the nearest town with a population of more than 900 people) is over 60 miles away.