WHY THE AUTO INDUSTRY? by James Santagata Here is a simply application of the P

WHY THE AUTO INDUSTRY?

by James Santagata

Here is a simply application of the P macro Framework (parasite suppression, denial of cost shifting/externalities, markets in everything).

As I pointed out earlier, 60% of the US deficit was vehicles, vehicle parts, oil/energy products.

Why? US automakers got slammed three way in the 1970s – first was the oil crisis – which really was retaliation by Arabs for the US supporting Israel’s pre-emptive attacks on Arabs during the Yom Kippur war – Arabs tanks were about to overrun Israel but US military supplies kept the Israelis armed – in response OPEC and the US consumers paid over $1 trillion at the pumps.

If you adjust for opportunity cost and present dollars, it is around $2 to $2.5 trillion impact on the US. At the same time, this killed our beloved muscle car industry over night. And put all automakers at risk. Because this was not a normal, long term cost shifting but short term hits against capital intensive industries with major tooling costs and lead time needed for new cars.

So at that time, US auto makers started to make adjustments, and were also hit with government regulations, DOT, CAFE, and NRLA for unions. they were squeezed dry but rather than fight back, they figured, we will just cost shift onto the backs of consumers – and that worked, until the US consumers found better cars at at fraction of the operating cost in terms of reliability and operation – gas. Japanese.

By then automakers couldn’t responds, some Honda’s like CVCC were selling for 2x and 3x sticker price! And our energy industry couldn’t respond as environmentalists blocked all the domestic drilling and nuke plants. This resulted in the destruction of Detroit, Ohio, Penn, for cars, car parts, suppliers, and steel. Beyond that, any other industry would back fill – like in silicon valley.

Ashton Tate to IBM DBs, to Informix, to Siebel to FoxPro to Oracle, competitors swarm, winners win, only to evolve or get replaced themselves – but the US stays on top of those markets – databases, CRM, semiconductors, etc. etc.

But not in automotive. Super high barriers due to government parasitism and cost shifting. DOT, NTSB, CAFE, NLRA, etc. crush all that industry by industry.