The unhappy giants

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There are two quite different ways of looking at the whopping, all-time-high quarterly losses which the big Detroit carmakers are chalking up. One way, favored in most news treatment of the subject, assumes that it is all because the US economy is in a state of recession, hence the public is not doing its duty by the US carmakers. A variance on this theme is provided by Republican candidate Ronald Reagan, who says it is all the fault of Washington for imposing "regulations" on the industry.

The other way of looking at it notes that General Motors, Ford, Chrysler, and AMC would all be making perfectly good profits right now from selling modern cars if they had had the wisdom and the foresight to retool and start building, or at least getting ready to build, modern cars in step with the development of modern cars overseas.

They are in trouble now for two reasons which are connected. First, they do not have enough modern cars to meet the demand. Second, they are having to spend in a hurry a lot of money on emergency retooling which should have been done long ago.

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Had they done their retooling in time they would have modern cars to sell, probably at lower prices than the competing imports. And they would not be going into the red now.

This is an example of what is wrong with the US economy right now in more areas than just motor cars. During the past 20 years or more large sectors of American industry handed out comfortable and welcome dividend payments to their stockholders, for which the stockholders were grateful. But if a due percentage paid out in profits had instead been plowed back into plant modernization, those companies would today be in both a competitive and a profitable position.

whence should funds come for plant modernization?

In the old days it used to come out of profits plus the general pool of investment capital. But there is a shortage of investment capital. The supply is so short that Chrysler has had to turn to the government for help, just as Lockheed did before. The essential fact is that the private capitalist system has not been working as it should. And unless it can get itself back into better working order there will be more of the present drift toward government or state capitalism.

In state capitalism the state puts up funds for capital investment. And when the state puts up the funds it also tends to take over control of their use. The essential remedy must be for a revival of an adequate pool of private investment capital to keep American industry in step with the times.

Why does Chrysler turn to the government for funds for retooling? Because it did not see on its financial horizon the rise in the price of gasoline leading to a demand for fuel-efficient, modern cars. But it had ample warning. Every president beginning with Dwight Eisenhower has issued formal notices and warnings to American industry that energy shortages were coming.

It is so easy to blame it all on alleged government overregulation. But the automobile industry is a startling example of government foresight and industry blindness. The US government has been trying to push the automobile industry along toward fuel-efficient engines. The industry has resisted every inch of the way. It is only within the last year that they finally realized that to stay in business they will have to do what the government has been pleading with them and pushing and prodding them to do for years.

Had they listened to government advice, instead of fighting it at every step, they would have enough fuel-efficient cars to meet today's demand and give the public what it wants.

Since they resisted instead of complying, the US is at the point where the public has to pay for the retooling of at least one of the big three -- Chrysler -- in the form of government loan guarantees.

The record proves, if anything, that there has been too little government regulation and interference. When Washington proposed fuel-efficient and low-polluting cars, the foreign companies went ahead and built them. That is now what the US public wants.

Meanwhile, the big quarterly losses all of the Us automakers are showing measure not the size of the recession (as most headlines seem to assume) but the lack of foresight in Detroit.

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