Hyundai and the American Car Buyer

The history of the American auto industry is intertwined with the history of the United States of America. That’s how we got the phrase, “Mom, Apple Pie and Chevrolet.” Perhaps the peak of American auto industry dominance was in the 1950s and ‘60s. I remember as a kid waiting for the new model cars to be introduced and then cutting out the photos from the various magazines and tacking them up on a bulletin board in my bedroom.

It wasn’t just me. All my friends were into cars. Our eyes turned into large saucers when we would see the new Chevy Corvette glide gracefully past the older, more conventional cars we were riding in. We’d stand at the windows of auto dealerships including Ford, Chrysler, American Motors, and General Motors and look in awe at the brand new models on the showroom floor.

And it wasn’t just limited to the U.S. auto makers. I remember standing in front of a Jaguar dealership in Bethesda, Maryland gawking at an XKE.

Buying cars was a family affair. I remember my dad surprising me with a brand new Ford Thunderbird when the family came up to visit me at camp. Same feeling when my mom and dad bought a brand new Lincoln Continental.

I also remember the road trips the family took to New York to visit family and the summer vacations we took in our car and the on the roadside motels we stayed at during the trips. A drive in the country was a regular occurrence every Sunday.

In the 1970s, the Japanese automakers started making an impact in the U.S. That was about the time I was in the market for my first car. I was actually considering foreign built cars like the Datsun (now Nissan), Toyota ,and Opel. I ended up getting a Chevrolet Vega. But still, if I was thinking foreign, then a lot of people were thinking foreign. It has evolved to a point where a majority of us in the market to buy a car are thinking foreign. Competition has become dog eat dog in the global auto industry of today.

Critics of the U.S. auto industry have said that bad decisions by the top brass of the Detroit Three has put them into the predicament they are now in. I think that is partially true. Still, the execs of General Motors, Ford, and Chrysler can’t be blamed for the credit meltdown which is affecting the ability of people who want to buy a car to do so. They can’t be blamed for the growing dominance of the foreign automakers like Toyota, Nissan, and Honda as well as other foreign brands when the governments of the countries these automakers reside in provide them with all sorts of subsidies and currency manipulations which affect the price of the car when it is finally displayed in the dealership showrooms. I bet you didn’t know, for example, that the German government subsidizes the cost of a German made car to the tune of 19 percent the price of the car. So if BMW or Volkswagen, for example, exports a $50,000 car to the U.S., the automaker gets $9,500 back from the government. That allows them to sell the car for less than an American automaker can because the American company is not receiving any subsidy.

Moreover, when an American car is exported into Germany, a tax valued at 19 percent of the value of the car is added on to the price. So if an American company exported a $50,000 car to Germany, then the German government would slap on a tax of $9,500. So obviously, American cars cannot compete with foreign made cars in their home of origin.

Note that American automakers are saddled with the cost of benefits and healthcare for workers, retirees and their families while foreign carmakers don’t have to contend with this because their governments do. I don’t think that is necessarily the fault of the automakers or the unions. The employer realized that there was a need that was not being filled by the government so they stepped into the void. The automakers should be praised for this, not ridiculed.

Another strike against the domestic automakers is they have to contend with false information about the quality of their products. While American car buyers think that German and Japanese cars have more quality it is true that American cars have been winning quality awards left and right most recently. Ford, for example, has won 102 quality awards.

And the belief that the American automakers are not innovative is simply not true. General Motors, Chrysler and Ford invest about $12 billion a year in research and development. That makes the Detroit Three a major source of technology development in the whole country.

A lot of pundits are calling for the bankruptcy of the Detroit Three. Oh, really? Some say as many as 3 million jobs will be lost if that happens. Others say it could be as many as 6 million. One group did a study and concluded that if the Big Three were forced to reduce production by 50 percent, then about 2.47 million jobs would be lost the first year. One million five hundred thousand would be lost the following year and a little bit more than 1 million would be lost in the third year. And the loss of revenue for cities, counties, states and the federal government would be catastrophic.

Then there is the question of National Security. We won World War II partially because the American auto industry could quickly turn around from making cars to making tanks, planes and other war material. Imagine if we would have to rely on getting our military equipment from Japan, China or Germany at a time of war.

I’m sure that I didn’t touch on everyone of the effects that would occur if one or more of the domestic automakers failed. The point is that we can’t afford to allow them to fail for these reasons and a whole lot more. A bailout should be provided but with strict and proper oversight.