Over the past few weeks, I've seen a lot of people, particularly on television, freaking out because auto makers are losing money, and auto dealers can't sell SUVs. I thought the days were long past when anyone believed that what is good for General Motors was good for the country, but apparently not. People seem to connect the purchase of large, gas guzzling cars to prosperity in some deep reptilian part of their brain that will brook no argument.
First of all, not all automakers are doing badly. I am contemplating the purchase of a Mini for its excellent fuel economy and terrific easyness of parking in a crowded city. The problem is, you can barely get your hands on one, because everyone else in America just had the same thought. If anyone knows where I might acquire a 2008 model with a manual transmission and not so heavy on the options packages, preferably in a non-hideous color, you will be my new best friend.
But as I was saying. We are witnessing the market adjust to changing conditions. The fact that not so many people want SUVs is not some sort of national tragedy. The auto companies will retool and produce more small cars. We will buy them. Perhaps we will occasionally take the bus. This is not, itself, enough to produce a recession.
The delusion that SUVs languishing on the lot are the primary cause of America's economic malaise seems to come from the same kind of paltry economic logic that causes people to claim that America is doomed because it has stopped making stuff and now just produces services. A car is an ends, not a means. In the grand scheme of things, the transition from Hummers to Corollas is going to have less effect on American well being than the transition from tallow to vegetable oil in the McDonalds Fry-o-lators.
To be sure, oil prices and a hell of a financial hangover have made the economy look a little sickly of late. But we would still be having pretty much the same recession if we were all driving around in Jeep Grand Cherokees. We'd just have a slightly higher viewing angle.
If you're not hell-bent on a Mini, may I suggest the Chevy Aveo? Seats 4 comfortably, with plenty of cargo room, and around 25 city MPG (probably would be more if I didn't live in Houston...) I've had mine for about a year, and I love it. Incredibly easy to park, and I've gotten comments on how "cute" the hatchback is. I'm sure you'd have no trouble finding one.
Oh, and it's about $5000 cheaper, too.
Will you post a video of the human origami necessary to get yourself into a Mini?
I have an old stick Ford Escort that pulls 35-37 highway; you could go for a small used car and save some serious money.
I don't think it's a reptilian love of SUVs so much as it as a general concern for the tens of thousands of Americans who work for these companies and who's pensions are tied to these companies. Big American companies declaring bankruptcy is a bad thing for lots of families.
I like that you point out that not all car companies are struggling by citing the example of the Mini. A car produced in England.
Your cluelessness never ceases to amaze.
I am contemplating the purchase of a Mini for its excellent fuel economy and terrific easyness of parking in a crowded city.
Just be alert that the Mini Cooper requires premium gas, as do many of the newer "high gas mileage" vehicles. That offsets some of the $$$ savings on gas.
Megan, I'm afraid that you just moved yourself a few notches up the "techboy dream come true" scale. A woman who drives a manual transmission is *very* cool.
To me, the story is more about how California regulations pushed GM to the forefront of the electric car movement (with the EV) pretty much against their will, but with gas so cheap, they wanted out and when Bush took over, maneuverings were made to free GM from those CA regulations, where they quickly (and forcefully) removed all their electric cars from the streets and destroyed them. This initial leadership in the industry by GM is what caused a panicked Japanese industry to start working on their own product, which now rules the alternative fuel car industry, leaving GM and its trashed fleet in the dust.
GM was stupid and their own sort-sided greed did them in, and yes, as noted above, this will drastically affect many American autoworkers and their pensions. This to me is a prime example of how the government can use its power to push for innovation. In the cheap gas era of the 1990's there was little incentive for "the market" to tackle the problem. All one must do is compare the US broadband market (and infiltration) to that of the rest of the world and you'll see that our invisible hand technique is not necessarily the best way to do things. Despite what theory says, the "free market" can often lead to less competitive outcomes and more regulation can stifle the rise of oligopoly/monopoly markets. This is mainly due to the flaws in the assumptions of such theories. [the switching of decreasing to increasing returns to scale in international trade models always struck me as a brilliant example of how a universal idea (in this case, free trade is always good) can get completely overturned once you switch a basic assumption, especially when that new assumption might be more realistic than its predecessor.]
The model year's slightly off, but here you go.
I actually did a good deal of development work on several MINI models with several powertrain variants. The manual is definitely the way to go (in almost any car, IMO), but first gear on any model above the rated 125kW is super, duper short. As in, completely optional. Even by European standards. But still fun.
And yes, you must run premium fuel for any of the direct injection models, otherwise you lose much of what you pay for.
Despite what theory says, the "free market" can often lead to less competitive outcomes and more regulation can stifle the rise of oligopoly/monopoly markets.
I would love to hear how more regulation of the auto industry would lead to more competetion. One of the main reasons why the US market is stuck with only 2.5 companies is that the cost of complying with regulations created an impossible market for new enterpreneurs and high risk for capital investment. The oligopoly that we had was largely due to regulations. Collective labor markets and incompetent management haven't helped in making Detroit competetive, either.
More regulation? Not buying that one.
Go Scion. The xB is no longer than a VW Golf, plus it has a Tardis-like ability to seem much larger on the inside than the outside. The xD is probably even smaller outside and similarly roomy.
George:
The problem with your argument is it's based on the assumption that the government is uniquely qualified to predict future trends. It's not. In fact, it's probably less qualified to do so than private companies because it's so strongly driven by political concerns.
The California government didn't force GM to make electric cars because it had the foresight to realize that $4/gallon gas was in the near future--it did so because of pressure from environmental lobbyists who thought we should all have electric cars, the economics of it be damned. Sure, it worked out for the best this time, but only by accident. Speaking of which, how's that whole corn ethanol thing working out for you?
Just be alert that the Mini Cooper requires premium gas, as do many of the newer "high gas mileage" vehicles. That offsets some of the $$$ savings on gas.
One can run the engine with less than premium rated fuel, but with severely reduced performance.
I swear that I do actually know how to spell competition. I swear.
A somewhat off-topic observation on SUVs: I've had several trips where I needed to rent cars (from airports) lately, and I've found that rental prices on SUVs are plummeting. I just got a crossover (Chevy Equinox) for the same rate as a mid-size, and only $5/day more than the cheapest economy car. If people aren't even renting SUVs while on vacation, then this really doesn't bode well for anybody actually buying them.
Rob: No contortions required, and I'm 192 cm tall. The back seats, however, are another story -- if you expect to be regularly putting people there, you want a Clubman.
All one must do is compare the US broadband market (and infiltration) to that of the rest of the world and you'll see that our invisible hand technique is not necessarily the best way to do things.
I realize this sterotype makes for easy street cred in some quarters, but considered in terms of context facts, a worse example could hardly be found.
First, ever look at the prices and policies in the rest of the world? Generally only Scandanvia does it unquestionably better, and part of that is achieved through government sponsorship via tax rates no American would tolerate, plus coverage requirements entailing much smaller distances, which leads us to...
Second, to the extent that e.g. Western Europe has good broadband coverage, it is because the coverage area is smaller. The crow-flight distance from Los Angeles to New York is about 2,500 miles. To cover this same distance over the Eurasian landmass requires a flight from Lisbon to Moscow.
Third, density. In between the dense coastal centers of the US, there are enormous expanses of land where people live in densities that rapidly decline to two digits or less per square mile. The US encompasses 3.79M square miles and has a population of about 300M persons; by comparison, the entire European continent occupies 3.93M square miles and hosts 731M persons.
The US has good broadband availability, and that often from competing providers, in any urban or suburban area with density comparable to the other top Internet-enabled nations (e.g. Western Europe, Japan, SE Asia). Where availability breaks down is in the same areas that many of these countries know nothing about by virtue of having been densely populated for centuries -- vast open spaces.
Nelson does appreciate Lisa's new look -- he laughs at her ("HA- ha!"). Lisa sighs and replaces her wool hat. Mrs. Glick walks by,
trips on the curb, and winds up head-first in a trash can. Nelson laughs at this, too. An extremely tall man drives past in a VW Beetle, scrunched up so his knees almost bang into his head. Nelson laughs. This proves to be his undoing. The man pulls over, unfolds himself from the car, and pursues Nelson. Realizing his predicament ("Crud.") Nelson runs off. The man rounds the corner, but sees only Lisa, and an open manhole. Of course, the manhole is where Nelson is hiding.
Wadlow: [lifts Nelson out of the sewer by his head]
Do you find something comical about my appearance when I'm driving my automobile?
Nelson: Yeah.
Wadlow: Everyone needs to drive a vehicle, even the very tall.
[turns Nelson to face the car]
This was the largest auto that I could afford. Am I therefore to be made the subject of fun?
Nelson: I guess so.
The tall guy forces Nelson to march down Main Street, pants down. He drives slowly behind the ashamed bully.
Wadlow: Hey, everybody! Look at this -- it's that boy who laughs at everyone. Let's laugh at him!
Crowd: HA-ha!
I really love the assertion many make that GM and Ford could have been in much better position today if they had never started making bigger and better SUVs. If they had ignored the consumers' preferences, they would have gone out of business 10 years ago.
There is a common misunderstanding about how business works- it is the buyers that determine the product lines, not the sellers.
I live in Virginia Beach. Our local Mini dealer - Checkered Flag Mini has a few manual models listed as in stock. Hit their website - checkeredflag.com
If I were in the market for a new car right now I'd probably look at a large SUV like a Grand Cherokee. There are terrific deals available, and because I commute by train* and only drive about 9,000 to 10,000 miles a year the cost of gasoline wouldn't be a deal-breaker.
* = commuting by train is a loathsome, soul-destroying horror show, so I might as well get some good out of it.
...the same kind of paltry economic logic that causes people to claim that America is doomed because it has stopped making stuff and now just produces services
I don't care about the SUV's, but I am very uncomfortable about the loss America's manufacturing base ( especially the high tech manufacturing base).
If the loss of manufacturing was actually the result of Ricardian comparative advantage, I would be fine. But it's not. Essentially, China has offered us this deal: we will give you goods for free, if you us your manufacturing base. And the US agreed. Thus China buys our debt ( which our government then inflates away) to keep its currency low, and then heavily subsidizes its industry. The result is that manufacturing in the US became unprofitable, and it all moved to China. Meanwhile, the cheap debt financed "service" jobs in government, education, and finance. Everything is fine for now - until China decides it has stripped the U.S. of all the manufacturing it can handle, and decides it no longer needs to buy our debt. When that happens ... look out.
I'm despondent that you, a self-proclaimed libertarian, bought into this "service economy" myth. Have you noticed where these "service" jobs are located? Almost all of them are in finance, insurance, government, healthcare, and education. These are the industries that in the U.S. are almost entirely socialized or cartelized. What should have happened is that technological advancement should have led to leisure time, not jobs in the regulatory state. If you extrapolated the technology changes from the 1950's, while keep regulations constant, we'd all be working 10 hour weeks and retiring at 30. What the hack happened?
Yancey, the problem isn't that GM and Ford haven't been making small cars, it's that it will take them too long to switch to making small cars for the American market.
Megan - my wife bought a Honda Fit (manual - we had to wait 6 weeks for delivery), and it's rather roomy. Gets 30-33mpg, has enough space behind the back seat for a 45 pound dog (or a stroller plus groceries), and is shorter than the Acura Integra she sold.
"Essentially, China has offered us this deal: we will give you goods for free, if you us your manufacturing base. And the US agreed."
American manufacturing is alive and well. It's just high-tech and efficient, so it produces more output with a lot fewer employees than decades ago. There are plenty of American manufacturing companies that are doing great that few Americans have heard of. Here's just one example, Graham Corporation.
Dave-
Sure there are plenty of manufacturing plants still around. But the trend has been very negative. My dad worked for a big telecommunications company, and its 120,000 high tech jobs almost all went abroad in the past decade. Another example, GE, divested mostly into finance, and has downsized much of its manufacturing.
Admittedly, the above evidence is anecdotal ( as is yours). But check out this graph. Does that look like a healthy economy to you? If our manufacturing base was high tech and healthy, we wouldn't need to borrow $600 billion a year from Asia and the Middle East.
Libra: manufacturing production is up, manufacturing employment is down. Net, that's a good thing, just as increases in farm production with decreases in farm employment before it was a good thing.
As to the hours thing - if our standard of living was still that of the 50s, then we probably could get by with 10 hours / week. However, we used our efficiency gains to get even more stuff, not to reduce hours.
The United States is the still the world's largest manufacturer in terms of output. Manufacturing output increases year after year except in recessions.
Are there policies that could have increased output more than it has? Of course, but those policies are generally not the offered by those claiming to be concerned about the "decline of American manufacturing".
Anthony,
What you wrote is likely true to some extent, but that is precisely the argument I was writing about- if they didn't make SUVs in the past, then they would not have to change their manufacturing at all. This misses the fact that they could not, and cannot make money on fuel efficient cars. Bankruptcy is coming soon.
Yep, when you lose money on every fuel efficient vehicle sold, while your competitors make money on those vehicles, there isn't a helluva lot of incentive to focus on those vehicles, unless one is willing to go to war in an effort to change your manufacturing and labor pradigms, in order to achieve profitability in selling such vehicles. Going to war probably leads to bankruptcy anyways, since it is likely the only way to gain enough labor flexibility and reduction in legacy costs. It is perfectly rational to sell the gas guzzlers as long as possible, and then go the bankruptcy route once gas prices precludes such an emphasis.
Given that so many factories owned by GM are extremely antiquated, it will be interesting to see if reorganization is in the future, or liquidation. Either way, the UAW is going to have to decide once and for all whether they want to preserve their union for current and future workers. I tend to think that if GM does merely reorganize, it will do so while ending all manufacturing in North America or the U.S..
Will,
I don't agree with the last part. I think the coming bankruptcies and reorganizations can be used to finally break the grip of the UAW, once and for all. Both Ford and GM still have a large market for their autos, and would be very viable businesses if it weren't for the costs related to the UAW. Solve that problem, and I think both companies can still maintain a large manafacturing base within the US just like the other auto manufactures do.
I am pessimist, however. I expect the government will step in and subsidize both indefinitely.
Megan
Minis have street cred, and BMW driving. And they are plenty roomie for the 6'+ crowd (as you know)-- my best mate is 6'4" and has no probs with his.
But you are letting yourself in for serious potential repair bills. This is a BMW.
You could pick up a 2006 one, say, that has undergone the depreciation.
What I call a Honda Jazz (you call a Honda Fit?) might be a better bet.
My sister owns a Honda Fit. She hasn't had it long, so I don't know how good it is, but it is a Honda and not likely to be bad.
I agree with Valuethinker's advice in the general sense- whatever you buy, buy a used model. Paying the premium for a brand new car is just not worth it, in my humble opinion
DDP
If the manual says premium gas, I would recommend premium gas.
Redoing the engine could be a very expensive exercise.
Yancey
At the moment, the 1-2 year old Toyotas and Hondas aren't trading at a significant discount to new ones.
You are better off having a new one, with the warranty.
The usual rule of thumb about buying 1-2 years old just doesn't apply. The market is not being rational (or at least normal) about this.
Mini is a prestige brand and not widely sold in USA. It will have high repair bills (eventually) and (eventually) potentially high depreciation.
If Megan's goal is to have 'street cred' and (indelicately) to 'pull' with the opposite sex(unlikely to be a serious problem sans vehicle) then it will pay non-pecuniary benefits to own a Mini.
http://automobiles.honda.com/fit/price.aspx
95 inch wheelbase (the basic number to determine manoeuvrability in a car).
Sport model starts about $15,500.
For the life of me, I could not pull the wheelbase off the Mini USA site.
Price of a 1 year used one: $25,000 from the search algorithm on Mini USA
http://www.miniusa.com/#/shop/next/search-m
Unless Megan drives a *lot* of miles, the 5mpg difference will not make it worth the $10k (say $8k after tax etc.).
Over to Consumer Reports.
Jody and Yancey-
This is simply not a case the jobs disappearing due to technology. The jobs and output still exist - just not in the U.S. The elephant in the room is that we import 17% of our GDP and export only 11%. That cannot last. If we were really trading services for manufactured goods, these numbers would be equal. And this deficit is not a matter of toys and textiles. We are net importers of semiconductors, mico-processors, cars, steel, airplane parts, and machine tools. Worse, you can't just get these industries back when the currencies realign. All the machinery, know-how, and industry networks are gone.
U.S. manufacturing output is much lower than reported, due to huge methodological flaws.
China's growth in manufacturing the past few years has shot right past the U.S. Read about it here. Also check out the comments.
Fair enough on the Toyotas and Hondas. One might look for even older models on those (though the Fit seems to be a recent addition to the Honda family).
Used car markets for smaller autos is likely to a seller's market with the recent runup in gas prices.
Also, if the Mini has such a potentially high repair costs, then I would steer away from it altogether.
Meghan,
I'm 6'2" and the Mini is one of the few cars that I drive without having the seat all the way back. I think you'll love it.
For the same price you might also want to look at a VW GTI - I have on and I love it!
Libra,
In Mandel's own essay, he writes that they don't even know the magnitude of the possible error- it could be greater than or less than 1% of GDP (and I question the 1% figure since it doesn't correspond with the actual dollar amount they quoted and the context it was quoted within).
The standard Mini (I haven't yet seen a Clubman) sits on a 97.1-inch wheelbase.
As Mike pointed out above, the first-generation Scion xB is practically an automotive TARDIS: its interior space is vast, while its exterior footprint is tiny. Unfortunately, Toyota was apparently uncomfortable with "less is more," and the new xB is bigger, heavier and thirstier.
Don't go for a MINI - it's front-drive and so can't ever be a truly *enjoyable* car to drive.
Do US dealers offer the BMW 1-series? If you're after a sub-sub-compact the 130i M-Sport is the UK's current hot-offering - small, nimble, easy on the gas and really rather fun!
See http://www.pistonheads.com/doc.asp?c=100&i=12436
Tanuki - yes
http://www.bmwusa.com/Default.aspx
And they start at $28k, even more than a Mini.
And they will cost a bomb to fix: depreciation will be higher than a Jap car. Not particularly fuel efficient either (given the diesel models are not sold in the USA).
104.7 inch wheelbase on the 1 Series Coupe: blows the easy parking criterion as well.
90% of the world's small cars are FWD. BMW make lovely drivers' cars, but particularly in a North American environment, not worth the hassle.
jmo
Even in Europe, VW Golfs have high total cost of ownership: spare parts relatively expensive, repairs expensive, depreciation high.
The wouldn't be worth it in the US car market.
You can cheat hear and buy a (much cheaper) Skoda.
Libra,
"Another example, GE, divested mostly into finance, and has downsized much of its manufacturing."
Infrastructure, health care (e.g., diagnostic machines), and industrial products still produce most of GE's earnings (see p.8 of this PDF of its financials). Its rival United Technologies, as stuck more closely to its core manufacturing businesses (elevators, helicopters, HVAC systems, etc.).
"But check out this graph. Does that look like a healthy economy to you?"
That graph cuts off around 2002. Why? Because the trend since then wouldn't support the blogger's point? American manufacturing has been booming in recent years.
"If our manufacturing base was high tech and healthy, we wouldn't need to borrow $600 billion a year from Asia and the Middle East."
One thing has nothing to do with the other. As long as our federal government spends more than it takes in in taxes, we'll have to borrow the rest. That would be true even if manufacturing comprised a larger percentage of our economy.
If the manual says premium gas, I would recommend premium gas. Redoing the engine could be a very expensive exercise.
For "required" premium gas, yes. But that's not where you're headed in a modern vehicle if you don't use "recommended" premium gas. The whole point of the premium is that it reduces propensity toward engine knock (premature detonation), allowing for higher comrpession ratios and/or higher engine operating temperatures.
If premium gasoline is not used, the powertrain computer will compensate by reducing the fuel mixture and retarding the spark timing. This is where the "loss of performance" comes from. It's also a standard means of preventing overheating when the vehicle isn't getting adequate airflow over the radiator relative to the amount of combustion heat being produced, usually due to extended operation on a hot day with the AC running, or an extended high-rpm run in the shop (such as a dyno test).
valuethinker:
VW "depreciation high."
Then how did Volkswagen win the 2008 Kelly Blue Book Best Resale Value Award?
http://www.kbb.com/KBB/NewsAndReviews/BestResaleValueAwards.aspx?SelectedTabIndex=2&YearId=2008&r=260427688479452130
Do you have any idea what you're talking about?
jmo
I said:
"Even in Europe, VW Golfs have high total cost of ownership: spare parts relatively expensive, repairs expensive, depreciation high"
Which part of 'in Europe' did you find difficult to understand?
You *could* have said in reply 'US experience doesn't show high depreciation for VWs'.
Then we could have had a conversation regarding why. My suspicion is the rise in the price of new VWs. Europe has its own currency (the Euro) which has appreciated against the USD. Hence, the price of VWs in USD would have risen sharply, unless VW opted to take a margin cut (which probably would have meant selling at a loss). If the price of new VWs rise, then the price of relatively young used VWs will also rise.
A second factor might be that in the US fuel efficient cars have shot away in price relative to the pack, and VWs are relatively efficient.
So the question would then be 'would that experience be repeated?' ie would these factors (one off) continue to support the resale value of VWs relative to new ones.
My experience of VWs in North America was of Jettas owned by the family, and yes, jmo, they did have high repair bills (and hence high depreciation: the market anticipated that higher total cost of ownership). Fun cars to drive, well built for a family of 6'+ers (my father and brother are both over 6'4" tall), but expensive to own.
But instead of engaging in me with that discussion, you ignored that I was talking about Europe, and you tried to show how smart you were, and attempted to denigrate me by calling me dumb.
In short, you don't know how to have a civil argument, and in the process you weakened your own argument.
http://www.vw.com/gti/completespecs/en/us/#/show_all
jmo
Note 101.5 inch wheelbase. Starting price at $22,500. So therefore:
- less manoeuvrable than a Mini or a Honda Fit
- higher depreciation expense than a Fit (by definition)
Valuethinker,
"My suspicion is the rise in the price of new VWs. Europe has its own currency (the Euro) which has appreciated against the USD. Hence, the price of VWs in USD would have risen sharply, unless VW opted to take a margin cut (which probably would have meant selling at a loss)."
You do know they make Jetta's and in Mexico? So, for that model it would be more a question of USD/Mexican Peso rather than EUR/USD...
You do know their has been no sharp price rise for VW's in the US?
You really have no idea what you're talking about....
Re: All the machinery, know-how, and industry networks are gone.
The hardware may indeed be gone, but the knowledge is not. It's not as if America has suffered some mass amnesia. And even if we had, the knowledge we would need survives in books and digital format.
Look at China itself: it took the country a bare few years back in the 80s to go from an agricultural peasant state with a relative handful of diastrously inefficient and badly run factories to the industrial powerhouse it is today. I see no reason the US could not restore its own industrial base in a few years too if it had to.
You could try a Honda CG125, 70mpg, but it would require wearing leathers...
All you 6' plus people who claim to easily fit a Mini must have small feet. I'm 6'2", 225#, and I wear a size 11.5 shoe. If I sit down on the seat with my legs out the door and attempt to pivot into the car, I CANNOT get my right foot past the steering column, even with the seat all the way to the rear. Only by doing some really weird contortions sort of like on pointe' while sliding in sideways can I get into the driver's seat. Admittedly a fun car to drive after this, but...
Libra - Re: "The result is that manufacturing in the US became unprofitable, and it all moved to China."
The US manufacturers about two and a half times as much as China. And US manufacturing has been growing (not as fast as in China, but still it has a solidly upward trend, with basically every non-recession year being more than the previous year)