U.S. Autos: Those Were the Days

In subsequent years, when Wal-Mart (WMT) Automobile Works sells more cars in America than Ford (F), we shall have forgotten the pain felt in 2009 that the bankruptcies General Motors (GMGMQ.PK)and Chrysler caused.

The giant automakers' demise were a common affliction at the turn of the 20^th century; 20^th century debt servicing overwhelming 21^st century balance sheets. The two cash flows were incompatible and destroyed many companies that crossed over into the new millennium without restructuring. Wal-Mart, from the outset of its international ambitions in the later part of the 20^th century however, harnessed non-union labor, market share, pricing, and nurtured a strategic relationship with China, the future of global production and consumption, to its fullest advantage.

General Motors and Chrysler were dinosaurs that limped into the new century awaiting death. Their hubris to ignore its customers, its competition, the marketplace and demographics, and new technologies, all played a part in their financial cardiac arrest. In addition, their commitment to paying union wages, and the legacy benefits to retirees was quaint and noble and unsustainable post NAFTA.

Equity shareholders lost, unsecured creditors lost, taxpayers lost, municipalities dependent on the auto industry lost as the brutal realities of international capitalism displaced traditional domestic capitalism; so who won? It depends on whom you ask. Nevertheless, the larger point was this foreclosure on the American automobile industry signaled the end to America’s unchallengeable leadership in international business.

Great Britain passed the economic baton to America after World War I for many of the same reasons America relinquished control to the People’s Republic this century. The Obama administration presided over the liquidation of the American automobile manufacturing industry with little opposition in the country from organized labor, congress, consumers groups, or domestic manufactures. Oddly, only the mainstream media and the financial services industry applauded this sobering event as it unfolded.

The next few years saw more manufacturing jobs evaporate, service sector wages stagnate, GDP growth flat line, while interest rates and inflation accelerated and the national debt swell. The prosperity of the average American receded. The magnificent and historically unequaled American century eventually was no more. Emotionless international capitalism had defeated once more a particular unique domestic capitalism as their workers and societies watched their standard of living fade. Perhaps, the decline of America’s love affair with its own automobiles was another black swan that was too obvious for anyone to see.

Disclosure: No position

Comments

[Dave Wrixon:]

Forget it. Loving Autos is inherent in human nature. The only reason the American bought more is because to them they were more affordable. It is those days that are over and they are not coming back until the US economy show that it is place worthy of investment capital. It is interesting you make comparisons with Britain, because it will not start to happen until the American's elect a Thatcher type figure to balance the books. The electoral mindset at the moment is, however, so far from where it needs to be that could take a generation. That is a generation to get to starting line of a tough arduous marathon. Ask any Brit over 50, they will tell you.

Jun 07 06:43 AM

[Marvin Clark:]

We have been operating, more or less, under Thatcherism and supply-side economics for the last 30 years. If all economies were equal, perhaps, it could generate greater efficiencies. However, American society, with the richest economy and the highest paid workers in the world, long-term, had more to lose than gain. Individual investors had only to gain from this upward redistribution of wealth. We need to consider something beyond Keynesian or supply-side economic theory in the 21st century if our intent is to save our 20th century standard of living.

Jun 07 03:36 PM

[buoy:]

Don't kidd yourself, America is not quite through yet.

Jun 09 09:22 AM