Friday, November 21, 2008

Inelastic Markets

My good friend, Billy Beck over at Two-Four pointed to this:



Did you get that pivotal phrase? Did you hear the Congress-critter clearly state that "It's not your money!" when talking about funds that he and his cohorts are dishing out? Where does he get it if not from us?

The bailout of the "U.S. Auto Industry" is most assuredly the most disingenuous misnomer ever applied to a proposal by our government. Stop thinking of it as the US Auto Industry. It isn't! It is about the mismanaged Big Three and the United Auto Workers. The US industry covers a lot more manufacturers who aren't standing in line outside their corporate jets asking for a rescue package that would merely be a holding action against disaster. There are a lot of factories, design shops, suppliers and dealers that aren't part of the Big Three.

Let's start with some basics. People need cars. They will for the foreseeable future. Cars are a consumable commodity. They age and wear out. They must be replaced. Collapse of the Big Three wouldn't change that. People would still require cars and other companies with better designs, better management and better cost controls would supply them.

I worked for a short period in the aerospace defense industry. It is an example of another inelastic market. The military needs equipment and will buy it inevitably. Workers in the defense industry are always just one contract decision away from being out of a job. Lose the competitive bidding process and your company won't be ramping up for full-scale production. Does that create huge economic turmoil? Not at all.

Have a conversation with some folks on the production line, in the design shop, upstairs in the marketing department, or in the top management offices. You quickly find that they've moved back and forth between major manufacturers following the contracts. Ditto for their suppliers.

That is exactly what would happen in the auto industry. Are you experienced in automobile design, production, sales, repair, parts supply? Then you'll have a job with another company doing the same thing but maybe at a different site.

People will continue to need cars even if GM, Ford and Chrysler are simply fading lights in industrial history.

1 comment:

Anonymous said...

The auto industry isn't market driven. Both the democrats and republicans have rendered it into a quasi-Soviet bureau. Inward-looking labor and ideological yes men in management can't get their heads around the need to cooperate, let alone the need to get their heads around the creation of a truly great product. People who build cars--from the guy on the line all the way up to the suits in the board room have to WANT to build great cars, they have to THINK about great cars, and most of all they have to LOVE great cars. My guess is the grunts on the line are thinking about sports and beer, and the guys in the board room are thinking about golden parachutes and bizjets, while the management and engineers are running around afraid for their jobs. Nobody is thinking about cars. Nobody loves cars.