11.11.08

THEY OWE US RESTITUTION. I started my academic career in an era of rising gas prices, a shakeout of suboptimal capacity in steel manufacturing, and Chrysler asking for loan guarantees.

Advocates for the various government bailouts of excessively optimistic businesses note that Chrysler repaid its loans. That's true. But the loans simply postponed the reckoning. Chrysler did retool, introducing the Plymouth Voyager and Dodge Caravan. (What the site does not tell you is that the design exploited the "personal truck" loophole in the fuel economy standards. The loophole is big enough to drive a Hummer through.)

The site refers to the minivan as economical and family-friendly compared to the Dodge Ram full-sized van. That is a relative of the obnoxious family of hemi-engined pickup trucks that once contributed a lot of money to the company's bottom line. (The company evidently had no interest in fuel economy: its fuel-saving version was called the "Ram Miser" and it disappeared shortly after OPEC's prices collapsed in 1983. Did any of those high-priced product packagers again at risk of unemployment bother to ask whether buyers would want to drive something that conjures up Ebenezer Scrooge?)

Chrysler plowed some of their profits into acquiring American Motors, for the purpose of acquiring the Jeep line. There was no resurrection of the Metropolitan and the Gremlin and Pacer remained mercifully out of production.

In all this time, company researchers did little work on improving smaller cars and no work on electric drive. It's as if the false consciousness of the 1950s monopoly economy never encountered that reality check of the late 1970s.

Now comes Chrysler, again seeking succor, and this time bringing General Motors, an opponent of the 1979 loan guarantees until the Carter administration raised the possibility of an antitrust investigation, as co-supplicant. That's the General Motors that managed to ruin its dominant position in freight locomotives, finally selling the company, and that has done very little work on improving smaller cars or developing electric drive, preferring to concentrate on obnoxiously upscale projects such as the Cadillac Escalade. Toyota's Lexus division is well-positioned to cater to the insecure upscale market, with electric drive as an option.

Do these companies deserve succor?

Professor Bainbridge suggests not.
Letting GM avoid bankruptcy by giving it a federal bailout ought to be unthinkable, because of the very real risk that a federal bailout will come with conditions that preclude GM from fixing its core problems. It’s likely to preserve the gold plated union contracts, the excess payroll numbers, the excess plant capacity, and the excess number of dealers.
And the expectation that there will be another suspension of the Hotelling principle for pricing exhaustible resources long enough for the old way of doing business to batten off the existing order for another 20 or 30 years.

There's more at Betsy's Page, including additional useful links.

Perhaps the automakers, and their suppliers, and their employees, owe us restitution for having lived well at our expense for the past 20 years, although there is evidence of our rebellion.
US consumers have long been voting against US automakers. Now, they'll be asked to put their tax dollars at risk to preserve the very companies from which they don't want cars.
Where's the public interest in that?

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