US Auto Industry

Antitrust Economics and the Non-Competitive State of the US Auto Industry
[Analysis] The problems that exist in subsidizing the auto industry
Alfredo Ascanio (askain)
Published 2008-12-22 17:37 (KST)
Edited by Rich Bowden

A basic summary of a chapter on the automobile industry in America taken from the study entitled "The Closed Enterprise System" by Mark J. Green (Ralph Nader's Study Group Report), finds the following.

While there once were as many as 88 auto manufacturers in America, today General Motors (GM), Ford, and Chrysler make 83 percent of all cars sold in the country and account for 97 percent of all domestic models sales. GM alone produces 54 percent of all American cars.

During the year 1972, a study by economist Leonard Weiss of the University of Wisconsin estimated that the lack of competition in the US auto industry costs consumers $1.6 billion a year.

If the consumer movement wished to focus on the issue with the most impact on the purchasing public, it should choose the failure of antitrust enforcement.

Paying a $1,000 auto-repair bill when only $500 worth of work was done is painful enough. So is repairing $1,250 worth of damage because a bumper is so fragile that it is damaged in a four-mile-an-hour collision. But paying hundreds of dollars more when you first purchase the car -- since the industry is dominated by the non-competing "Big Three" -- is the ultimate bilk, no less distressing because the cost is invisible.

When supposed competitors get together to fix the price of their products, or when an industry becomes controlled by so few big firms that price competition ceases, the consumer pays more.

So can a competitive marketplace give consumers their money's worth? Or will collusion between dominant industries continue to infect industry, reducing the purchasing power of the consumers' dollar while increasing corporate inefficiency and maximizing profits?

An Industry Sketch

It is difficult to overstate the role of the automobile industry in the American economy. The Automobile Manufacturers Association boasts that one business out of six is automobile related, in Fortune's 1970 list of the 500 top industrial companies, General Motors was listed first, Ford third, and Chrysler seventh.

The industry consumes one-fifth of the nation's steel production, two-fifths of its lead, one-half of its reclaimed rubber, and three-quarters of its upholstery leather. GM alone has 800,000 employees worldwide and earns over $20 billion each year in gross sales, more revenue than any country's budget except that of the United States, Russia, and Great Britain, with the possible exception of the aluminum industry.

As a result, says a Yale Law Journal, "The industry is said to exhibit the indicia of unsatisfactory market performance: inflated selling costs, product imitation, higher than competitive prices, collusive suppression of technological innovation, and persistently high rates of return."

History and Structure

In 1904, 35 companies produced automobiles. The leaders were the Olds Motor Works, Cadillac, and Ford. William C. Durant founded General Motors in 1908, with an aim to control all the principal motor vehicle manufacturers in the tradition of the great trusts.

By 1909 GM did control more than 20 automobile and accessory companies (including Olds and Cadillac) and narrowly missed out on the bid for Ford.

Between 1914 and the mid-1920s Ford was the industry's leader, with approximately 50 percent of the market, due largely to the success of its Model T. The car was cheap and efficient, with totally interchangeable parts between 1909 and 1926.

By 1927, however, GM's sales had risen to 43 percent of the market, due in large part to its acquisitions of Chevrolet and the Fisher Body Company. The peak number of firms in the industry was 88 in 1921. Beginning in 1923, the number of automobile producers began to rapidly decline.

GM claims it is big because it is efficient, but industrial economists who have studied the industry disagree. Professor Joe Bain concluded that an automobile manufacturer would be efficient enough to compete if it produced only 300,000 to 600,000 cars per years, and based on a 10 million-car market, there is room for 12 to 33 manufacturers.

Almost all new cars are sold through independently owned, franchised dealerships. But by a system called "forcing," the dealer must sell a quota of cars or be threatened with loss of franchise.

Planned obsolescence, which GM President is quoted as calling "synonymous with progress", prevails in the industry, causing rapid auto trade-in and a lucrative replacement parts market. The warranty system ensures this hegemony: usually only franchised dealers can perform warranty service, and use only parts authorized by the manufacturer. GM's high return in replacement parts is a primary reason for its overall high profits (21 percent return). The profits on the industry, says White, are "clearly excessive."

What Bain calls "product imitation," a defect common to tight oligopolies, prevails in the auto industry. Unwilling to risk, each firm offers models similar to its rivals to reduce risks.

Is this the problem that exists today in efforts to subsidize the auto industry?

Alfredo Ascanio is a professor of economics at Simon Bolivar University in Caracas, Venezuela.

Los sociópatas siempre temen (una entrevista)

Los sociópatas siempre temen
por
F.Delgado Senior

Franzel Delgado Sénior recuerda que las estadísticas universales demuestran que la mayoría de las personalidades sociopáticas, en cuya clasificación incluye al presidente Chávez, tienen un final trágico.

El psiquiatra cree que el mandatario está biológica e irrevocablemente diseñado para el conflicto. 'Pretender que cambie es como esperar que sus ojos pasen de marrones a azules'.

El poder relajante de la música se siente de entrada en el consultorio de Franzel Delgado Sénior. Mientras el médico se instala en su sillón para analizar la controversial personalidad del Presidente Chávez, se oyen, en el fondo, unos sutiles cantos hindúes que se repiten infinitamente. 'Yo no tengo ningún interés en descalificar a nadie.

Simplemente creo que, sin el aporte de la psiquiatría, no va a ser posible comprender el escenario tan complejo en el que ha entrado Venezuela.'.

Delgado Sénior fue presidente de la Sociedad Venezolana de Psiquiatría, Premio Nacional de Psiquiatría, tiene master en psicoterapia en las universidades de Londres y California y ha dedicado toda su vida al ejercicio de la psiquiatría clínica.

Después de la primera pregunta, el especialista pasa del sereno estado alfa al atento estado beta.

La tesis del magnicidio es recurrente en el presidente Chávez. ¿Tiene
alguna explicación psicológica el hecho de que el mandatario apele a
esta constante en su discurso?

-El Presidente tiene, como todo ser humano, una configuración de la personalidad. Ese proceso que nutre la construcción de la personalidad cierra, en promedio, a los 21 años en todas las personas. Y, después de los 21 años, no es modificable. Cuando las cargas de la personalidad están bien repartidas, podemos hablar de una personalidad normal. Pero cuando ese proceso de estructuración se produce de manera inadecuada y cierra con cargas desproporcionadas (muchas cargas de un
tipo y pocas de otra), entonces la personalidad se configura patológicamente. Y esa configuración patológica es vitalicia.

¿Hay alguna configuración patológica en el caso del jefe de Estado?

-Existen características muy claras que permiten, sin mayor dificultad, plantearse una estructura de personalidad de tipo
sociopática y narcisista. Los trastornos de personalidad sociopáticos están definidos en las clasificaciones universales de la psiquiatría. Se trata de personas que están diseñadas biológicamente para violar las normas; no ejercen la lealtad; no actúan con la verdad; tienen vidas afectivas sumamente inestables; en su estructura no hay sensibilidad; no hay arrepentimientos; tienen que vivir permanentemente en el conflicto; no saben vivir en paz con los demás; y son muy manipuladoras.

¿Y la personalidad narcisista?

-En el caso del narcisismo, la percepción que la persona tiene de sí misma está fuera de la realidad; es exagerada; tiene la convicción de ser única; se siente por encima de los demás. Cualquier mala acción es posible para satisfacer esas necesidades narcisistas de la personalidad. Como los narcisistas se creen predestinados para una situación muy especial, perfectamente es factible que puedan abrigar el temor de que hay gente interesada en eliminarlos. El temor del Presidente ante un magnicidio es absolutamente justificable. Si revisamos las estadísticas universales, encontramos que una proporción muy significativa de personas con trastornos sociopáticos termina muerta. Porque son agresivas, son conflictivas, violan los derechos de los demás, y, en algún momento de su vida, alguien les cobra.

¿Usted puede clasificar la personalidad del Presidente sin que él
haya sido su paciente?

-Yo no hago un diagnóstico como médico, porque él nunca ha sido mi paciente, pero los psiquiátras podemos precisar que las conductas observables del presidente de la República se corresponden con este tipo de trastornos de la personalidad que menciono. Aparte de estas características, creo que Chávez es una persona con un grado intelectual muy básico; un hombre con muy poca cultura; acostarse católico y despertarse a las 8 horas evangélico, es una muestra fehaciente de ello.

pero inteligente?.

-Podría ser inteligente. Lo que pasa es que a veces la inteligencia de una persona engaña. Durante mucho tiempo, las clasificaciones internacionales señalaban que una de las características de las personalidades sociopáticas era la inteligencia. Pero, con el tiempo, ese criterio se revisó, porque se comenzó a percibir que no era tanto la inteligencia, sino la habilidad para manipular a los demás lo que los hacía aparecer como inteligentes. Esperar que el Presidente cambie es pretender que sus ojos marrones pasen a ser azules. No es posible.

¿Pero no podría cambiar ni siquiera apelando a un trabajo de
ingeniería genética?

-Sobre la personalidad no se puede actuar. Aquí no podemos esperar paz mientras el presidente de la República sea Chávez. Porque Chávez no es que no quiera ser distinto, es que no puede ser distinto. Biológicamente está diseñado para hacer lo que está haciendo. Y ni que él se lo propusiera pudiese ser distinto. Mientras no entendamos eso, no vamos a comprender por qué le estamos declarando la guerra a los Estados Unidos, o por qué un gobierno que habla de paz anda comprando cien mil fusiles a Rusia o porqué desajusta la vida y la paz en Latinoamérica.

La idea del magnicidio también la asoma recurrentemente Fidel Castro,
quien ha inventariado la cantidad de veces que Estados Unidos habría
intentado asesinarlo.

-Chávez y Castro, aunque intelectualmente son diferentes (el primero es el guerrero y el segundo el oráculo), deben tener personalidades muy parecidas. Para ser un dictador durante más de cuarenta años, Castro debe tener, sin duda, una estructura sociopática. Si no hay una estructura sociopática, no se puede ejercer la dictadura, porque la dictadura es violación de los derechos de los demás; el irrespeto de los límites; conflictividad; es crueldad. Y eso una personalidad sana no lo puede cohonestar. Ninguna persona que no tenga un componente narcisista, creerse superior a los demás, puede ser dictador. Porque precisamente el dictador lo que busca es poder; sumisión; subyugar eternamente.

Usted dice que Chávez es insensible, pero lo que uno percibe, más
bien, es que es precisamente su sensibilidad lo que lo lleva a
establecer lazos profundos con los sectores populares.

-Lo que identifica al Presidente con los sectores populares es su gran capacidad de manipulación. Toda conducta pública del Presidente, desde abrazar a una viejita, hasta levantar a un bebé en brazos o fotografiarse en actitud de armonía con algún otro jefe de estado con quien tiene conflictos, son actos ficticios. Son actuaciones para manipular. En las personas con esa estructura sociopática, según los textos, no hay una identificación genuina con el dolor y la necesidad de los otros. Todo está en función de los beneficios que él pueda obtener. Yo creo que el chavismo tiene muchas características de secta. Las sectas siempre tienen un líder, a quien se considera como único, especial, como hombre predestinado a una acción superior; y
todos los que siguen a esa persona le deben una sumisión incondicional. Quien participa en el proceso recibe todas las
prebendas, siempre y cuando sea incondicional. Pero a aquél que disienta o se salga de la secta, lo acaban.

Hoy hay criterios de las ciencias, universales, que permiten hacer el diagnóstico de Secta destructiva para cualquier grupo organizado que emerja en el seno de una sociedad, y el chavismo los cumple todos.

¿No existe la crítica?

-No existe la crítica. La lesión más grave que le ha producido la revolución al país es que le ha quebrado la lógica. Nos fracturó la lógica. Nos hemos acostumbrado a vivir con la lógica rota. Un ejemplo típico de esta distorsión de la coherencia es que nos vemos obligados a exigirle al chavismo que cumpla con la Constitución que él mismo promovió. Hay dos elementos que se nos han hecho cotidianos: la paradoja y la incertidumbre. Uno solo de esos elementos que se haga cotidiano, termina enfermando al cerebro. El cerebro tiene que vivir dentro de una estructura lógica, que lo que perciban sus ojos sea lo que él procesa. Cuando Chavez dice: Son unos escuálidos, a la marcha asiste un millón de personas. Cuando Chavez dice: Éste es una maravilla de fiscal, llevémoslo al panteón y, a las dos semanas se sabe que sobre éste fiscal pesan enormes sospechas de extorsión.

¿Cuál cree que será el destino del Presidente?

-Si esta llamada revolución tuviese alguna posibilidad de enmienda, la opción de que se mantuviera sería mucho mayor. Pero, como desde el punto de vista de la psiquiatría no hay ninguna posibilidad de enmienda, dada la estructura de personalidad del Presidente, que es inmodificable, esta revolución seguirá hacia el despeñadero. Indefectiblemente, desde el punto de vista de la ciencia, Chávez tiene algo seguro en su futuro, que es la soledad.

NEW ROOM : UCLA

La Universidad de California y su NEW ROOM.

FDR's policies prolonged Depression by 7 years, UCLA economists calculate

By Meg Sullivan | 8/10/2004 12:23:12 PM

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.

"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."

Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.

The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.

NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.

Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."