An awesome defense of Free Market Captialism..

[A2K78]

Once again, the awesome Walter Williams...

 

[Rallywagon]

Haha, so much fail in that video. First, its way way over simplifying the issues. It also completes misses on the fact that a free market is based on infinite resources, with no consideration for changes to the work force, mainly the replacement of general labor and such with machines and computers. Further, this guys notion of what brought down GM and Chrysler is quite at odds with what many other economists believe. That it wasn't crap cars that no one wanted, but rather that the cars were too reliable, mixed with a low dollar, made it so people either kept driving their old car, or bought used. Since then, both GM and Chrysler have paid off the moneys and then some the government used to bail them out.
Now, I will grant that those companies probably should have been left to fail, along with the banks that crashed out the economy. And I am not against capitalism altogether, just not a fan of its current form.

 

[TenEightyOne]

Another brain-spaff thread? How about a longer comment or introduction...?

 

[niky]

Mostly agree, but Rallywagon has a point. GM and Chrysler didn't fail because of product. They failed because of market conditions that had nothing to do with the product and everything to do with the bursting of an economic bubble created by subprime loans... loans which, ironically, were borne of an interaction of a poorly regulated financial market and government policies which forced financial institutions to lend to subprime clients.

 

[prisonermonkeys]

How about a longer comment or introduction...?

I think you answered your own question there:

Another brain-spaff thread?

 

[Johnnypenso]

Haha, so much fail in that video. First, its way way over simplifying the issues. It also completes misses on the fact that a free market is based on infinite resources, with no consideration for changes to the work force, mainly the replacement of general labor and such with machines and computers. Further, this guys notion of what brought down GM and Chrysler is quite at odds with what many other economists believe. That it wasn't crap cars that no one wanted, but rather that the cars were too reliable, mixed with a low dollar, made it so people either kept driving their old car, or bought used. Since then, both GM and Chrysler have paid off the moneys and then some the government used to bail them out.
Now, I will grant that those companies probably should have been left to fail, along with the banks that crashed out the economy. And I am not against capitalism altogether, just not a fan of its current form.

What form of capitalism are you a fan of?

 

[Danoff]

That it wasn't crap cars that no one wanted, but rather that the cars were too reliable

....

Hang on hang on.....

 

[Rallywagon]

laugh it up chuckles, If it weren't for the cash for clunkers thing that went on a about 10 years ago, there would still be too many 90's grand prix, grand ams and all the other cars that GM put the 3.1-3.8 v6s in. Jeeps with the V8 and inline 6, still see a lot of those on the road. And there are still a whole lot of early 2000's cars around. Mostly Fords and GM's but a lot of high mileage vehicles still on the road. In a weak economy, when people are worried about making mortgage payments, car companies are not going to get people to trade in and buy a new car. Only recently, have I noticed around my area of Lansing, that people have started buying new cars. But just take a drive, unless you roll in like Bloomfield or Gross Point, or whatever area is the rich one for you, chances are you will see far more used cars than new.
Johnny, I will get to your question when I have time. Your question, while a simple one liner, is not so simple of an answer and will take me more time than I have at work to answer.

 

[A2K78]

Mostly agree, but Rallywagon has a point. GM and Chrysler didn't fail because of product. They failed because of market conditions that had nothing to do with the product and everything to do with the bursting of an economic bubble created by subprime loans... loans which, ironically, were borne of an interaction of a poorly regulated financial market and government policies which forced financial institutions to lend to subprime clients.

The failure of GM and Chrysler(and Harley Davidson) had absolutely nothing do with the sub-prime loan issue as these companies was already being by Americans turning to foreign made cars and motorcycles in droves. To make things even worst these companies have been benefactors of protectionist tariffs....

http://www.cato.org/publications/commentary/big-threes-shameful-secret

 

[Danoff]

laugh it up chuckles, If it weren't for the cash for clunkers thing that went on a about 10 years ago, there would still be too many 90's grand prix, grand ams and all the other cars that GM put the 3.1-3.8 v6s in. Jeeps with the V8 and inline 6, still see a lot of those on the road. And there are still a whole lot of early 2000's cars around. Mostly Fords and GM's but a lot of high mileage vehicles still on the road. In a weak economy, when people are worried about making mortgage payments, car companies are not going to get people to trade in and buy a new car. Only recently, have I noticed around my area of Lansing, that people have started buying new cars. But just take a drive, unless you roll in like Bloomfield or Gross Point, or whatever area is the rich one for you, chances are you will see far more used cars than new.

Yup, pontiac, as a brand is known for being super reliable. The grand prix and grand ams especially are never complained bitterly about. Jeep is also a super-reliable brand that has never had any kind of manufacturing issues. Ford makes super dependable products too and Chrysler... my god. Chrysler is DEFINITELY not a company that I associate with being junk after, say, 60,000 miles.

You know what's a super reliable car from the 90s? A Honda civic. Those things never break... granted, they aren't the 1995 Chrysler Lebaron, which just runs and runs and is not at all junk yard material before it hits 6 figures. But the Civic isn't quick to break down, and that's why Honda has failed as a car company and is currently bankrupt. Their cars were too reliable, nobody would buy another one. People are constantly refusing to buy hondas because of how well their cars retain their value and how long you can keep them. It's a damned shame that Honda is bankrupt because of it.

One thing customers flock to is an unreliable car. Everyone I know who has bought a car that fell apart on them says "I need to go buy another one of those right away", and thus those companies make gobs of cash.

 

[niky]

The failure of GM and Chrysler(and Harley Davidson) had absolutely nothing do with the sub-prime loan issue as these companies was already being by Americans turning to foreign made cars and motorcycles in droves. To make things even worst these companies have been benefactors of protectionist tariffs....

http://www.cato.org/publications/commentary/big-threes-shameful-secret

You know how big auto works? Every company in the world relies on a strong domestic market and protective tarriff and non-tarriff barriers.

The Japanese rely on the Kei market, one which is impossible to penetrate, because regulations make Kei cars too small and too underpowered at too high a price to appeal to otherwise interested buyers elsewhere in the world. (ergo, if you develop a Kei, it ain't going to sell anywhere but Japan).

European and Asian markets are insulated from American markets due to displacement-based and straight emissions-based taxation. (as opposed to the tier-based US system)

India fosters a strong local industry through its lax regulations on safety and emissions. The best-selling car in India, the Maruti Alto, would be impossible to foist upon the EU. It's a zero star car in terms of safety.

The American "chicken tax" is no better or worse than any other market distorting measure. And, as noted, provides no benefit at all to domestics, since foreign makers already produce in the United States.


-


From a business point of view, the Chicken Tax is outdated and unnecessary. Not even the "Big Three" can sell the small pick-ups the rest of the world get... which is why Ford terminated the Ranger (which had more power and a higher profit margin, actually, than the global Ranger of the time). Only Nissan sells trucks remotely similar to those sold abroad (the US Colorado is significantly different from the international one), and that doesn't sell anywhere near as well as the big boys, even without the effects of the Chicken tax.

It's strange that the US doesn't drop it... because CAFE and CARB regulations already do a much better job of protecting the full-sized truck market. CAFE helped push the drive for bigger trucks in the US, as against international markets where taxation for economy follows a more linear progression. CARB works to keep cheap diesels out by being more unrealistically unfeasible than EURO regulations, which are already incredibly hard to meet.

So yeah, bad Big Three. Benefiting from a closed market that forces them to sell big trucks that they can't unload anywhere else in the world. Yippee.

-


Also, it might be tempting to look at a graph like this:

And say: "Hey, the Big Three were already dying off before the carmageddon, right? So subprime loans and the financial bubble weren't what killed them?"

Well, yes and no. Market share was shrinking, but volume was very high. And there were products in the pipeline... including the much-maligned Volt, which everyone forgets was already planned for production long before Obama... that would have possibly swung things the other way, including the new trucks that are now eating it up in terms of sales.

What's important is volume. Even if your share shrinks, as long as you have the volume of sales needed to pay the bills, you'll stay afloat. And what died off in 2008, thanks to the gigantic bubble bursting?

Right, volume. Not an auto-industry thing, started by the auto-industry, but a crash fueled in part by unchecked speculation and price-pumping in the petroleum industry and sub-prime loans (thanks in part to Misters Reagan, Bush, Clinton and co.) and reckless speculation and trading in such.

And this affected everyone.

Now, if the argument is that companies shouldn't have been bailed out... yes, I'm all for punishing proprietors of failed business models that depended on channel-stuffing, crazy rebate programs and unfeasibly long loan and lease periods (the last of which, even the Japanese are resorting to in order to maintain sales volume)... but to lay 2008-2009 at the feet of the Big Three is to completely misunderstand what happened in those years. It wasn't called "Carmageddon" for nothing. In fact, without the "Cash for Clunkers" program, it's likely those sales numbers would have been worse.

-----

TL;DR The poor showing of the Big Three can be in part blamed on a lack of competitiveness fostered by protectionism, but it's important to note that their competitors also benefit from strong home markets and protectionist policies in their home markets and core markets. Instead, the big problem with the Big Three is that US environmental and safety regulations have created a market that's vastly incompatible with the global market, making it unfeasible to sell many US-market cars overseas.

 

[1241Penguin]

Not everyone buys a new car only when their old one breaks down.

 

[Imari]

laugh it up chuckles, If it weren't for the cash for clunkers thing that went on a about 10 years ago, there would still be too many 90's grand prix, grand ams and all the other cars that GM put the 3.1-3.8 v6s in. Jeeps with the V8 and inline 6, still see a lot of those on the road. And there are still a whole lot of early 2000's cars around. Mostly Fords and GM's but a lot of high mileage vehicles still on the road. In a weak economy, when people are worried about making mortgage payments, car companies are not going to get people to trade in and buy a new car. Only recently, have I noticed around my area of Lansing, that people have started buying new cars. But just take a drive, unless you roll in like Bloomfield or Gross Point, or whatever area is the rich one for you, chances are you will see far more used cars than new.

And yet every other country that isn't flooded with super-reliable American vehicles has to deal with this all the time, because they only have real access to those dodgy Japanese and Euro brands.

Pull the other one.

 

[niky]

Domestic trucks and Japanese compacts basically last forever. In a market awash with reliable 100,000+ mile secondhands*, the bottom-end of the new car market is going to suffer. That's why nobody makes money off of small cars.

Instead, you've got to rely on the suckers who'll sell their souls for 84 month loans on cars they can't afford to take care of. The only thing preventing the auto loan sector from becoming the next subprime bubble is... uh...

Hell, I can't think of a single reason the current financing schemes won't backfire on the banks at some point.

-

*Actually, this was another hidden agenda of Cash For Clunkers... removing secondhands from the market permanently to help push the auto-market recovery into the years ahead.

Unfortunately, most of the cars that qualified as clunkers were cars nobody in their right mind would consider as an alternative to a new car.

 

[Imari]

Domestic trucks and Japanese compacts basically last forever.

Every car lasts basically forever, now that rusting to death isn't a thing any more. The only thing that stops them is that for the price of fixing your 1980 Corolla for the umpteenth time you could buy yourself a 2000 Corolla that doesn't need fixing straight away and is a better car to boot.

That, or hitting a tree.

The new car market has a pretty solid cap on it. There's only so many people willing to pay a premium for the absolute latest bells and whistles on a car, when everything 5 to 10 years old is perfectly fine and half the price or less.

Like you say, it's scarily analogous to the subprime bubble in that the way they've chosen to expand their market is by pushing loans on people that don't need them and can't afford them. Fortunately, losing your car isn't as devastating as losing your house. But depending on where you live, it hurts a lot.

 

[Rallywagon]

Just to clarify here a bit, my point isnt that America made the most cars back in the 90's and yearly 2000s. Its that they were reliable enough. Mixing in reliable imports only makes the market more awash with better used car options to buy in a weak economy. I dont care who's is more reliable, that is a different thread as far as I am concerned. for the point of this one, its enough that American cars, and imports, were reliable enough to hurt new car sales.

 

[Danoff]

Just to clarify here a bit, my point isnt that America made the most cars back in the 90's and yearly 2000s. Its that they were reliable enough. Mixing in reliable imports only makes the market more awash with better used car options to buy in a weak economy. I dont care who's is more reliable, that is a different thread as far as I am concerned. for the point of this one, its enough that American cars, and imports, were reliable enough to hurt new car sales.

Except your point doesn't make as much sense for domestic as it does for foreign... and yet somehow those companies didn't need bailouts... so... your point is wrong.

 

[Rallywagon]

Actually, as I linked, it was economists points that counter the first posts economists point. Also, it does stand, regardless of whos cars that were better. American car companies main market is America, when you do bad in your main market, that kinda stuff happens. I've also not said this is the only thing that caused GM and Chrysler to go bottom up, but just that the first economists notions were at odds with others. As for why others didnt need a bail out. Ford appears to have had better insight and planned accordingly. Foreign car companies I cant comment on because I live in the US and know the US economy, not Germany's, Japan's, India's or the UK's. Sorry, but I am a bit preoccupied with school, learning my job and life in general to look into those things.

 

[Johnnypenso]

Actually, as I linked, it was economists points that counter the first posts economists point. Also, it does stand, regardless of whos cars that were better. American car companies main market is America, when you do bad in your main market, that kinda stuff happens. I've also not said this is the only thing that caused GM and Chrysler to go bottom up, but just that the first economists notions were at odds with others. As for why others didnt need a bail out. Ford appears to have had better insight and planned accordingly. Foreign car companies I cant comment on because I live in the US and know the US economy, not Germany's, Japan's, India's or the UK's. Sorry, but I am a bit preoccupied with school, learning my job and life in general to look into those things.

Ford didn't get TARP bailout funds like GM and Chrysler but as I recall, they got somewhere around $20Billion in very low cost loans between Ford and Ford Credit from the U.S. gov't to get them through.

 

[Rallywagon]

Is there not a difference between a loan and bankruptcy bailout? Cause in the financial world I'm pretty sure there is...

 

[TenEightyOne]

Is there not a difference between a loan and bankruptcy bailout? Cause in the financial world I'm pretty sure there is...

And there's a difference between Section 11 Bankruptcy and full-on doors-shut bankruptcy.

I see this is another @A2K78 thread where he's spaffed an OP and then hasn't bothered returning to actually discuss anything, not even to correct the title to read "Capitalism".

 

[Johnnypenso]

Is there not a difference between a loan and bankruptcy bailout? Cause in the financial world I'm pretty sure there is...

Of course there's a difference but your words were, "As for why others didnt need a bail out. Ford appears to have had better insight and planned accordingly", which sort of implies that Ford didn't get any help from the feds, which they clearly did.

 

[Rallywagon]

I didn't imply any such thing, you simply are inferring it. I said they planned accordingly and saved themselves from needing a bail out.

 

[Johnnypenso]

I didn't imply any such thing, you simply are inferring it. I said they planned accordingly and saved themselves from needing a bail out.

But they did get bailed out, with $20 billion in low cost loans. They just didn't have to go through bankruptcy to get it. Had they not received the loans, they also might have gone bankrupt.

 

[Rallywagon]

Perhaps, but they didn't get bailed out. They, along with Nissan and Tesla, took advantage of loans The Gov. was giving out to push electric car tech. It says so quite clearly in that article I believe. To me, that is a business move to invest in future tech. Sure, it's timing is a great coincidence, and played to Fords favor, but I'm sure Chrysler and GM could have done the same.
Edit: I also am not so sure that they would have gone bankrupt. Just as the economy was starting to tank in the mid 2000s, Ford sold off Jag, Land Rover and Volvo. It sold back its shares of Mazda and closed the Mercury brand as well. It did a lot of other moves to save itself that GM didn't do, and Chrysler couldn't do.
To be honest, iI am really surprised Chrysler is still around. After the bad partnership between them and Diamler, it was a bit of a surprise to see Fiat buy them. Was not Fiat also in some similar straits as well?

 

[Johnnypenso]

Perhaps, but they didn't get bailed out. They, along with Nissan and Tesla, took advantage of loans The Gov. was giving out to push electric car tech. It says so quite clearly in that article I believe. To me, that is a business move to invest in future tech. Sure, it's timing is a great coincidence, and played to Fords favor, but I'm sure Chrysler and GM could have done the same.
Edit: I also am not so sure that they would have gone bankrupt. Just as the economy was starting to tank in the mid 2000s, Ford sold off Jag, Land Rover and Volvo. It sold back its shares of Mazda and closed the Mercury brand as well. It did a lot of other moves to save itself that GM didn't do, and Chrysler couldn't do.
To be honest, iI am really surprised Chrysler is still around. After the bad partnership between them and Diamler, it was a bit of a surprise to see Fiat buy them. Was not Fiat also in some similar straits as well?

Ford got $5.9Billion and the catch was they had to use it to develop more fuel efficient vehicles. That doesn't mean they had to spend all the money on that, nor that they wouldn't have done it anyway. They have no choice as fleet gas mileage is government mandated no? The rest of the money, $15.9Billion went to Ford Motor Credit and doesn't appear to be tied to anything, just funds to get them through a rough patch. Either way, they received over $20Billion from the U.S. government with sweetheart conditions and borrowing rates. It's just a bailout by another name.

 

[Rallywagon]

Can you actually cite this figure outside of that one article? I see Ford getting 5.9 billion for electric car research, and I see they took out a 23 billion bank loan. That would be far far different than a tax money paid loan.
Edit: I'm actually finding a lot of conflicting info on the numbers to be honest. Even the numbers Forbes put out are completely at odds with other numbers in their review of the situation.

 

[TenEightyOne]

Ford got $5.9Billion and the catch was they had to use it to develop more fuel efficient vehicles. That doesn't mean they had to spend all the money on that, nor that they wouldn't have done it anyway. They have no choice as fleet gas mileage is government mandated no? The rest of the money, $15.9Billion went to Ford Motor Credit and doesn't appear to be tied to anything, just funds to get them through a rough patch. Either way, they received over $20Billion from the U.S. government with sweetheart conditions and borrowing rates. It's just a bailout by another name.

It's a bailout-by-another-name if you can show that there wasn't enough capital or cash in the business to allow it to fulfil its debts and liabilities. Otherwise you could equally say that a bailout is a loan when in fact it isn't, there's a clear legal (per-territory) precedent for what it actually is.

 

[DK]

I wonder if A2K78 will do a Christmas-themed O&CE thread about how "A Christmas Carol" is Marxist propaganda or something like that.

 

[Johnnypenso]

It's a bailout-by-another-name if you can show that there wasn't enough capital or cash in the business to allow it to fulfil its debts and liabilities. Otherwise you could equally say that a bailout is a loan when in fact it isn't, there's a clear legal (per-territory) precedent for what it actually is.

Your link characterizes various themes of bailouts in recent history including:

• Central banks provide loans to help the system cope with liquidity concerns, where banks are unable or unwilling to provide loans to businesses or individuals. Lending into illiquidity, but not insolvency, was articulated at least as early as 1873, in Lombard Street, A Description of the Money Market, by Walter Bagehot.

and...

However, the company’s president and CEO testified that his company would suffer if Congress did not pass legislation to provide financial support to the ailing auto industry. He urged Congress to pass the bill.

Mulally, Dec. 5, 2008: In particular, the collapse of one or both of our domestic competitors would threaten Ford because we have 80 percent overlap in supplier networks and nearly 25 percent of Ford’s top dealers also own GM and Chrysler franchises.

He also asked Congress to authorize a credit line of up to $9 billion for Ford in case the economy got worse and the company needed it.

Mulally, Dec. 5, 2008: In addition to our plan, we are also here today to request support for the industry. In the near-term, Ford does not require access to a government bridge loan. However, we request a credit line of $9 billion as a critical backstop or safeguard against worsening conditions as we drive transformational change in our company.

Source

Of course this is all in addition to the cash for clunkers program which benefited all automakers to a small degree and is by itself, a form of bailout.