Sunday, November 16, 2008

Big 3 troubles: consumers' fault?

Here are a few arguments from Blake Hounshell at FP Passport, explaining why consumers are to blame for the current plight of the Big 3 automakers:
  • The industry was in trouble before, but it's the drying up of consumer demand due to the financial crisis that is threatening to destroy it at present. Even the innovative Toyota is feeling the pain right now.
  • Who bought all those "gas-guzzling S.U.V.s and trucks" Friedman is ranting about? Martians?
  • I must have missed the groundswell of grassroots activism in favor of the higher taxes that would have put a floor under the price of gasoline and made for a stable environment that could make technologies like plug-in hybrids viable even when market prices for crude oil collapse.

I think Blake is missing the point here by saying that it was basically the consumer's role to ensure that the Big 3 innovate or simply realize that gas prices would increase in the long term. That responsibility falls solely on those companies. It was (and still is, despite recent fall in price) obvious that world demand for oil increases faster than the output and, especially given limited reserves, the long term trend for oil price would be up. The Big 3 totally failed to see this reality.

While gas-guzzlers might have been profitable in the short term, it was the role of the directors of the companies to realize that to be competitive in the long term they would have to invest in fuel-efficient cars, not only because of government regulations but because of long term economic trends. It is in no way the fault of consumers that they bought them for a short period, while oil prices and the economy was good; the fault lie on the total lack of vision of the upper management of those companies.

Foreign automakers managed to foresee this trend and reacted accordingly, so this was by no mean an impossible thing. Also, while you claim that Toyota is feeling the pain, which is true, there are no signs that they are close to collapse; so the current crisis can not fully explain the desperate situation at the Big 3.

Foreign companies invested in the right places while American automakers closed its eye on reality. End of the story.

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