Auto economics - the future of Chrysler, GM, and other auto manufacturers

On Friday morning, I attended a presentation by Charles Chesbrough, Senior Economist at CSM Worldwide, about the future of the automotive industry. This presentation was part of the Dean's Breakfast series at EMU's College of Business. Overall, the presentation was informative but did contain several major shortcomings.

The interesting:

1. Overview, I enjoyed the review of metrics used to track economic growth and contraction in general. According to Charles, we should see solid turn-around numbers middle to late this year.
   
2. Obama's stimulus bill is larger than all other major U.S. spending projects in history - COMBINED. Using inflation adjusted dollars, the $8.7 trillion available in TARP funds is bigger than the Louisiana Purchase, the New Deal, the Marshal Plan, WW II, Vietnam War, the space program, and Iraq-Afgan War - combined.
   
3. Because of #2, the federal deficit may reach 100% of GDP by 2014. Again, the U.S. is reaching an unprecedented area. Either taxes will have to increased dramatically, more money will have to printed (inflation?) or our federal government will go bankrupt.
   
4. On the automotive side, expected car sales in countries such as India and China (assuming they continue their current growth) will likely be larger than the U.S. within 30 years. For the companies that can establish a footprint in this two countries, they will likely see excellent growth.
   
5. Chrysler will likely have a prolonged death. According to Charles, there are no new technologies in the pipeline for Chrysler. So even with the massive bailout today, in 5 years, Chrysler cars will not be even remotely competitive. Even with its merger with Fiat, its doubtful that anyone in the U.S. will want to buy a Fiat.
   
6. Many auto suppliers will go out of business. For the past 20 years, the big 3 have been squeezing the margins of the suppliers. Their profit margins are so low, that many will likely have to file for bankruptcy before the recession is over.
   
7. Many of the Asian car manufacturers will weather the recession quite well. Honda and Toyota have lean dealership networks, less overhead, and higher profit margins. While their sales have fallen, it has not been as severe as the big 3. They will likely bounce back quickly after the recession.
   

The short comings with the presentation:

1. Although Charles never explicitly admits to being a Keynesian economist, he supports Obama's economic policies and calls Obama's policies Keynesian. Unfortunately, Keynesian has a history of being wrong.
   
2. No discussion of inflation potential. With the massive spending of unprecedented scale, their is a real fear of high inflation over the next few years. Charles does not discuss that impact on the recovery.
   
3. Charles does not understand the causes of economic growth. As one questioner explicitly challenged the presenter with, Charles assumes the economy must be stimulated. He believes that the government can throw money around and that will fix all the problems. He states that the government needs to create "desire". But these measures must take money away from other sources. Besides being highly inefficient, its profoundly immoral.
   
4. And not too surprisingly considering the above, Charles argued for a higher gas tax to force consumers to buy small cars, thereby allowing automotive companies to better predict the future. Nothing like good old fashioned communism economic engineering.

[Update: Fixed factual error on the extent of the spending. Its 8.7 trillion, not billion. And its from the TARP funds, not the stimulus.]

Objectivst Round-up

Welcome to the May 14, 2009 edition of the Objectivist round-up. This week presents insight and analyzes written by authors who are animated by Objectivism, the philosophy of Ayn Rand. According to Ayn Rand:

My philosophy, in essence, is the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute.

"About the Author," Atlas Shrugged, Appendix.

So without any further delay (and in no particular order), here's this week's round-up:

Rebecca Knapp presents A Hero Speaks Up for Hedge Funds posted at The Undercurrent, saying, "In the past months, Washington has used its pull over and over to force businessmen to buy into its programs. One businessman has finally said NO."

Kelly Valenzuela presents Living in the "Dark Ages" posted at Rant from the Rock, saying, "Well, I'm new to blogging and Objectivism, but I kinda liked this entry, if I do say so myself. :-)"

Ryan Puzycki presents Capitalism In Crisis? posted at The Undercurrent, saying, "Richard Posner, writing in the WSJ, claims that the current financial crisis is a crisis of capitalism. But the government interventions so pervasive in our mixed economy are what have brought about this crisis."

Randal Allen presents Malcolm Gladwell vs. the Self-Made Man posted at The Undercurrent, saying, "Malcolm Gladwell's recent book Outliers suggests that the secret to success is waiting for your ship to come in. Is individual greatness merely a result, as Outliers claims, of one's environment chancing to provide the necessary resources? This article evaluates Gladwell's ideas about the self-made man."

Alex Moya presents The High Cost of a Free Lunch posted at The Undercurrent, saying, "As the Obama administration embarks upon an unprecedented expansion of the welfare state, we must realize that we are paying not only with our tax dollars, but with our very freedom."

Khartoum presents The Argument from Self-Interest. posted at Philosophy, Law and Life..

Ari Armstrong presents Out-Of-Wedlock Births Approach 40 Percent posted at AriArmstrong.com, saying, "The out-of-wedlock birth statistics reveal a scary trend, though of course not all such births are a problem."

Kyle B presents MBAs 20% Off! posted at The smallest minority.

Grant Jones presents Obama: Historical Revisionist posted at The Dougout, saying, "On the next Obama apology tour."

Doug Reich presents Plato's Beauty Pageant posted at The Rational Capitalist, saying, "What is the philosophical connection between a Saudi Arabian beauty pageant and Obama's regulatory "czar", i.e., how is modern religion related to Platonism?"

Myrhaf presents The Idiocy Americans Swallow posted at The New Clarion, saying, "This post generated a lively argument in the comments. I would like to note that I am not opposed to gardening. My point is that gardening to avoid high prices at the supermarket is not a good way to save money."

Benjamin Skipper presents The Triumph of the American Imagination: A Book Review posted at Benpercent, saying, "My book review of Neal Gabler's biography *Walt Disney: The Triumph of the American Imagination*."

Jason Stotts presents On Bisexuality posted at Erosophia, saying, "First thoughts on the viability of bisexuality"

Michael Labeit presents On "Common-Sense Regulations" posted at Philosophical Mortician, saying, ""Common-sense" nonsense."

John Drake presents The danger of current search technology posted at Try Reason!, saying "Modern search engines offer great value in finding useful web sites through their reputation system. However, these reputation systems should not be considered a substitute for objective knowledge. I look at one case, the Chrysler bankruptcy, that shows the limitations of reputation systems."

Doug Reich presents The Story of Stuff is the Stuff of Evil posted at The Rational Capitalist, saying, "An evil environmentalist propaganda film aimed at children should be banned in public schools on the grounds that the showing the film would violate the separation of church and state."

Gus Van Horn presents From Fifth to Forty-Second? posted at Gus Van Horn, saying, "All states are not equal. Nor are all rankings of freedom by state."

That concludes this edition. Submit your blog article to the next edition of the Objectivist round up using our carnival submission form. Past posts and future hosts can be found on our

blog carnival index page.

The danger of current search technology

After my visit to Pure Visibility (an Internet marketing company) last Friday, I got to thinking about the limitations with current search engines.

Google is doing a lot of things right with search. They have implemented universal search, returning images, videos, and maps as well as traditional websites from search strings. They have added website quick links to search results so that users can navigate to sub-pages faster. They have spent millions of dollars on optimizing their search algorithms to return the best results they can from search terms.

But with all the good they are bringing to search there has always been a problem I have with the one thing that made them so successful early in their existence. And that is the premise that high search engine rankings are, in part, a popularity contest. A reputations system might be a more accurate term. The higher reputation a website has, in terms of other websites linking to it, they higher it is placed on the search results page. While there is nothing inherently wrong with reputation systems (after all they are just tools), it continues to perpetuate misinformation in the form of highly reputed content that does not deserve to be.

Take, for instance, a search for "Barack Obama Chrysler bankruptcy". One of the first news stories is from CBS. It stated that:

Mr. Obama praised the sacrifices made by the autoworkers' union and the majority debtholders, whose concessions gave officials hope that Chrysler would be able to restructure without filing for Chapter 11. But the small hedge funds who hold 30 percent of Chrysler's outstanding debt held out for "an unjustified taxpayer bailout," according to the president.

Leaving aside CBS's lack of accurate reporting of the facts. Consider that most American's that want to research this issue is presented with these types of articles.

The next few highest search offer similar titles:
Obama Blasts Hedge Funds Over Chrysler Bankruptcy Holdout
Obama Points to New Villain in Chrysler Bankruptcy: Hedge Funds ...

Not one article in the top ten seriously questioned Obama's role in the bankruptcy. Bankruptcy law has a long history in the U.S. Never, to my knowledge, has a sitting president played such an active role in a bankruptcy proceeding. Regardless of the motivation you may input upon Obama, the truth is, the only reason he would become involved in the process is if he wanted the outcome to be different than the rule of law would suggest. Articles, such as this one at the Ayn Rand Center or this one at the Wall Street Journal (subscription required to view the article), show how the perversion of bankruptcy law is being sold to the general media.

Google search based largely on reputation misses these important links.

Face of Joy

The joy of a three year old
waiting for the train.
Waiting for his favorite train in the whole world,
Thomas the Tank Engine.

One ride. A dream come true.

If only we could all experience the same unadulterated joy that he does at this moment.

Productivity in practice

I'm quite proud of my handiwork this past month. My biggest project was putting together my kids' playset. It all started one rainy afternoon, when the boxes arrived. The delivery guy gave us one box that was busted open, so step one of the process was inventory of every single board to ensure nothing was missing.


With the help of a neighbor and quality control testing from my kids, the frame was quickly put together.
About 500 screws, 100 bolts, and a few bruises later, it all came together. The end product should provide my kids with many years of entertainment.

I also put together my son's first bike and a wheelbarrow, both of which came disassemble.


I really enjoy the process of building stuff.

• Changing the world to satisfy my values.
• Using my hands and my mind to alter reality.
• Having something to show for my work.

Practicing the virtue of productivity is very satisfying. I have a bunch of other projects lined up for the summer as well. It should be good times.