Buy American Mention of the Week

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Sep 25, 2002
Richmond, VA
Buy American Mention of the Week 12-11-08 The Big Three may perish through people’s lack of knowledge By Roger Simmermaker Never before has their been such a large national debate over an issue so critical to the American economy accompanied by such large misconceptions of what the true facts really are as there has been over whether or not to extend a bridge loan to the Big Three. Senator Christopher Dodd (D-CT) claims Detroit’s wounds “are largely self-inflicted.” Senator Bill Nelson (D-FL) says American automakers have had their “heads in the sand” for too long (ever heard of the Chevrolet Volt, senator?). Then there’s what Irwin Stelzer of The Weekly Standard calls the “Drop Dead Detroit” crowd, led by Senator Richard Shelby (R-AL), who think we shouldn’t be fiddling with the free market. Senator Shelby doesn’t mention, of course, that his state has already distorted and fiddled with the so-called “free market” by funding foreign-owned Mercedes, Toyota, Hyundai, and Honda to the tune of nearly a billion dollars in taxpayer money to lure those brands’ factories to his state. But before delving into the mass of misconceptions in both the media and in the minds of too may Americans (a recent CNN poll showed six in 10 Americans were against a bailout for American automakers), let me list a few facts that have been missing from the present day debate. 1. The American Big Three have 105 plants in the U.S. The foreign big three (Toyota, Honda and Nissan) have 24. 2. American-owned car companies get a significantly higher percentage of their parts from domestic sources compared to foreign-owned car companies. 3. America exports more motor vehicles and parts than the aerospace, medical equipment, and communications industries. 4. The U.S. auto industry provides health care for 2 million Americans and benefits for 775,000 retirees and surviving spouses. 5. The U.S. auto industry spent $12 billion in research and development last year alone, second only to the semiconductor industry. 6. The Big Three typically invest $10 billion in domestic plants and equipment every year, and bought $156 billion in parts and services from domestic suppliers last year. Now let’s deal with the myths and misconceptions. First is the ridiculous refrain that American companies don’t build cars people want to buy. Can someone tell me how General Motors can have the leading (that’s “number one”) market share in America and in the world by building stuff nobody wants? Admittedly, GM has exchanged the world market share leadership position with Toyota a few times in the last few years (GM is number one as of this writing), but even if GM were to solidly take the number two spot in sales, how is it that this constitutes a “failed business model?” Since when is the only successful business model in any industry the one that happens to be the leader of that industry? Coca-Cola commanded the number one market share for non-alcoholic beverages for years before being unseated by Pepsi. Since Coke is now number two, does that mean they have a failed business model and aren’t making beverages people want to drink? Hardly. GM makes more cars that get over 30 mpg than any other automaker, so let’s finally throw the myth that American automakers don’t make fuel efficient cars in the garbage where it belongs. The most fuel efficient small truck is the Ford Ranger. The lowest cost car to buy and operate is a Chevy Aveo. The Ford Focus’ mileage equals that of the Toyota Corolla, and the Chevrolet Malibu gets better gas mileage than the Honda Accord. Both the Chevrolet Malibu and the Ford Fusion have won J.D. Power & Associates highest-quality awards in recent years. Consumer Reports recently reported “Ford's reliability is now on par with good Japanese automakers,” so why is the Camry still the best selling car in its class? Well, it certainly isn’t because of fuel economy and quality considerations. Maybe it’s that lack of knowledge thing I’ve been talking about. The Chevrolet Malibu registered the biggest sales gain (35.4 percent) in November 2008 compared to November 2007 than any other automobile according to This obviously green-leaning website also reported the biggest loser in November was the Toyota Prius, recording a sales drop of 48.3 percent. Such trends beg the question as to whether GM’s business model is really a failed one. Sure, GM’s overall sales fell 41 percent in November (Ford was down 30 percent, Honda was down 32 percent and Toyota was down 34 percent), but what is happening in the industry now points to something other than a failed business model for domestic automakers. According to J.D. Power & Associates “…starting in June, there has been a gradual move back to larger vehicles.” And in August, 20 percent of SUV owners retuned to their Explorers, Highlanders and Pilots. The point in all this is what I have previously stated in past articles. The Big Three have been doing little more than following supply and demand. We Americans bought 10 percent more gasoline in the first six months of 2006 than we did in the first six months of 2000 even though gas prices rose 75 percent during that period. And even as gas prices rose into the $2.00 per gallon range in 2005, polls taken around that time showed that Americans remained undeterred when it came to buying bigger and badder SUVs. No one could have predicted gas prices would go as high as they did, just like no one knew at what price point people would start trading their SUVs for subcompacts. But for Americans to insinuate that Detroit should have sacrificed their high-profit cash cows (big trucks and SUVs) when that’s what Americans were buying to instead focus on less-profitable, smaller cars is hypocritical at best. Should Ford have taken its focus off the profitable F-150 pickup (the best selling truck for 30 years) just in case gas prices spiked so the company could avoid being vilified for selling so may of them? Should they have voluntarily stepped aside to let the Toyota Tundra take the number one market share in trucks, as they were aggressively trying to get a bigger piece of the same pie? The culprit in this crisis is the U.S. Congress, many of whose members couldn’t resist the opportunity for populist grandstanding by belittling the Big Three in recent Washington hearings. Had congress obeyed their constitutional obligation to regulate trade with foreign nations, they would not have allowed South Korea to export 700,000 vehicles to our country last year while we were only allowed to export 5,000 vehicles to their country. We tolerate unfair trade on an even larger scale with Japan, and then we have the gall to chastise American automakers for not being “competitive enough” and accuse them of having “failed business models.” I agree that the Big Three CEOs should not have arrived in Washington using corporate jets, but this is a diversion from the real problem. Their fleet of corporate jets is not the problem, and neither are their salaries. The U.S. Congress, which is hardly a model for financial responsibility and thriftiness, is the problem. Considering that the health care and retiree payments made by the Big Three means that their cost of producing a car is $1,500.00 more per car than cars built by foreign automakers, the American automakers have done quite well holding on to the market share they have since they have been forced to do more with less for decades. If you and I both went into business making widgets or any other product of you choose, and you had $1,500.00 more per widget to make a better widget, your company would eventually drive down my company’s market share or put me out of business. These are the precise possibilities facing the Big Three today, and it should come at no surprise. Such an eventual reality could have been easily predicted. The much referred-to “cost structure” is a big part of the reason the Big Three aren’t as competitive as their foreign rivals. Japanese companies, for instance, don’t have to worry about footing the bill for their employees’ health care in their own country, or funding their retirement. The Japanese government spreads that cost to Japan’s taxpayers, and unless we want our government to follow the same model, we better be rooting for American automakers to survive so they can pay for their employees’ health care and pensions so we taxpayers don’t have to. It’s amazing to me how anyone would deride the Big Three for being at such a competitive disadvantage given that it is mainly because they have been bearing the weight of such honorable burdens (health care and retirement) for decades that their foreign competitors haven’t had to worry about. It’s even more amazing people are calling for their outright failure at a time in American history when individual and national economic instability are at their highest point. It’s up to a well-educated citizenry to tell their legislators that their remarks regarding American automakers are off track. But if not enough of the Americans fully understand why Detroit is in their current situation and how they got there, then we won’t be able to provide the right voice to get congress on track. If the Big Three fail to get adequate funding to survive, it will likely be because congress was ignorant of the facts surrounding the auto industry, and “We, the People” were too ignorant of the facts as well to stop a devastating catastrophe from occurring. Will the current $15-$17 billion bridge loan be enough for Detroit to survive the current economic downturn? Not in my opinion. If not, does that mean we should deny funding now and refuse more funding in the future? Not in my opinion. Americans (even the senators with foreign automakers in their districts who will always be against American automakers no matter what) don’t deserve to experience an economic catastrophe that a Big Three failure would bring. So let’s educate ourselves with the true facts so we can in turn educate our congress with the same facts and keep America and her companies rolling. America doesn’t need another declaration of interdependence courtesy of another iconic industry gone by the wayside. ***************************************************************************
I know this is a bit wordy, but interesting to read. This was an email sent to me by Roger Simmermaker in the "Buy American Mention of the Week".
Sounds like they are more than capable of fixing the "problem" ( which they are arguing there isn't) themselves. No bailout needed.
Bailout is another misconception. They are asking for a loan which will be paid back. They are in a short term crisis and need help making the transformation to "greener" smaller cars and to get them through this recession.
 Originally Posted By: Shannow
Sounds like they are more than capable of fixing the "problem" ( which they are arguing there isn't) themselves. No bailout needed.
Very simplistic Shannow. It doesn't mean funding isn't needed. Other countries like Japan and Korea help out their auto industries massively. Could Europe get out of their own way to help themselves during the crisis in Yugoslavia with Slobodan Milosivec? In reality they most likley could have fixed their own problem. But nope, they shoved their heads up their rear-ends. Europe was a bunch of helpless idiots. At the end of the day they prevailed beacuse the USA had the 'socialism' money to do something about it.
First, posted article is excellent. Distribution of facts is necessary for the public to acquire any level of understanding on this topic, where they're needed to exercise the rights and powers of citizenship. Having said that.... In almost all my experience uncovering the basis of opinion with respect to the US from a foreigner is derived from their desire to see the US fail. Generally speaking, their opinions should be immediately discarded and you should remind yourself that our business isn't their business.
Interesting. I think all of the automakers are a bit out of sync since they have been focusing on horsepower so long they have, with few exceptions, put fuel economy on the back burner. And why is it that cars have to grow larger every year? Maybe marketing is to blame. I know plans are made far in advance, but even now we still see increases in engine size, hp, dimensions, etc. We always hear that Detroit cannot sell small cars, since labor costs are such a big part of the cost of cars that differences in price have to be improved by getting less markup on the smaller cars. Then when someone goes in to deal on a car they can get more off on a larger car because they have more room to deal. Toyota puts a 2.4 in the Scion, Chrysler hugs the hemi, Corvette and Cadillac come out with supercharged monsters, etc. etc. Mazda goes from the 2.3. to 2.5, Acura moves to 3.7, etc. Just a few examples off the top of my head.
I see a few problems here, some or many Americans are under the notion that foreign cars are built better, they think they are more reliable. A reporter on the news asked a lady why did you buy a Honda, and she said that she had nothing but problems with her Chevrolet. My Mom has a 1998 Chevrolet Monte Carlo that she brings to the dealer for its scheduled maintenance checkup according to her owner's manual. The service advisor said my Mom is 1 of the few people that bought a car from that dealership and brings it in for servicing. The car has 100,000 miles and runs fantastic. A service advisor at that Chevy dealership went to Honda because he could write more business, I said how. He told me people that buy foreign cars generally bring them in for servicing whereas many people that buy American cars only bring there cars in when something goes wrong. The other problem is that GM can only make money on a car if they sell something like 300,000 of the same car. I am sorry, but the days are probably gone where a young guy buys a Chevrolet, then moves up to a Pontiac, then when he gets ready to retire he buys a Buick, and last but not least he moves up to a Cadillac. I got into a discussion last night with my friend, he said we must bail out the Big 3 Automakers, they are the backbone of our economy, if they go under it would be terrible. I asked him what kind of a car did he and his wife have, he told me that he drives a Mitsubishi and his wife drives a Toyota. I said why don't you have an American car. He said that he wants reliable cars and that is why he bought foreign cars. I just think this bailout thing is not good for the Big 3 because people are going to say to themselves do I want to buy a car from a company that might not be around in a few years. 1 congressman already has said that 1 of the Big 3 has to go. My GM Dealership up the road sold 3 cars in October and 6 cars in November. There market share is declining every year, there sales overseas are better than here in the U.S. because they do not have the labor costs like they do in this country. What options does the government have to a level playing field since they let these foreign car companies come in with there factories. Should a tariff be put on every foreign car so that it costs the same as a comparable american car and not $2000.00 less.
I guess the question is, how can one be the number one or number two car maker in the world in terms of units sold, and still not be profitable? Sure, GM and others can sell HUGE numbers of cars, but at what cost? If they cannot do it profitably, then perhaps they should not be doing it. There are many great points in the article. Yet it's not the job of GM or any other carmaker to be a health care provider, retirement fund manager, etc. So a legitimate question is do we loan money to the folks who sell the most cars, or second most cars in the world, but are unable to make a profit. Because it is a loan, the taxpayer has to be concerned about those loans being paid back. Because if the loan is not paid back, then that loan does become a giveaway. Not to mention that if banks are not willing to loan the money, getting the government to loan, or to back the loan, is still a giveaway. One is giving away their credit rating in order to loan money to another. If the party getting money defaults, then the one who guaranteed the loan, (the federal government) is now on the hook for the loan. Frankly, I think the legislators against the bailout in current form ARE on the right track. I was against the $700b bailout of banks, and I'm against federal funds given/loaned to the big three in it's current form. I am FOR a program that passes the money through the taxpayer, with a tax credit for ANY car assembled in the US. Like I've said before, the decision should ultimately be that taxpayers, and it's best determined in the market place, not in D.C. So with that said, let congress vote to give a tax credit for any car that gets 30MPG or better in combined EPA mileage that is built in the United States. Of course, that would mean the Focus, built in Mexico wouldn't qualify, but those built in Michigan would qualify. A Honda Accord built in OH would qualify, but if a Crown Vic, built in Canada got 30MPG, it would NOT qualify because it's built outside the US. One must address the issue that our domestic car makers are making more and more cars overseas, while Toyota, Honda, Mazda, etc are building more of their cars here. Of the four Toyota's I've owned, only one was built in Japan. The others were built in Kentucky or California. Locally, Chrysler closed the minivan plant here, but is still building them in Canada. The new VW van is really a Dodge/Chrysler van, built in Canada. I think Nissan is going to have Chrysler build trucks for them, instead of building their own pretty soon. So I don't think we can look at the badge to say what an American car is, but look at where it's built. For example, the Camry is largely built in the US in KY. Toyota makes the engines here. I can't say if the transmissions are built there or not. But the notion that most of the parts are imported doesn't appear to hold water. So what I'm saying is seeing "domestic" cars being built in Mexico, Canada, Korea, Australia, where they once were built here exclusively tells me there is little difference between GM and Toyota when it comes to making cars. Some cite the money goes to Japan. Profits go to the stock holders. So if you want to keep the money in the US, why not buy Toyota ADR's which are paying dividends and as long as they are profitable, will likely keep paying dividends: Let's see, they are building more and more vehicles in the US while the big 3 are moving more and more production overseas. They are paying dividends and you can buy their ADR issues and own Toyota stock just like owning GM or Ford stock. It's the job of GM and Ford and Chrysler to build cars in a profitable fashion, to increase shareholder value and possibly pay a dividend. Those are the jobs of any public corporation. It's not their job to pay folks not to work, or to be a health care provider, etc. I really do hope the US car makers survive. However, I think they have to do it largely on their own merits, but cutting out costs. As it has be demonstrated, they sell cars. So it's on them and only them to do so profitably. That cannot be done with a government bailout. It has to be done by management and likely labor as well, making tough decisions to take costs out of the price of each car. One last thing that occurred to me is that GM seems to be hardest hit by the current slump in auto sales. All have fallen, but GM seems to have taken the biggest hit at around a 40% drop. I think a lot of that is due to financing. Which makes me wonder if much of GM's sales is really because they were able to get more buyers financed. Now that money is tighter, those who have the money to buy since sub-prime financing for cars is not available, those folks are not choosing their cars. GM's (and others) model has been to keep the metal moving to avoid idling factories. It's cheaper to practically give the cars away than it is to build nothing and pay idled factory workers for not building a car. In other words, losing less money that way. So I suspect many sales were made because of attractive pricing, easy financing, and not due solely to public demand for vehicles. Now that easy financing is no longer there, that really cuts one of the selling points of GM. OK, I'm rambling as I listen to the radio. But if GM is selling the most cars worldwide, then the only problem is for them to figure out how to make money on each and every one of those sales.
What got me were the remarks about removing the present CEOs ! Following that logic Dodd and Barney Franks should resign considering their vocal advocacy of the policies that got us where we are today !
lol bruno, exactly, and so obvious eh? In 2000, when they ushered in legislation that allowed investment bankers to get into the mortgage business, Chris Dodd voted yes, lol. I think we should all shout a resounding "WE DEMAND YOU RESIGN YOU INCOMPETENT BOOB!!!" after which we demand you disclose your countrywide mortgage relationship. Let's start with "why do you get a 0% mortgage?".
The big 3 are important. Thats why you want the government to stay out of it.They'll get the first loan and then next year they'll want another one. All the time dragging their feet as to the restructuring they have needed since 2005. Bankruptcy will force them to restructure.I hope they'll emerge a lean and super efficient company(s). Its not a matter of if they'll file bankruptcy its when.
Another thing about selling what the customer wants, which comes first, the advertising or the buying. When they say they are providing what sells, how much advertising do they spend on the SUV vs the small car? Of course they want to advertise what they make the most money on. Don't know if I getting my point across, but the big 3 have a vested interest in selling the big vehicles...
They reason they've had a vested interest in selling large vehicles is the fact that material and assembly cost are a lesser factor than are other costs. In other words, a car is not sold by the pound as the cost per pound to produce vehicles is much higher with smaller vehicles which sell at a much lower price. I'm not sure, but I don't think any of the big 3, now perhaps little 3, have made a decent profit, if any, on a small car unless it was imported and re-branded and I'm not sure dealers made any money on those since sales were poor. Why, honestly I can only speculate as to why so I won't bother. An interesting note, the Chevrolet Nova/Prizm were a NUMMI manufactured Toyota Corolla which sold for less and maintained less of its value than its twin brother. They were the same car.
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Let them fail. Either a business can compete or it cant.....they should have seen the light 30 years ago when the foreign cars were starting to make a dent in their sales and adjusted products/business decisions/improved quality/cut costs to remain viable in the marketplace. Bailout/loan whatever is just a very short term lifeline without a complete top to bottom upheaval in the way they choose to do business they are bound to fail. You can only sell cars no one wants by drastic low cost financing incentived/discounting for soo long.Their time has come, and they did it to themselves.
Unfortunately, if they fail, and if something fairly specific on it breaks in a few years....the collector might be the scrap yard.
There is nothing "collectable" about a Sunfire.....and if for some strange reason someone wantd to keep one running for years, they made enough of them that junkyards will have plenty of dead ones to pick parts from for decades.
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Not so sure about that. I find it pretty incredible that the only source (other than a picked over scrap yard perhaps) for a 1996 Camaro alternator is a Japanese company (looking to fill a void). Of course, then again, I could be wrong. More Cavaliers/Sunbirds sold than Camaros, but you get my drift. So back on topic sort of.....for those of you who think a US company CANNOT build a competitive car I suggest you rethink your position...there is no secret to building a "good" car. Anyone who thinks otherwise...nevermind.
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