automakers

Our Driverless Future?

by Marc Scribner on October 12, 2010 · 1 comment

in Mobility, Tech & Telecom

Google has been making headlines after the company revealed over the weekend that its driverless cars have logged nearly 140,000 miles on public roads (see this awesome video clip). These robot cars are able to navigate traffic through a combination of GPS, radar, mounted video cameras, and laser range finders. The basic technology has existed for several decades and has gradually been improving. DoD’s DARPA sponsored a series of annual Grand Challenge competitions a few years ago, awarding a team consisting of Carnegie Mellon University and GM engineers with $2 million in 2007.

I find these events incredibly encouraging. America’s surface transportation technology has seen no significant improvements in 50 years (in the case of rail transit, make that 120). Sure, cars have all sorts of new technologies, from mp3 players to automatic parallel parking features. But the roads? No real breakthroughs since the Interstate system was devised. Cato’s Randal O’Toole, a longtime supporter of this sort of technology, had a Wall Street Journal op-ed in March praising the concept:

Driverless cars and trucks will be safer. They will also be greener, first by significantly reducing congestion, and eventually because vehicles will be lighter in weight due to reduced collision risks.

Perhaps most important, driverless vehicles will bring mobility to everyone, not just those able to pass a driver’s test. While many people will still choose to own a car, increased numbers may rely on car sharing. Outside of ultra-high-density areas such as Manhattan, driverless cars will render urban transit and intercity passenger trains even more obsolete than they are today.

The American automobile fleet turns over every 18 years, so if Mr. Burns’s prediction that driverless cars will hit the market by 2018 comes true, we could have a completely driverless system by 2036. State highway officials could accelerate this timetable by working with auto manufacturers to set standards and a transition path. State and local highway agencies could install wireless communication systems at major intersections and highways—a much less costly undertaking than building new roads, much less high-speed rail.

The technology seems to be making great progress, but there are impediments. As O’Toole notes, “the primary obstacles were legal and bureaucratic, not technological.” After Google’s announcement, a flurry of auto-bloggers questioned the legality — some not even masking their contempt for a driverless auto future, citing a know-nothing California DMV bureaucrat who claimed Google’s robocars “would be just a big step up from cruise control.” This is true, if “big step” is defined as “a revolution in personal automobility.” Indeed, outdated traffic laws are the biggest problems facing this technology. Of course, once automakers are ready to make the leap (or “big step”), there will be a lot of pressure on politicians and bureaucrats to update their then-out-of-date regulations. That’s a bridge we’ll have to cross when we get there.

There will always be technology naysayers. My favorite pessimistic comment comes from the Business Insider’s Henry Blodget, the once-famous Dot Com optimist who lost most of his money when the tech bubble burst in 2000 (while he was telling everyone to buy as many tech stocks as they could to stuff in their 401ks):

Why is Google developing this technology?

Why is Google spending the $10+ million of shareholder money per year the project consumes (15 engineers, plus drivers, plus the cars).

Isn’t there something closer to its core business that Google could spend this money on?

Blodget argues that Google is straying too far from its core business and that there are better things for Google to do that would enhance shareholder value. While “mission creep” might characterize Google’s path in recent years, one might argue it’s a feature and not a bug. Google has a lot of talent, and continues to draw the best and the brightest from around the world. Google’s chief asset is this talent pool. Since it became the king of search engines, Google has broadened its business model to include all sorts of non-search-related technologies — and management is willing to invest in long-term product development. And they’ve been quite successful! Rather than denounce a consumer technology that won’t go live for at least a decade, Blodget should try to understand the implications (and profit potential) of driverless vehicles:

  1. Congestion could be drastically reduced while still cutting road expenditures.
  2. Injuries and deaths caused by drivers would fall dramatically.
  3. Environmental concerns would be addressed as fuel wouldn’t be wasted by drivers sitting on congested roads and the cars could be lighter thanks to the decreased collision risk.
  4. And last but not least, this would be the most significant innovation in the automotive sphere since the development of the assembly line! If only Henry Ford had stuck to his “core business” and continued designing race cars…

It’s Complicated

by Marc Scribner on September 28, 2009 · 2 comments

in Bailout Watch, Economy, Features, International, Legal, Regulation, Trade, Zeitgeist

Journalists have a tendency to present overly-simple explanations of current events that often turn out to be completely false as well. Part of this is due to journalists trying to present a clear, digestible story to readers, and part is due to the fact that most of them have no formal training or particular expertise on the subjects they write about. Case in point is Barry C. Lynn’s latest piece in The American Prospect, which alleges that concentration of the auto parts manufacturing sector was primarily responsible for Detroit’s current financial woes. Lynn is perhaps best known for authoring the anti-free trade book End of the Line: The Rise and Coming Fall of the Global Corporation, which revolved around several flawed theses, including that historic U.S. trade protectionism was designed to prevent global economic shocks (it wasn’t and it didn’t). A sample:

In the case of our automotive industry — and most of the complex industrial activities where we have seen bottom-up monopolization — we can choose between two ways of making these systems once again financially and physically stable.

One is to treat these industries as the semi-monopolized utilities they now are and create a single sovereign body to regulate them from the top down, in a way that ensures their physical and financial stability. Such a regulator can be public (the government) or it can be private (a cartel of leading firms tasked with ensuring that all players share all costs fairly).

The alternative is to reform the various legal regimes (including trade and corporate governance as well as antitrust) that determine how corporate managers structure the industrial systems on which we depend, in order to ensure real “competition” both among giant lead firms like Ford and Toyota and among the companies that manufacture components for them. The immediate goal would be to guarantee that no group, either a private business corporation or a nation state, can ever seize control of any industrial activity on which we depend, no matter how small. The natural byproduct of such a system would be redundancy and resiliency.

Nowhere does Lynn mention how consumers can benefit when firms take advantage of economies of scale, the unsustainable labor contracts endemic in the U.S. auto industry, increased barriers to entry resulting from government regulation, the steadily declining relevance of domestic industry concentration and antitrust law in a globalizing world; all things that should be addressed before tackling this complicated issue. Instead, he proposes “we” either create new stringent and arbitrary competition regulations that would likely drive more U.S. industry overseas, or attempt to implement an incredibly politically-infeasible and economically-disastrous trade regime.

Moreover, his flawed analysis ignores the historical correlation between monopoly/oligopoly industries and government protection (e.g., telecommunications and commercial air travel), that antitrust laws which penalize firms for efficiency gains are counterproductive (and just plain stupid), and that these firms rarely sustain their market power in the long-run without government protection.

Lynn also fails to note how difficult it is to determine the optimal level of competition within a given industry, let alone the global economy. Take, for example, an insurer, which requires a large risk pool to operate in an actuarially sound manner. Given that generating the initial financing for said pools is a significant natural barrier to entry, it follows that industry concentration would likely be higher than those industries with less entry friction. This determination would need to take place for every industry, and be constantly re-evaluated given market dynamics. Those who didn’t sleep through their introductory econ courses should see how ridiculous Lynn’s “solution” is.

Lynn does dance around an important point: that the Big 3 have been failing miserably at efficiently managing their production processes for decades. But how this suggests that the United States (and the rest of the world) should rewrite the law and increase protectionism for their benefit is beyond me.

Billions More for Wasteful Auto Bailouts

by Hans Bader on July 31, 2009 · 1 comment

in Bailout Watch, Economy, Employment, Legal, Politics as Usual, Stimulus to Nowhere, Trade

The auto bailouts keep expanding. Billions more are going to be spent on wealthy auto-dealers, cash-for-clunkers, politically-correct cars few people will buy, and excessive benefits for autoworkers who are richer than the average American.

The Administration’s cash-for-clunkers program has already run out of money, burning through the $1 billion it was supposed to cost. The program rewards people who bought ancient gas-guzzlers, giving them, and not more environmentally-responsible people, federal tax credits for trading them in to buy new cars. The new cars purchased can be almost as gas-guzzling as the ones being traded in, getting as little as 2 miles a gallon more than their old gas-guzzler. The new purchases are supposed to boost the Detroit automakers that the Administration recently bailed out at a cost of $70 billion.

Although the money has run out, the Obama Administration says that it will keep running this wasteful program anyway, at taxpayers’ expense. During the Bush Administration, lawmakers of both parties said the government cannot spend money unless it has been legislatively appropriated, and that such limits are the “tap root of Anglo-American liberty.” But now, with a Democrat in the White House, liberal Congressional leaders are happy to see Obama spending money he doesn’t have, so that the cash-for-clunkers program can continue until Congress gets around to passing a bill that will authorize more spending.

House Democrats hope to vote today on a measure to authorize $2 billion more in spending on the program. But Senate approval isn’t expected soon. So there’s talk of using federal “stimulus money” to pay for cash-for-clunkers. (The $800 billion stimulus package is already full of welfare and waste. It is expected to cut the size of the economy “in the long run.” Although it was supposed to give the economy a short-run “jolt”, it actually destroyed thousands of jobs in America’s export sector, and increased unemployment. It also ended welfare reform.)

Taxpayers and businesses are expected to pay billions as a result of the Obama Administration’s decision to make a federal pension-insurer take over the massive pension liabilities of an auto-parts maker once owned by General Motors, so that General Motors, which was responsible for them, will have more money left over to maintain the extraordinarily generous pension benefits of the United Auto Workers, whose pay is much higher than that of the average American.

Meanwhile, in a move expected to cost General Motors around $2.5 billion annually, “the House has passed a bill reversing GM’s decision to shutter 2,000 auto dealers. Taking advantage of bankruptcy protection, GM undertook the cost-saving measure because state franchise laws had crippled its ability to reduce its bloated, 7,000-dealer network. By contrast, Toyota — with the same market share as GM — has fewer than 1,500 dealers.”

Henry Payne lists some of the many ways that the Detroit automakers have been mismanaged by the federal government “in just the last 90 days” of the bailouts: “At the request of the UAW, the President’s Auto Task Force forced GM to build its new “small-B segment” compact car in the United States instead of in the Far East. This despite the fact that not one manufacturer — not even the Asian companies — builds a small-B in the U.S., due to lack of market demand and high labor costs. GM likely would not build a small-B at all (since companies just emerging from bankruptcy usually try to build profitable products) were it not for the president’s personal distaste for GM’s lineup of ‘bigger, faster’ cars. To correct this, Obama has mandated the cars Detroit automakers “still refuse to make” — that is, a fleet of vehicles that average 35 mpg by 2016. After a one-on-one meeting with Rep. Barney Frank (D., Mass.), GM chief executive Fritz Henderson will delay the closing of a parts-distribution center in Norton, Mass.”

Payne also notes that the cash-for-clunkers program harms the economy by containing provisions that make “used-car and parts businesses suffer.”

The auto bailouts were funded primarily through money contained in the $700 billion bank bailout law passed last year. Diverting money from the bank bailout to auto bailouts was illegal or unconstitutional, agree many commentators, like the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich, and liberal journalist Andrew Sullivan. The bailouts ripped off taxpayers, pension funds for public employees, banks, and non-union retirees, in order to enrich the United Auto Workers Union, whose excessive pay helped bankrupt the Detroit automakers. But the courts have avoided dealing with those serious legal issues by claiming (erroneously in my opinion) that the bailout’s critics were not the correct people to bring legal challenges.

The stimulus package may not be stimulating the economy, but maybe it’s not the economy it was designed to stimulate: “The National Endowment for the Arts may be spending some of the money it received from the [stimulus] to fund nude simulated-sex dances, Saturday night ‘pervert’ revues and the airing of pornographic horror films at art houses in San Francisco.” Meanwhile, unemployed blue-collar workers in construction and transportation were largely excluded from the stimulus package because helping them was viewed as politically-incorrect.

An Insult to the American People

by Hans Bader on December 19, 2008 · 5 comments

in Bailout Watch, Legal, Politics as Usual

Thumbing its nose at the American people, who have opposed a bailout for automakers by a two-to-one margin in public opinion polls, the Bush Administration is pushing a $17.4 billion bailout for automakers General Motors and Chrysler, even though a similar bailout plan was rejected by the Senate earlier this month, on the ground that it would do nothing to fix what ails the auto industry.

Many of the beneficiaries of the bailout are well-to-do special interest groups who have been exploiting American consumers for years but would lose out if the automakers cut their costs by filing for bankruptcy: the United Auto Workers union, whose members receive $70 an hour in compensation (more than double what most American workers earn), and redundant auto dealers who can’t be terminated to cut automakers’ costs, thanks to state dealer franchise laws.

In an insult to voters’ intelligence, the Administration claims that the bailout is merely a loan, which will have to be paid back if the automakers turn out to be “unviable.”   Of course, if the automakers are unviable, they will, by definition, be unable to pay back the massive loan.  The only reason for the loan in the first place is that the automakers are verging on bankruptcy.  The so-called “conditions” that the Bush Administration placed on the “loan” are “non-binding” and a joke.

Even if the insolvent automakers did manage to pay the ”loan” back in the event they were found to be “unviable,” it would only be by failing to pay their other obligations, like moneys owed to the auto suppliers who increasingly do most of the actual auto construction in this country — and whose survival is one of the stated reasons for the bailout!

We earlier argued that the Bush Administration’s plan for an auto bailout was illegal, as are some other federal bailout measures in response to the mortgage meltdown and financial crisis.

Bush Bailout Beggars Belief

by Iain Murray on December 19, 2008 · 2 comments

in Bailout Watch, Energy, Mobility

If there’s one provision in the GM/Chrysler bailout that I just don’t get, it’s the suggestion that the automakers must be financially viable by March 31st next year or they will have to repay the loans.

Unless I’m missing something, if you’re not financially viable, repaying $17.4 billion will be just a tad difficult. This will presumably force those automakers into Chapter 11, which is what the bailout was meant to avoid, at least partly to avoid the “ripple effect” that the much more responsible Ford is worried about. In these market conditions, it is hard to see any way that the companies can meet that condition without engaging in some sort of fire sale (which will in turn have ripple effects).

It therefore looks like, rather than some pre-packaged bankruptcy, the Bush administration has handed its successor a pre-packaged crisis. On April Fools’ Day, of all days, President Obama will be forced to extend the loans, provide more funds or otherwise cave to GM/Chrysler/UAW demands.

However you look at it, this is not responsible government. This bailout beggars belief.

(A further post will provide details of what sort of non-financial bailout could help).

Paulson’s Bailout Was a Scam

by Hans Bader on December 16, 2008 · 3 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation

National Review editor Rich Lowry, who mistakenly supported the financial system bailout because he trusted the Bush Administration, now realizes that he was deceived by Treasury Secretary Hank Paulsen, and that the bailout was sold to the public under false pretenses.

Having promised to use bailout money to buy up troubled assets, the Bush Administration instead used the money for completely different purposes, and now wants to use some of it to bail out an entirely different industry — the automakers.  The Bush Administration reads the bailout bill as giving it almost limitless discretion as to who to bail out and how.  That interpretation of the bailout statute should be rejected, because such a vast grant of discretion would be unconstitutional.

The proposed bailout of the automakers would itself be a grave mistake, costing taxpayers billions while avoiding the painful reforms to the auto industry needs to enable its long term survival and failing to make inexpensive deregulatory reforms that would allow the auto industry to recover.  The bailout would repeat the mistake England made in the 1970s, when it completed the ruin of its failing auto industry by attempting to bail it out, at a cost of billions of pounds, making it uncompetitive and dependent on welfare instead.

Auto Bailout Would Kill Jobs, Impoverish Taxpayers

by Hans Bader on December 16, 2008 · 3 comments

in Bailout Watch, Economy, Energy, Legal, Regulation

A bailout would be worse for the auto industry than automakers filing for bankruptcy, explains banking and bankruptcy expert Todd Zywicki, a law professor, in the Wall Street Journal.   Indeed, by enabling automakers to get rid of expensive union contracts (such as $70 per hour compensation) and red tape,  a “Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.”    “Chapter 11 also provides a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules.”  It would also help them get rid of redundant auto dealerships that should be terminated but aren’t because of state dealer franchise laws that milk automakers for the benefit of dealers (GM has vastly more dealerships than Toyota, even though Toyota has more sales worldwide than it does).

In the New York Post, professional investors who own shares in the Big Three automakers argue that a bailout would be counterproductive and that the Bush Administration fundamentally misunderstands and is mismanaging the current financial crisis. 

The proposed auto industry bailout is similar to the British government’s unsuccessful auto bailout in the 1970s, which utterly failed despite a cost in the billions.

There are inexpensive ways to help the automakers that would do more for them than a bailout, like getting rid of costly regulations and red tape, such as burdensome CAFE mandates that downsize cars and thus cost thousands of lives yet are less effective at conserving fuel than a simple gas tax.   Moreover, the Bush Administration’s proposal to divert financial system bailout money to bail out the automakers is likely illegal or unconstitutional.

Auto Bailout Smoke and Mirrors

by Hans Bader on December 11, 2008 · 3 comments

in Bailout Watch, Economy, Politics as Usual, Precaution & Risk, Regulation

Mickey Kaus, a moderate Democrat, explains how the proposed auto bailout contains little leverage for the proposed “auto czar” to really cut the excessive labor costs that threaten the automakers’ survival, and how it is unlikely that the government will “get its money back,” contrary to what the bailout’s (mostly Democratic) supporters claim.

We earlier noted that auto workers at American-owned plants are paid $70 an hour in compensation, while workers at the U.S. factories owned by foreign car markers get paid less than $50 an hour. The U.S.-owned automakers will not be competitive until that disparity is reduced, but that is unlikely to happen, because any auto czar will be accountable to the Obama Administration and Congress, which are dominated by liberals supported by the United Auto Workers union. State dealer franchise laws in states like New Jersey, which fleece automakers to perpetuate underperforming auto dealerships, also need to be preempted by federal law to reduce the U.S. automakers’ costs.

Nobel Prize-winning economist Gary Becker explains why bankruptcy would be better for American consumers and taxpayers than a bailout, since filing for bankruptcy would allow the automakers to cut their inflated labor costs.

Failure to cut labor costs will make any bailout an exercise in futility, as the British government found when it foolishly spent billions of dollars in the 1970s in an abortive effort to bail out the failing British car industry. (Today, Europe’s largest auto plant is in England, but it’s owned by the Japanese automaker Nissan. So even if American automakers were to not only go bankrupt (like the airlines, which keep operating even in bankruptcy), but also stop producing cars, the cars still might be produced in the U.S. by a foreign car company).

In the Wall Street Journal, Holman Jenkins argues that even a multibillion dollar bailout will simply be wasted, without turning around the auto makers’ fortunes, if federal CAFE (fuel-economy) regulations are not repealed or reformed. He notes that a gas tax would be a less economically burdensome and more effective way of increasing cars’ gas mileage than CAFE standards, and would place American automakers at less of a disadvantage relative to their foreign competitors.

Manhattan financial analyst Eric T. Singer argues that the bailout and the proposed “Car Czar” will harm the auto industry by giving political priorities like “union jobs and green initiatives” priority over producing affordable cars motorists actually want, resulting in the auto industry limping along on “life support,” at a tab of billions of dollars a year in taxpayer subsidies.

Bailout for Bloated Union Contracts

by Hans Bader on December 10, 2008 · 8 comments

in Bailout Watch, Economy, Features, Legal, Personal Liberty

The auto bailout being fashioned by liberal lawmakers with Bush’s apparent acquiescence contains no meaningful limits on the bloated union contracts that have helped make American automakers uncompetitive by giving autoworkers compensation that exceeds $70 per hour, meaning that the billions of dollars spent on the bailout will simply be wasted.

The bailout is similar to the failed British auto bailout of the 1970s, which destroyed whatever chance the British auto industry had left to survive by diverting its focus from producing good cars at low cost to providing inflated wages for Big Labor and manufacturing vehicles that pleased government planners but not consumers (akin to liberal lawmakers’ demands that U.S. automakers produce “green” vehicles as part of the bailout).

The bailout fashioned by Congressional leaders also contains a provision that violates the First Amendment, by requiring automakers to drop their lawsuits challenging state fuel-economy laws enacted in the name of preventing global warming (which are probably preempted by federal law). In its 2001 Legal Services Corporation v. Velazquez decision, the Supreme Court ruled that federal funds generally cannot be conditioned on dropping lawsuits, because litigation is protected by the First Amendment’s freedom of petition unless it is meritless. (Even if a lawsuit fails, it is still protected if it fails for complicated or technical reasons, rather than because the plaintiff made false factual claims).

No to Union Auto Bailouts and Voter Fraud

by Hans Bader on November 13, 2008 · 2 comments

in Bailout Watch, Economy, Legal, Politics as Usual

USA Today has an editorial opposing a massive proposed bailout for the automakers. The automakers would be leaner, more efficient, and more able to survive in the long run if they filed for bankruptcy in order to abrogate their absurdly generous union contracts, rather than being bailed out by taxpayers to the tune of tens of billions of dollars. Airlines keep operating all the time after filing for bankruptcy. By contrast, when England bailed out its automakers in the 1970s, at great cost, the results were disastrous and unsuccessful. But the unions want Obama to support a costly taxpayer bailout of the automakers, and so he is pushing for it. Given the union-backed incoming Democratic Congress, he’ll likely get it. But Declan McCullagh explains why bailing out Detroit is a dumb idea.

The Democrats are approaching a filibuster-proof majority in the Senate, having apparently picked up the Alaska Senate seat they seemed to have lost on election day. They already have 57 Senate seats, but will pick up at least one, and perhaps as many as three, additional seats. They may pick up an additional seat in Minnesota, as a result of voter fraud, as the Wall Street Journal explained yesterday. (We previously chronicled suspicious occurrences in the vote-counting process, which is overseen by an official with ties to MoveOn.Org and the left-wing group ACORN, which has a history of voter fraud and financial fraud).

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