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It’s really turning into the pickup season.  Ford just introduced a new version of the F-150, the best-selling vehicle in the US for a million years; Chevrolet just announced pricing for the Silverado Hybrid; and Dodge just introduced the new Ram pickup.  It’s like Christmas for truck buyers.

2009 Dodge Ram Laramie

2009 Dodge Ram Laramie

The 2009 Dodge Ram came out first, sporting a new, more sophisticated look and a host of new features.  The new look that hits you first (maybe literally, but I hope not) is the grille.  It has a forward-leaning top edge, similar to the Dodge Charger.  Other exterior changes are even more subtle, but give the big pickup a more aggressive and larger appearance.  If you’re not into studying the details, you will not even notice the difference.  The Ram also (finally!) has a true crew cab configuration.  They’ve been getting by for a few years with a crew cab wanna-be called the quad cab.  It has 4 front-hinged doors, but the rear doors are smaller than a true crew cab’s, so the addition of the crew cab will certainly be welcomed by dealers and customers.  The most interesting and innovative, though, is the RamBox cargo management system (available on the crew cab) includes weatherproof, lockable, illuminated and drainable storage bins built into bed rails.  RamBox bins hold up to 10 cases of 12-ounce “beverages”.

The interior sports significantly ugraded look and materials.  The most obvious change is the new floor console with the shifter moved from the steering column.  Other interior changes are “store in the floor” storage bins with removable liners, large enough for ten 12-ounce beverages and ice, heated and ventilated front seats (heated rear seats also available), heated steering wheel, live SIRIUS Backseat TV™ and surround-sound audio system.

Under the hood, the new Ram has improved, but carryover engines, including the 3.7L V6, 4.7L V8 and 5.7L Hemi V8.  Both V8s have increased power, torque and fuel economy.

Also just introduced is the new 2009 Chevy Silverado Hybrid pickup.  The starting price is $38,995, including destination charges, but not including the $2200 federal tax credit.  Production will begin in December, arriving in dealerships in “early 2009”, according to Chevrolet.  The Silverado uses GM’s two-mode hybrid system, and delivers 21 mpg in the city, 22 on the highway for the 2WD models.  4WD models get 20 city and highway.  These numbers are 40% better in the city and 25% overall.  The hybrid can still tow up to 6100 lbs and can drive in electric-only mode up to 30mph.  It’s available as a crew cab only.

2009 Ford F-150 XLT

2009 Ford F-150 XLT

The 2009 Ford F-150 is all-new as well.  The new styling mimics the F-150’s big brother, the Super Duty, with the 3 bar chrome grille and headlamps.  It also has the tailgate step bar from the Super Duty.  With 3 cab styles, 4 box options and 7 unique trim levels, the F-150 comes in 35 different configurations.  The new top trim level, the Platinum, was created when the Lincoln Mark LT was cancelled late in the program.  They had already engineered the luxury truck, so why not use it?  Ford claims it maintains its lead as the most capable pickup on the market, delivering towing capability of 11,300 pounds across all cab configurations and payload of 3,030 pounds.  The SuperCrew model has increased interior space due to a 6″ stretch over last year’s model.  The F-150 also benefits from a better sound management package, making it much quieter inside.  Under the hood, the F-150 no longer offers a V6 entry-level engine; the 4.6L 2V V8 is the base engine – but it offers better power for the same fuel economy as the 2008 V6 (14/19).  The next step up is a 3V version of the 4.6L V8, giving more power and better fuel economy than the 2V (15/20).  The top engine is the 5.4L V8, which has more power and torque, with 12% better fuel economy than 2008.  The F-150 also comes with a full complement of safety equipment, including AdvanceTrac® with RSC®; ABS;

2009 F-150 SFE

2009 F-150 SFE

Safety Canopy® side curtain air bags with roll-fold technology for enhanced head protection in rollovers and side impacts; front seat-mounted side air bags; Personal Safety System®; and new seats and restraints.  The F-150 includes many other new features including the box side step, EasyFuel Capless Fuel-Filler System, Advance Trac with Roll Stability Control, trailer sway control, integrated trailer brake control, reverse camera and Ford’s SYNC system.

With all of these new choices, and gas prices down so significantly, maybe these new trucks will be successful for their makers.  With all of the bad news coming out of Detroit and Washington, some good news would be a welcome change.  So drive on down to your local truck dealer – and don’t forget your belt buckle.

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Panic in Detroit?

25th November 2008

The North American International Auto Show (NAIAS), held each January in Detroit, has experienced growing pains over the years.  The constant complaint from the manufacturers has been that Cobo Hall is too small, that they need more space to show their cars and trucks, etc.  Government officials from all levels of government in Michigan have weighed in, from the Detroit City Council to the various mayors in and around Detroit, to county executives, to the state legislature and the governor have tried to come up with a plan to address this.  Should be relatively simple you think?  Wrong.  Michigan politics is a unique beast – one not easily tamed.  The City of Detroit owns Cobo Center, so they should be the ones to pay for an expansion? Detroit has no money, though.  Maybe Wayne County or the state?  Maybe surrounding counties, as they will surely benefit from the high-profile conventions that a new Cobo could attract?  They all have a stake in the success of NAIAS and the Detroit, but they are unwilling to help pay for more than what they deem as their fair share.  Stalemate for years has ensued.  Proposals have come and gone, but nothing has been done.

Now a short-term solution has come out of nowhere, from the same place as our new-found cheap gas.  The economic slowdown gripping the nation has made gas prices fall – and the debate over Cobo’s expansion moot.  Just announced today – Nissan will join the growing list of automakers that will not be showing their wares at NAIAS this January.  That list includes Porsche, Rolls Royce, Land Rover, Ferrari, Suzuki, Mitsubishi and now Nissan and Infiniti.  The last 3 are the ones that really start to hurt NAIAS.  They are the biggest of the dropouts, in floor space terms – especially Nissan.  Nissan also announced it will not participate in the Chicago Auto Show in February either.  Their statement said it has nothing to do with the shows themselves, but with a need to save cash.  They also stated that they showed all they needed in the LA show, which opened on November 21.  See the LA Auto Show story elsewhere on The Slandy Report.

So the silver lining inthe dark cloud of NAIAS dropouts is that it should put to bed, at least for a short time, the Panic in Detroit over Cobo’s floor space.

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2008 LA Auto Show

23rd November 2008

Well, the LA Auto Show has begun, or as we like to call it in Detroit – that auto show that got scared of Detroit and moved to November.  There are lots of goodies to see at LAAS, including concept cars and world debuts.  Here’s a brief look at what’s what:

2010 Ford Fusion & Mercury Milan Hybrid – Ford, which is in trouble along with the rest of the domestic auto industry, has taken the wraps off the substantially revised 2010 models, along with new hybrid versions.  The hybrids will get up to 39 MPG in the city – 6 more than the Camry hybrid – and will be capable of up to 47 MPH in electric-only mode.  Production is to begin next month, with sales beginning in the spring.  No word yet on pricing.  The “regular” Fusion and Milan models get a larger, more powerful I4 base engine, a more powerful V6 that also gets better fuel economy, and a new option – the same 3.5L V6 from the Edge, Flex, etc.  It will power the new Fusion Sport with 263 horsepower and 249 pound-feet of torque.  Ford insiders have told me that the V6 models will still not have a manual.  Darn.

2010 Ford Mustang – the iconic pony car sports a revised, more sculpted look at the front and rear, but the casual observer might not notice the difference.  Gear heads and other auto enthusiasts will.  The Mustang also has a revised interior, the most obvious of which is the center stack area, which now accommodates a navigation screen and Microsoft’s Sync system, now in its 2nd generation.  Under the hood, both the V6 and V8 engines will have better power and fuel economy, though final numbers are not available yet.

2010 Lincoln MKZ – revised exterior to look more like the stunning MKS flagship and an updated interior as well.  The MKZ also gets the 3.5L with 263 horsepower, like its Fusion and Milan cousins.

2010 Mazda3 – the wonderful Mazda3 gets a new look, which is both aggressive and odd.  The revised front end looks like the car has a big, silly grin on its face.  Like it’s up to something.  It will be powered by either a 2.0L I4 (140hp) or a 2.5L I4 (170hp).  New features include Bluetooth, navigation and steering-adjusted xenon headlamps.

Chrysler is showing a trio of electric vehicles that they introduced a few weeks ago.  They include an electric Town & Country minivan, a Dodge EV sports car and the Dodge ZEO that was first shown at the Detroit show early this year.  The idea that Chrysler will be able to introduce these cars in the timeframe announced seems folly, as GM has a significant head start in developing this new type of propulsion, and they are still 2 years away from production.

MINI E – MINI will introduce a full electric car and deploy a fleet of 500 units for consumers to use in daily driving.  This makes MINI the 1st automaker to develop an electric since GM’s EV1.  The MINI E will have a range of 156 miles (250 km) and a top speed of 95 mph (152 kph).  It will be available in California, New York and New Jersey only.

Infiniti G37 Convertible – the Infiniti G gets a convertible for the first time, a 3-piece hardtop.  It will have the 3.7L V6 already in the coupe, making 328 hp.

2009 Nissan Cube – Nissan will bring the Cube to the US, as expected.  Nissan calls its look a “bulldog with sunglasses”, but you can think of it as a Scion xB.  Nissan has long marketed the Cube in other markets, but will now sell it in the US as well.

2010 Porsche Boxster/Cayman – even though Porsche insists these are 2 separate cars, we all really know better.  The 2 cars presently have the same engines, but those will diverge slightly when the 2010 models debut.  The base engines will increase in size from 2.7L to 2.9L, and will have increased power, however the increase will be greater in the Cayman.  Both receive a power increase in the “S” models as well, but, again, the Cayman’s increase is more.

BMW 7-Series – the big BMW gets a freshened look for its 5th generation.  It goes on sale this spring.  It sports a new 4.4-liter, twin-turbo V-8 that delivers 400 hp and 450lb-ft of torque.  The technology on this car could take up a whole book – active cruise control, lane departure warning, active blind spot detection, head-up display, high-beam assistant, night vision with pedestrian detection, sideview and backup cameras, and integral active steering (rear-wheel steering assist).  Wow, that’s a mouthful.

2010 Lexus RX 350/RX 450h – the original luxury crossover gets a revised look for the 2010 model year.  Both the gas version and the hybrid receive a shot of more power.  Both use the 3.5L V6 now (the hybrid was still using the 3.3L V6), so the hybrid’s increase is greater than the gas engine.  The gas engine also gets a 6-speed transmission, up from 5, while the hybrid continues with a CVT.  The wheelbase is longer, but the overall length is shorter, which should improve stability.  The RX 350 goes on sale in February, while the hybrid waits until spring.

Lexus IS Convertible – Lexus introduced this new hardtop convertible at the Paris Auto Show in October.  Designated IS 250C and IS 350C, the new convertible is a 3-piece unit that opens in 21 seconds.  The sound system has an equalizer-tuning feature that provides consistent audio whether the top is up or down, and it also automatically adapts to the natural loss of bass when the top is down.  To address the natural difficulty of getting in and out of the backseat, Lexus increased the length of the doors 11.8″ over the sedan and added a new one-touch automatic mechanism that provides a quick-acting, front-seat fold-and-slide activation.

2010 Kia Soul – this is a tough one to categorize.  It’s a bit like a small crossover, a bit like the Nissan Cube/Scion xB, and a whole lot of fugly.  My son thinks it’s pretty cool, though.  So maybe I just don’t get it.  Michael Sprague, VP of marketing for Kia says, ““The Soul is for those who love individuality but don’t like to be categorized by finding the next best thing…for those looking for something with a little more personality than other vehicles on the market today.”  It will be available is 4 trim levels: Soul, Soul+, Soul! and Soul sport.  Available engines are a 1.6L or a 2.0L 4 cylinder.

Honda Insight – the Insight was the first hybrid available in the US market.  It was a very small 2-seater that got great fuel economy, but had too many compromises to be successful in the US.  Now comes a new version that will seat 5, have reasonable power, be less expensive and get better fuel economy than the Toyota Prius.  It also look a lot like a Prius.  The car shown in LA is considered a concept, but look for the real one to be very much the same.  The real one goes on sale Spring, 2009.

VW Touareg – VW is showing its new Touareg V6 TDI, with a 50-state compliant DIesel engine.  It is powered by a 3.0L, turbocharged six cylinder engine producing 221 horsepower and 407 lb-ft. of torque.

Audi A6 – not much new here, except a new supercharged V6 engine, making 286 horsepower.  It also has some subtle styling changes.

2009 Ferrari California – despite sharing the name with a Ferrari from the 60’s, this is an all-new Ferrari model.  It sports a direct-injection V8 mounted in the front of the car (a first for Ferrari) that produces 460 horsepower, propelling the car from 0-60 mph in less than 4 seconds.  Can you buy one?  If you’re getting some of the $700 billion, and $250K is burning a hole in your wallet – you’ll still have to wait, as the 2010 model year is sold out.  2011 isn’t very long to wait, is it?

If any of you LA readers would like to share your comments on the show, please click on Comments, below.  Thanks for sharing your views with other readers of The Slandy Report.

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Senator Carl Levin, D-MI, testified this morning on the dire need for the bridge LOANS (not bailout) that the D3 need.  Here are some comments from the senator.  Note that he corroborates the point I made regarding the unlevel playing field with respect to foreign governments aiding their domestic manufacturing, especially automakers.  The rest of this article is a quote from Senator Levin’s office:

Immediate support is needed to shore up our automotive manufacturing sector and to preserve the more than 2.5 million jobs directly and indirectly linked to the U.S. auto industry. This morning, I testified in front of the House Financial Services Committee to emphasize the need for Congress to take swift action on behalf of our nation’s automakers. Standing idly by as the financial crisis decimates our domestic manufacturing capabilities and pulls our fragile economy further into recession is unacceptable.

Throughout the world, the dire financial crisis continues to spur governments to provide assistance to their manufacturing industries, which are not able to obtain the credit they so vitally need to continue operations. Both Germany and the European Union are studying the possibility of providing support for their automotive industries. Australia has provided more than $4 billion in funding for its vehicle manufacturers.  Automotive manufacturers in China are already voicing their expectation of financial assistance from their government as well. “The Chinese government will undoubtedly support us,” says She Cairong, general manager of JAC
Motors, a Chinese automobile manufacturer. This quote appeared in a New York Times article this morning, highlighting China’s consideration of a plan to provide assistance to its domestic automobile companies.

The spotlight is now focused on Congress, which is considering the possibility of rescuing the industry from an economic downturn not of its own making. President-elect Obama has called the U.S. auto industry “the
backbone of American manufacturing” and said that the failure of our domestic automakers would be “a disaster” for our economy. President Bush, Speaker Pelosi, and both the Majority and Minority Leaders of the Senate agree that bridge loans for our domestic automakers are necessary at this time. I will continue to work with my colleagues in the Senate and the Congressional Leadership to come up with a plan that would provide auto manufacturers with the bridge loans they need to weather this financial storm.

You can read the transcript of my testimony before the House Financial Services Committee by clicking on the following link: [http://levin.senate.gov/newsroom/release.cfm?id=305099]. During these difficult times, I am doing everything within my power to convince the Congress to provide the bridge loans for the domestic auto industry that the President, the President-elect and the leaders from both houses of Congress support.
Sincerely,
Carl Levin

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Ford and GM separately announced today that they have sold stakes in Mazda and Suzuki, respectively.

Ford said it plans to sell over 60% of its holding in Mazda, reducing its ownership from 33.4% to just over 13%.  Ford has held an interest in Mazda for almost 30 years.  Both companies said that their relationship will not change, and that they plan to continue all of their joint projects and sharing of platforms and powertrains.  Ford will sell the shares back to Mazda and to a group of Mazda’s business partners.  The partners were not named.  Ford expects to net $540 million from the sale.  Ford has long held slightly more than one-third of Mazda, which defines a controlling interest under Japanese law (I guess unless somebody else has a stake even bigger).  For many years, Ford has given its managers international experience by rotating them through positions at Mazda, including present Ford Executive VPs Mark Fields and Lewis Booth.  They have gained valuable experience there.  One wonders if that type of experience will still be available to Ford’s managers in the future.

GM will sell all of its 3% stake in Suzuki, but also says that its relationship will not change.  GM will sell the shares on the open market, and expects to receive $230 million.  GM’s announcement also states that the parties agreed that GM will be able to repurchase its stake in the future if it chooses.  Here, I wonder what GM would use to buy shares in anything.  It doesn’t have any money!

Obviously, GM and Ford are making these moves in an effort to raise as much cash as they can to help fund their operations.  Today’s hearings on the hill did not go well for the automakers, and the gods of the Potomac do not seem inclined to bestow upon their automotive subjects any favors.  I sure hope that they can find some other way to stay afloat until the economy recovers, or we’ll all be in trouble.  Yes, that includes you.

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There have been many in the last few weeks who have openly cheered the impending collapse of the Detroit 3 (D3) and have stated that we would all be better off if they simply went away and left us all alone.  One of the more prominent has been an opinion piece in Saturday’s Wall Street Journal, written by David Yermack, a finance professor at New York University.  Among other points, he states, “Today, our government is being asked to put tens of billions of dollars in GM, Ford and Chrysler, but we would be much better off if Washington allowed these companies to go bankrupt and disappear.”  Mr. Yermack’s piece is so full of inaccuracies that it would be difficult to list them all.  But I think it would be helpful to discuss with real facts, what’s going on here.

How did the D3 get into this situation?  The reasons are long and varied, but the talking heads will tell you that bad products and resistance to fuel economy standards.  Let’s talk about each of these.

Products While I will never say that the D3 haven’t made more than their share of bonehead decisions and bad cars, most of that is in the past.  Today, although Chrysler lags, GM’s and Ford’s quality is every bit as good as anybody else’s.  While measuring vehicle quality is much more complicated than it may seem, J.D. Power publishes a report called the “Initial Quality Study” (IQS) each year.  It is widely regarded as the most definitive study of vehicle quality.  So what does JDP say?  While the top 5 spots are indeed occupied by foreign brands, most of the remaining spots rated better than average are American brands.  J.D. Power rates 16 brands better than average – 7 American, 4 European, 4 Japanese and 1 Korean.  But there are so many more American brands, you say, so that means nothing.  OK, what about those worse than average?  There are 20 worse than average – 6 American, 6 European, 7 Japanese and 1 Korean.  54% of the American brands are better than average, compared to 50% of Korean, 40% of European and 36% of Japanese.  Even if you include GM’s and Ford’s foreign brands in their totals, 47% of the American brands are better than average – still better than the Japanese manufacturers.  The same details by manufacturer are in the table below.  As for individual nameplates, Power rated the Chevrolet Malibu the highest-quality midsize sedan.  Both the Malibu and Ford Fusion scored better than the Honda Accord and Toyota Camry.  In the compact car segment, the top 2 cars are Japanese, but so are the bottom 2.  In large pickups, Power rated the Chevy Silverado the highest quality, ahead of the Toyota Tundra.  The Nissan Titan was last.  While there are nuances to all of this, and you can make statistics say whatever you want, this shows that it is absolutely incorrect to say that “foreign” cars are any better than American.

Maybe you don’t know about JD Power, and don’t care what they say.  OK, how about Consumer Reports?  Consumer Reports recently found that “Ford’s reliability is now on par with good Japanese automakers.”  Notice they said “good Japanese automakers.”  That means that it is just as wrong to say that all Japanese cars are good as it is to say that all American cars are bad.  You can get a bad Japanese car or a good one – the same as American cars.

The D3 are also no less efficient in their operations than the foreign makers.  According to the 2008 Harbour Report (again, the most respected study of manufacturing efficiency), the D3 “nearly erased the productivity deficit against their Japan-based competitors, despite declining production and shrinking market share.”  Chrysler’s labor hours per vehicle are equal to Toyota, GM recorded its 15th consecutive improvement, and Ford reduced its labor content per vehicle by 3.7%, despite producing 6% fewer vehicles than in 2006.  Ron Harbour stated, “Improving productivity in the face of lower production is a huge accomplishment, especially with the pressures created by rising gas prices.”  So, apparently, manufacturing efficiency isn’t the issue, either.

OK, but they build only gas-guzzling behemoths, right?  Wrong.  This one will surely surprise you (it surprised me when I looked up the figures).  In nearly every vehicle category, a D3 product has the best fuel economy.  Without boring you with lots of numbers and details, just look at this table:

Source: 2009 Fuel Economy Guide (www.fueleconomy.gov)

Source: 2009 Fuel Economy Guide (www.fueleconomy.gov)

Fuel Economy Standards This topic is tied up with overall government regulation and policy, so I will include those in this discussion.  The Corporate Average Fuel Economy (CAFE) legislation was enacted in the aftermath of the first energy crisis as a way to reduce our dependence on foreign oil.  We imported 35% of our oil in 1974, and this has increased to over 65% today.  The problems with CAFE are numerous, but for purposes of this discussion, I will focus on one.  CAFE takes a laudable goal – reducing our use and import of oil – and places its burden upon the manufacturers, not the consumers.  Auto manufacturers are forced to sell the more economical vehicles in sufficient numbers to offset the sale of the less economical vehicles.  But what if consumers don’t want the more economical vehicles?  Tough.  CAFE says you have to average a certain level of fuel economy regardless of what the consumers want.  Until this past summer, almost nobody wanted the vehicles with higher MPG, because gas has been so cheap – the cheapest in the industrial world.  The home markets of the foreign automakers place heavy taxes on gas to encourage the purchase of fuel-efficient vehicles.  Our government tells the producers what to sell.  Because of this difference, the foreign automakers have a built-in advantage.  They make smaller, more efficient vehicles for their home markets, because that’s what the consumers want there.  They have developed the expertise in small vehicles for many years.  Consumers also want smaller cars there because their home markets have less parking and have tighter roads.  US consumers want a vehicle that is comfortable to drive several hundred miles or more on vacation.  Our society is simply different that those others, and so therefore are our automakers.  Back to gas prices, though.  Do you think it’s a coincidence that sales of small cars went from 16.6% of the US market in 2007 to 23.9% this past spring (May – July)?  Hardly.  Consumers bought the more fuel-efficient vehicles because it made sense for them.  CAFE, by keeping fuel prices low, actually encourages more consumption and therefore defeats the purpose.  If we as a society want to use less fuel, CAFE is the exact opposite way to accomplish it.  The summer of 2008 saw a major and sudden shift to more fuel-efficient vehicles for those needing to buy a new vehicle and a marked reduction in driving for everybody.  This proves that they way to reduce consumption is to raise the price.  This is classic (and simple) supply and demand.  Our government needs to scrap CAFE because it simply doesn’t work.  Such disparate sources as the National Center for Policy Analysis and Popular Mechanics agree. The better and more effective solution is a higher gas tax, either a $/gallon or a floor on prices (which is used in Europe).

The other part of the government’s role in this mess is in trade policy.  The home markets of the foreign makers, especially Japan and Korea, actively support their industries, especially the auto industry.  They do this through trade barriers and the funding of collaborative research.  The trade barriers have a two-pronged effect.  First, there is no real opportunity for foreign makers to penetrate these markets in any significant numbers, regardless of how good the products are.  This results in the second issue.  Their closed home market provides unreasonable profits that they plow back into new and better products, processes and factories.  While I am a strong proponent of free trade, the rest of the world is using us (and our free-market nature) to take advantage of us.  Fair trade is a better policy unless and until the rest of the world joins us on the free trade side.  The US government should immediately change our policy to be reciprocal with all of our trading partners.  We should exactly match any and all trade barriers placed upon our products overseas.  If they relax their barriers, so would we.  It’s time we stopped being the world’s punching bag and started supporting our home industries – of all varieties.

Tax policy is also part of the equation here.  The Tax Code allows a write-off for SUVs that weigh over 6000 lbs.  This is a provision that was intended to allow farmers and other businesses to afford to buy new trucks for their businesses.  Including the 6000-lb. floor was intended to make sure people weren’t buying the vehicles for personal use.  then came the monster luxury SUVs.  People (and their accountants) quickly figured out that they could buy an Excursion or a Hummer and write off the whole thing in the year of purchase, saving them thousands.  Like CAFE, Congress made a law that had good intentions, but had bad side effects.

OK, now what?

So given all that, what should we do now?  Are the talking heads right, would we be better off without the D3?  It depends upon your definition of “better”.  The Center for Automotive Research (CAR) in Ann Arbor, Michigan published a study earlier this month that examines the doomsday scenario that so many would be happy to see.  I wrote about that study a week ago, but here is the summary in a nutshell.  If the D3 were to shut their doors tomorrow, the US economy would lose 3 MILLION jobs in the first year – “only” 240,000 of which are direct employees of the D3.  Why?  The auto industry has one of the largest economic multipliers in the US economy (this means that each automotive job supports more spin-off jobs than those in other industries).  Some of those 3 million lost jobs would be offset eventually by other automakers and some employees finding new work, but it would still be 1.8 million after 3 years.  The total loss of tax revenue for the government would be $156 billion over 3 years.  Doesn’t that sound a little better than the $25 loan that the D3 are requesting?  The auto industry is somewhat a victim of over-regulation and misconception and supports 3 million jobs.  The loan would include significant oversight.  This sounds better than a $700+ billion blank check for a financial services sector that is largely a victim of its own greed?

Lastly, we cannot forget national security in these dangerous times.  Our manufacturing base will be vital in the case of a future war.  Should we depend on foreign companies to supply us with tanks, planes and other needs in the event of war?  Or should we do all we can to keep that kind of expertise here at home?  The Detroit automakers converted their factories to producing war materials in World War II.  Without them, the outcome may have been very different.

The Detroit 3 have made their share of mistakes, but the present situation is not completely of their own doing.  The government should place whatever reasonable restrictions are necessary, but we cannot let our auto industry die.  They’ll take our way of life and our standard of living with them.

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The recent stock market decline, mortgage / credit crisis and gas price increase (the recent decline notwithstanding) have had a dramatic effect on the auto industry and the “Detroit 3” in particular.  Total industry sales fell 32% in October to 838,592 – the lowest level in 25 years.  General Motors’ sales were down 45%, Chrysler’s 35% and Ford 32% – overall the D3 were down over 250,000 units for the month or 39%.  They have met with congressional leaders asking for a cash infusion of up to $50 billion – yes, with a “B”.  It may take the form of low-interest loans, a government “investment” or a simple bailout a la Wall Street’s.  GMAC may convert itself into a bank to be eligible for part of the $700+ billion bailout.  GM and Chrysler’s parent, Cerberus, have been discussing a GM takeover of Chrysler.  Desperate times, indeed, are apparently calling for desperate measures.  Many voices from around the country have been critical of any help from the government.  At first, many in Congress and the Bush administration voiced the opinion that Detroit’s failed decisions should not be rewarded with taxpayer money.  When businesses make bad decisions, that can and should lead to that business’s failure, the thinking goes.  That’s capitalism.  Sometimes it doesn’t seem right, and sometimes it hurts.  But capitalism results in the most efficient allocation of scarce resources, and it works, ultimately, to the benefit of our society.

But what happens if the economy isn’t pure capitalism?  What if the government, in the interest of society, regulates this business and forces its costs higher?  What if the government policies lead to the evaporation of the credit that is required for its industry to function?  What if the government’s lack of an energy policy has led consumers to value gas-guzzling behemoths until a gas shock makes the bottom fall out?  What if the government’s lack of a coherent trade policy allows foreign competitors to have an unnatural advantage over the domestic industry?  Then the government must acknowledge its complicity in the situation and do something about it.

“Too big to fail” is a phrase we have heard often in the last few months.  AIG, Lehman Brothers (what happened to Shearson?)  and others were bailed out recently using this logic.  Some seem to think that GM, Ford and Chrysler are not too big to fail.  The reasons are too numerous to go into here, but include the lack of a trade policy mentioned above, and our national attitudes of “Who cares?” and “Whatever.”

The Center for Automotive Research (CAR) in Ann Arbor, Michigan published a study on Election Day called, “The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers”.  They looked at 2 scenarios: 1. the impact of all 3 domestic automakers ceasing operations in the U.S. and 2. a 50% reduction in all production and employment in the U.S.  CAR states that, given current circumstances, one of these scenarios is “probable” in the next 12 months.  The impact of either of the scenarios is devastating to the U.S. economy, as not only would the domestic automakers suffer, but so would the foreign makers.  The domestic supply base would crumble without the domestics as customers, so they would also be unable to supply the foreign makers here in the US.  Domestic production would fall to ZERO, and all of the nation’s auto needs would have to be supplied by imports.  Production of the foreign automakers would recover by the third year, and would make up for about 20% of the domestic makers’ lost production.

Scenario 1 results in a loss of 3 million jobs in the US in the first year, recovering somewhat to a loss of “only” 1.8 million in the third year.  This includes all supplier and “spin off” employment.  In economic terms, the cumulative effect for the 3 years studied would be a loss of $400 billion in personal income and a loss of $156 billion in tax revenue.  Scenario 2’s numbers are hardly encouraging either.  The year 1 job loss is 2.5 million, recovering to 1 million in  year 3.  The personal income loss totals $275 billion and the tax revenue loss is $108 billion for the three years.

Think that’s bad?  The study only considers the direct impact to the US economy.  A permanent contraction of the US auto industry would impact the Canadian and Mexican industries also, which would result in further negative effects to the U.S.  The failure of any of the D3 would also place a huge burden on the government in the form of pension plan failures that would have to be absorbed by the Pension Benefit Guarantee Corporation also.

Given all of this, it is naive to think that you will not be affected by the failure of any major part of the domestic auto industry.  The $50 billion mentioned at the beginning of this article seems like chump change compared to what the government will be forced to do if any of them fail.  The auto industry has the biggest multiplier effect of any industry in the nation.  The job losses may not be yours or your family or your neighbor – but they might be, even if none of you work in Detroit or for the auto industry.

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