Friday, August 28, 2009

'Clunkers' Lifts Foreign Cars


This is a tremendous lesson in intentions and results of economic decisions not being aligned.....again! The Wall Street Journal buried this story in the back of the "Marketplace" section.

The government introduced "Cash for Clunkers" to stimulate market activity for the "Big Three." It is interesting to note that the biggest beneficiaries were foreign car companies. In the top ten Ford was the only U.S. company represented.

Clunker Winners

The top 10 models purchased under the government's 'cash for clunkers' rebate program:

1. Toyota Corolla

2. Honda Civic

3. Toyota Camry

4. Ford Focus FWD

5. Hyundai Elantra

6. Nissan Versa

7. Toyota Prius

8. Honda Accord

9. Honda Fit

10. Ford Escape FWD


The only U.S. auto maker in the top ten models purchased from the program was Ford? Why? Is it any coincidence that the one U.S. automaker who committed to cutting costs and innovating benefited the most? No. GM and Chrysler were committed to the old way of doing things, specifically getting the government to bail them out with tax dollars.

Schumpeter said:

“Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production."

What value did car companies bring with uncompetitive labor? With bailouts? With inferior products? For GM and Chrysler, the value they created was very little. Ford did somewhat better. Toyota, Nissan, and Honda did extremely better. Their cultures are built on design, innovation, and creativity. They made themselves much more competitive by bringing to market what customers wanted, at prices they could live with. They were not anchored down by unions, salaries above market rates, and cars no one wanted.

What lessons will be learned from this?

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