Saturday, November 22, 2008

Car industry woes

Chapter 11 is the best outcome for GM since it will permit the types of restructurings that are currently impossible given union demands for taxpayers to pay their member’s salaries and state resistance to plant closures. The US autoworkers were big financial supporters of Obama’s election campaign and for good reason. An aid package from the US Government won’t fix things. Wage costs at US auto-makers are a mile higher than comparable costs for Japanese producers, like Toyota, based in the US. The three US auto-makers (Ford, GM and Chrysler) are asking for a loan of $25 billion to prevent what they claim will be 3 million in job losses within a year and $156 billion in tax losses over 3 years. In other words they are suggesting a bailout is a bargain. This view is predicated on the assumption that Chapter 11 would involve an evaporation of the three firm’s assets and a total loss of all jobs which is false.

Henry Paulson has refused to allow his $700 billion piggybank to be used as a general source of bailouts in the economy and, in particular, to the auto industry.

Australia can scarcely point with high-minded free market zeal to the disgrace of a possible $25 billion US auto bailout by the US Government. Such a bailout will seek to preserve inflated wages and conditions for US workers but Australian workers in Geelong and Adelaide won’t benefit. The Rudd Government has already committed its own $6.2 billion handout to foreign multinationals based in Australia – proportionately higher in given Australia’s diminutive industry size than the US bailout. And news to hand – Ford will stay in Geelong and not cut 600 jobs as announced last year. Ford will invest $21 million upgrading its environment-friendly car production facility of which $13 million will be funded by Kim Carr, err no, by the Australian public.

The Productivity Commission have clamoured to favour lump-sum handouts of the ACIS type to the Australian car industry over tariff protection because such measures do not alter relative prices.  It would be better however to forego both lump-sum handouts that have very limited incentive effects and tariffs.

8 comments:

conrad said...

Do we even need to really worry about wage costs in the US? Apart from politics, I don't see why these companies are making cars in the US at all. Surely, the amount saved on shipping a vehicle from Asia to the US would be easily recouped by the wage differential, even for the Japanese producers.

hc said...

These are wage differentials within the US not between the US and Asia. Firms like Toyota operating and producing in the US are doing fine - its the Ford, GM and Chrysler slugs that are facing oblivion.

rabee said...

Harry, In Australia, how many workers would be affected by the winding down of the car industry?

2000? 4000? Even 10000?

Surely a fraction of what we're spending on the bailout can handsomely compensate these workers.

hc said...

http://www.innovation.gov.au/Industry/Automotive/Documents/Key%20Automotive%20Statistics%202007.pdf

rabee said...

And you're going to fix that link soon?

hc said...

Rabee, The link is fine, it answers your question, p.14.

sir henry casingbroke said...

So really you're prescribing a Schumpetarian creative destruction of the old slugs, right?

Anonymous said...

runescape money runescape gold runescape money buy runescape gold buy runescape money runescape money runescape gold wow power leveling wow powerleveling Warcraft Power Leveling Warcraft PowerLeveling buy runescape gold buy runescape money runescape itemsrunescape accounts runescape gp dofus kamas buy dofus kamas Guild Wars Gold buy Guild Wars Gold lotro gold buy lotro gold lotro gold buy lotro gold lotro gold buy lotro gold runescape money runescape power leveling runescape money runescape gold dofus kamas cheap runescape money cheap runescape gold Hellgate Palladium Hellgate London Palladium Hellgate money Tabula Rasa gold tabula rasa money Tabula Rasa Credit Tabula Rasa Credits Hellgate gold Hellgate London gold wow power leveling wow powerleveling Warcraft PowerLeveling Warcraft Power Leveling World of Warcraft PowerLeveling World of Warcraft Power Leveling runescape power leveling runescape powerleveling eve isk eve online isk eve isk eve online isk tibia gold Fiesta Silver Fiesta Gold
Age of Conan Gold
buy Age of Conan Gold
aoc gold

呼吸机
无创呼吸机
家用呼吸机
呼吸机
家用呼吸机
美国呼吸机
篮球培训
篮球培训班
篮球夏令营
china tour
beijing tour
beijing travel
china tour
tibet tour
tibet travel
computer monitoring software
employee monitoring