There are still so many dimensions on which to oppose a taxpayer-funded bailout of the U.S. auto industry, the mind boggles … let’s start here: this Wall Street Journal article summarizes the current proposal from the “Big Three” U.S. auto manufacturers. This article provides a very useful set of facts about November vehicle sales relative to November 2007, for all auto manufacturers. Some results:
U.S. new-vehicle sales fell 37% in November to 746,789, according to Autodata Inc. It was the first time in decades that monthly sales fell below 800,000. The closely watched seasonally adjusted annualized sales rate was 10.18 million vehicles, a worse-than-expected drop from October’s 10.8 million.
GM’s sales fell 41%, Ford’s 30% and Chrysler’s 47%. Foreign auto makers were hit hard, too. Toyota Motor Corp.’s U.S. sales fell 34% and Honda Motor Co.’s 31%.
The decline in Toyota’s and Honda’s sales are extremely significant in this instance, because they have the largest market shares of the import companies and they have a substantial domestic manufacturing presence. If you would like to analyze the data for yourself, they are available at Autodata’s Motor Intelligence (Excel file). Looking at those data shows large declines for non-U.S. manufacturers as well; these data are presented from largest sales volumes to smallest sales volumes:
- Nissan -42.2%
- Volkswagen -21.5%
- Hyundai -39.7%
- BMW -26.7%
- Kia -37.2%
- Daimler AG -30.0%
- Mazda -31.3%
There are more, but you get the point. Two things to note here:
First, the reduction in new vehicle sales is spread across the whole industry, and the only sense in which U.S. auto manufacturers are feeling a disproportionate share of the decline is the fact that (despite the rhetoric about their inability to design cars people want to buy) the three of them comprise about half of the market. Despite this fact, I still argue as I did back in November that the business models of the U.S. auto industry (and the UAW) are obsolete and unsustainable, and that the best thing that could happen for the long-term health of the U.S. auto industry would be expedited bankruptcy and generous unemployment, education, and relocation grants for employees.
Two, the root cause of this particularly dramatic and widespread decline is the changes in the underlying credit markets, with overextended borrowers and seriously constrained lenders. The only way that a U.S. auto bailout could contribute to alleviating this problem is because it would artificially maintain the solvency of auto workers who might not otherwise be able to buy a new car. That benefit strikes me as a drop in the bucket, and not worth an additional taxpayer liability of $34 billion.
Another dominant meme in the “Big Three” rhetoric is the “bankruptcy is not an option” language. At first GM’s Rick Wagoner offered it as an absolute, without providing any reason to substantiate his assertion. At least today the rhetoric is expanding to “bankruptcy is not an option because people will stop buying our cars, which will exacerbate the downturn.” I fail to see the logic in that claim. Bankruptcy does not mean that the assets of the organization will evaporate, but it does create an avenue through which those assets can be put to better use than they have been in their current situation. The nameplates may change, although if there’s any brand capital or any goodwill on the books in the GM, Ford, and Chrysler names, they will survive. If existing customers have warranties that have not expired, whoever buys the firm’s assets will have a responsibility to honor those warranties. If there is value in the supplier/OEM contracts, they will survive.
The arguments of the “Big Three” U.S. manufacturers have failed to persuade me that using the future resources of future taxpayers to perpetuate their obsolete and unsustainable business models is a reasonable way to spend those resources. The data continue to suggest that Shika Dalmia’s article at Reason yesterday got it right:
“There is no point in using taxpayer money to postpone the inevitable.”