21 December 2008

Auto Bail-out

Here is a good article from Megan McArdle's blog at The Atlantic.

At first I thought the insane labor costs of the Big 3 were the reason they are unable to generate profits in an era of true competition against foreign manufacturers that are efficient and producers of quality products. Then I learned that labor costs are only 10% of total costs for these companies. After reading this post I've changed my mind.

An oligopoly exists in domestic auto manufacturing and the labor supply to this oligopoly is monopolized; this isn't new information to me. What is new information to me is the way these two elements interact. It's not so much about them being able to make money by reducing the cost of generating quality output, but the lack of incentive to actually produce quality products. If they actually made good cars that people wanted to buy they could make money given current costs. Hell, they've done it in the past. Their brand is now so tarnished and there are so many better alternatives available that demand for their products is finally diminishing. Quantity demanded has fallen at every given price level.

It's pretty clear to me now, and I don't know why I didn't realize it earlier. Common sense: if you build a crappy product people won't buy it...period. It doesn't matter if you produce it inefficiently or efficiently. If sales revenues are zero then you're going to lose money. I'm now a believer that people just don't want to buy American cars any more (at least not as much as they used to). And that changes the whole business model.

17 December 2008

A day of excitement

The Runnin' Rebels come through brilliantly and it snows all day long in Las Vegas! What a day!

Up until today I haven't seen any real excitement in any of the Rebels performances. Come to think of it, even last year didn't impress me that much. But tonight. Oh yes, I saw some things I really liked tonight.

Rene Rougeau has been catching my eye every game since the start of this season, and after tonight's performance I'm ready to ask for his jersey for Christmas. He hustles every damn game; plays his heart out, scores points and gets boards.

DID YOU SEE THE OOP?!? Damn that was sick! The feed to Santee down low for the dunk was also great! Then there were a couple of flat-out rejections on the Broncos. I was jumping up and down in front of my TV screaming silently at every exciting play that happened. It's good to see the Rebels asserting themselves and really demonstrating some good, selfless teamwork and exciting basketball. Wink seems to be coming out of his slump and Joe Darger is finally making some three's. Bellfield is looking good, as is Willis. All around the team was just looking much better.

As Coach Kruger was heard saying in practice on Tuesday: "We have to dictate more!...We have to deny!" And we certainly showed tonight a little bit that we are capable. Let's keep it up Rebels and dominate Arizona on Saturday!

11 December 2008

Culture & Cars

More important than regulatory change is the need for a cultural shift to better
emphasize long-term issues, Useem says. Utlimately, he notes, Americans
may adopt a disdain for short-term risk taking similar to the disgust they have
developed for smokers who light up in crowded rooms. A new
risk-consciousness held by the public should work its way into the boardroom and
executive suite, he says. "Rebuilding the national culture becomes
absolutely vital."

That's from a piece over at Knowledge @ Wharton.

In some of my conversations with friends, family and colleagues about the current economic and financial situation I have asserted that the cultural values of Americans concerning business matters are fundamentally flawed. The quote above resonated with me and succinctly summarizes what I had in mind when speaking of this. More generally, a lack of concern for longer-term issues is causing bad decisions to be made in the present.

Consider the fight for a U.S. auto industry bail-out as an example. We know that the U.S. auto industry is not competitive against foreign manufacturers and their operations are inefficient, partly because of the use of union labor. The same people fighting for the bail-out even admit this. But how will a bail-out help if their operations are inefficient and unprofitable? The kind of change needed in domestic auto manufacturing won't come in a few months (the bail-out is probably only going to sustain operations until March of 2009). It will take years, if not a decade to change. Does the American taxpayer continue to subsidize operations during the transition period? I certainly hope not, because it is not improbable that they will take tax dollars and still not change, leaving us in the same position years from now. No, the answer is to adopt a long-term view of what is best for the nation. Oh yes, their will be many jobs lost if the U.S. auto industry goes under. But is that really such a bad thing? I mean, in the long-run? Resources are not being used efficiently right now; workers labor and material could be put to better use. Sure, it will take some time for new industries to develop and utilize the resources, but they will use them more efficiently and more importantly, profitably. The problem is that darn trade-off between short-term comfort and long-term viability. A society focused only on the former can never achieve the latter.

01 December 2008

Auto Woes

Well it looks like most people are thinking about the auto industry debacle the right way.
If the automakers’ difficulties can be traced to a single, essential failure, it is their belief that they could avoid change. This is evident in their management structure, their labor contracts, and, most consequentially, their cars. For the past thirty years, the Big Three have been promising one hyper-efficient vehicle after another—the electric car, the “super car,” the hydrogen car—only to produce bigger and bigger gas guzzlers. (It was while the carmakers were supposedly working together, and with a billion dollars of federal money, to create a “new generation of vehicles” that G.M. purchased the rights to the Hummer.) The only compelling argument the companies can make at this late date—if a man strapped with explosives can be said to be making an argument—is that they will not suffer alone.

That's from the New Yorker. And the fact that many will suffer if the Big Three go under is not being disputed by anyone. The question is whether or not avoiding that suffering is worth doling out free money to save inefficient firms that are unwilling to change. It's obvious to me that without the proper incentives they will not change their behavior. Let them save themselves or fail, but don't ask for my tax dollars.