Why We Worry

General Motors, the American car manufacturing giant, recently announced a second quarter loss of $15.5 billion. Sales of cars and light trucks dropped 29% at Chrysler (Dodge), 26% at GM, 15% at Ford.

I guess folks aren’t too keen on buying gas guzzling monstrosities when gas prices are rising rapidly. This is bad news for American automakers who have recently relied heavily on sales of pickup trucks and SUVs.

Of course, this will mean job cuts and a major shift in focus to smaller more fuel efficient vehicles by the Detroit automakers. But hopefully it wont mean a government bailout.

We can certainly feel sympathy for those workers about to lose their jobs, but we shouldn’t rush to help these companies out of their economic woes. GM, Ford and Chrysler did not heed the lessons of the 1970s oil shocks. Back then they had the same problem, oil was rising quickly in price, and they lost ground to foreign automakers that specialized in smaller more fuel efficient vehicles. Detroit’s stranglehold on the American market has been slowly eroding ever since.

Now the same thing is happening again, except this time they’re also saddled with skyrocketing health care costs and pensions they can’t afford to pay. All of this was predictable, and instead of preparing for a rainy day, the Big Three automakers invested in SUVs, battled against higher fuel efficiency standards and did nothing to help health care reformers in the 1990s.

Now they’re paying for their stupidity, maybe this time the Invisible Hand will have slapped them so hard, they wont make the same short-sighted mistakes again.

Flickr photo by Ahren D

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