Planet Gore

Friedman Follies

Detroit, Mich. – Just coming onto the Pollowitz/Friedman battlefield to shoot the wounded. . . .

A doctor cannot prescribe a remedy unless he understands the illness. But Friedman continues his habit of misdiagnosing his domestic auto industry patient.
“How could these companies be so bad for so long?” he says. “Instead of focusing on making money by innovating around fuel efficiency, productivity and design, GM threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.”
Friedman’s diagnosis assumes that Toyota and Honda have made strides in the U.S. market due to making fuel-efficient cars. It is a false assumption.
It is true that U.S. Japanese fleets were made up largely of small cars — but that was 30 years ago (and libs accuse conservatives of living in the past?). Since then, Toyota and Honda have invested millions into providing a full range of fleet options to U.S. consumers from giants SUVS (Toyota Sequoia, Honda Pilot) to gas-guzzling trucks (Toyota Tundra, Honda Ridgeline) to luxury cars (Toyota’s Lexus division, Honda’s Acura line). That is how you gain double-digit U.S. market share. And, like the Big Three, the Japanese made fistfuls of money — up to $80,000 per sale — off these big vehicles.
But, unlike the Big Three, Toyota and Honda were also making money on smaller cars like the Toyota Corolla or Honda Civic. Why? Because — and this is the fundamental sickness that Friedman ignores — Big Three union wage and benefit costs were $1,500 more per vehicle than their non-union Japanese competitors.
So when gas prices spiked, Toyota and Honda made less money — but they were still making $1,500 on their Corollas and Civics. The Big Three, meanwhile, made nothing on their compact Chevy Cobalts and Ford Focuses. Zero. Nada.
Clearly, the answer is not forcing the Big Three to make more small cars as Friedman and his Congressional allies demand. “Now that the price of gas is below $2 in some areas of the country,” writes veteran auto analyst David Cole, “there will be far less demand in the short run for fuel-efficient vehicles that the government wants the automakers to sell in greater quantities.”
The answer lies in forcing the companies into receivership so that they can fundamentally address their uncompetitive labor costs, brand structure, and overstuffed dealer networks so that — one day — they can make money on all cars in their fleet.
Reorganizing to craft a business model that makes money? What a concept.

Henry Payne — Henry Payne is the auto critic for the Detroit News.

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