Looking at Pune’s creaking infrastructure, arguably at its lowest point in last many years, it’s a matter of time before it became even fourth-world. (It's so bad that even the current police commissioner has become frustrated very quickly after his arrival here: "No trace of 'transport culture' in 'culture city'.")
But hope lives. Things change. They do very rapidly. For instance, could any one have believed the following development even in year 2000?
Business Standard reported on November 13, 2008:
“The stock market value of Indian automobile makers Mahindra & Mahindra and Hero Honda has surpassed that of General Motors…Two other Indian companies, Maruti Suzuki and Bosch also had market cap more than GM.”
As on Tuesday Nov 11 2008, Maruti Suzuki’s market capitalization at INR 16,528 cr was almost twice that of General Motors at 8,565 cr.
I don’t like personal cars. I never liked them. Particularly the big ones. Ayn Rand should have written a novel- based on the idea of all private cars going on a strike- titled: "Detroit Shrugged".
Therefore, I was happy to read many arguments that were put forth in favour of not saving Detroit from bankruptcy.
Sample them:
"...On Sunday, President-elect Barack Obama asked, "What does a sustainable U.S. auto industry look like?"
Well, it looks a lot like the automotive industry run by "foreign" car companies that insource jobs into the U.S..." (MATTHEW J. SLAUGHTER, WSJ)
“…How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers…” (THOMAS L. FRIEDMAN, NYT)
“…But, before the cash starts flowing to Detroit, here are three reasons this bail-out is a bad idea.
First, it will reward failure. To read Mr Iacocca’s memoir is to realise that, while Detroit often pledges to change and periodically shows progress, one thing is unchanged in two decades. It is still overpromising and underdelivering against Japanese and South Korean rivals.
GM, Ford and Chrysler are better at talking their own book than making cars, which is a tough business. It is particularly hard when you are stuck with high structural costs, an inflated dealer network and regulations that provide you with incentives to make trucks and sports utility vehicles.
GM can point to some new cars, such as the Chevrolet Malibu, that are of high quality and that 14 of its 15 new vehicles between now and 2010 will be passenger cars or crossovers (lighter SUVs). But when Detroit says things will be different this time, why should we believe it?
Second, it will preserve chronic overcapacity. For years, the Detroit car companies have pumped up US sales to 16m or 17m units a year with financial incentives in order to keep their factories going. They made it so cheap to buy a new car that the average age of cars on the road has steadily fallen.
As a result, when recession looms, customers can stop buying cars because the ones they already have work fine. GM now expects annual US sales to fall to about 12m per year in 2009 and 2010, which amounts to financial catastrophe for Detroit.
The big three want tax breaks and subsidies to inflate US sales again, although the sustainable level is far lower than they have been pretending. “This industry needs to lose capacity. It is obsessed with vehicle renewal and accelerating the replacement cycle, which pushes up fixed costs,” says John Wormald of Autopolis, an industry consultancy.
Third, a Detroit bail-out will harm the US auto industry as a whole because it will benefit the least efficient companies, while the most efficient ones – Asian companies that build vehicles at non-unionised plants in southern states – will face subsidised competition…” (John Gapper, FT)
“….In the U.S., the auto industry is a particularly awful candidate for a bailout. For generations it has represented the epitome of arrogance toward customers and inattentiveness to major societal changes. For decades, Detroit ignored the challenge from Japan, even as Toyota and Honda made cars that were of much higher quality, more stylish and more economical. Since the 1980s, Detroit automakers have lived off the profits of their captive finance companies rather than the sales of autos themselves, acting more like banks than highly competitive manufacturers. At every adverse turn, U.S. auto chiefs ran to Washington for help—for the bailout of Chrysler in the 1970s, for trade protection against Japanese imports in the 1980s, for help in breaking into the Japanese market when Japanese consumers couldn't figure out why they should buy gas-guzzling cars with steering wheels that were, for them, on the wrong side of the road. Time and again, the U.S. auto companies lobbied against even modest environmental laws, as if they bore no responsibility for the air they pollute.
The demise of the Big Three would not be the end of the U.S. auto industry. Toyota, Honda, Hyundai and others could fill the market. Most already make cars in the U.S., and if Detroit craters, they will move more production there, perhaps taking over some of the Big Three's facilities. Which raises another point. Of course, America would prefer to be a manufacturing superpower with its own brands. But it just may be that the future of auto production is in Asia. After all, it won't be that long before China and India join Japan and South Korea in having a world-class auto industry. Tata & Sons now owns Jaguar, and it has also produced the first viable auto costing under $3,000. In subsidizing Detroit, Washington may only be delaying its inevitable demise…” (Jeffrey E. Garten, Newsweek)
“…I understand that the argument "you saved X from bankruptcy, why won't you save GM from bankruptcy?" is very hard to deal with in a soundbite. And I believe the federal government has an obligation to autoworkers and retirees. But this obligation is not well-exercised by keeping GM out of bankruptcy…” (Brad DeLong)
Artist: Patrick Chappatte, International Herald Tribune
1 comment:
Dear Aniruddha,
I had been to Detroit during 2007-08 and closely observed that people tend to Japanese cars because of their benefits over US made cars. My host had two cars, one from Honda and other from Subaru, both not American. Detroit's population has come down to half in last 50 years.The house building industry collapsed during last 5 years.But look at the CEOs of the three big Auto companies. They continued to fly down to Washington DC in their private Jet planes, while begging bown in their hand.
Mangesh Nabar
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