Having commented on a number of occasions about General Motors’ woes, and striving to be an Equal Opportunity PunditTM, it’s only fair to give credit where credit is due. Ford this week showed that it can compete with the best of them in terms of losing money,
posting a loss on its North American operations of $1.2 billion for the third quarter and $2.4 billion over the last 15 months. I’m not sure what advice to give Ford. But here’s what I think we might expect from U.S. policy makers.
Should you care? Ford is expected to begin plant closings and layoffs in January. Autos are less important in the American economy than they used to be, but are still huge, and many workers beyond those employed at Ford and GM will feel the effects. The recent problems of Delphi, the largest U.S. auto parts supplier, are just one of many stories we can expect to hear about in the months ahead.
If there turns out to be serious blood on the floor, don’t expect Congress to stand idly by. There may be pressure to protect the automakers from competition by imports, but that probably won’t get very far. At least I would hope that most legislators understand what an economic disaster it would be to re-open the trade wars of the 1930’s.
But what about federal handouts to the poor automakers? That’s another story. Will a Senate that votes 82-15 to spend a quarter billion on a bridge connecting
Ketchikan with Gravina fail to pony up to save jobs in Detroit and Cleveland? The temptation to substitute Washington red ink for that of the Big Three could get pretty strong.
The other Washington player that might want a place at this table would be Alan Greenspan. But the Fed has little responsibility for the problems faced by GM and Ford, you say? True, but an economic recession isn’t going to prove very helpful for Detroit at this juncture. Moreover, the automakers’ woes have an important consequence for the Fed’s current preoccupation, namely, the Fed’s efforts to slow down inflation. The responses by Ford and GM to their problems will exert a significant negative macroeconomic shock, creating slack in labor and affected output markets and lowering costs. Here’s my question for the Fed– if you had a certain target for the fed funds rate (such as 4.50 by January) that made sense in the absence of these problems for two of America’s industrial giants, isn’t it rational to aim for a lower rate in the presence of these problems?
So there you have it. The automakers, which in my opinion should have responded to the shift away from big cars much earlier, are now in a pretty good mess. Congress, which in my opinion shouldn’t respond to that mess, probably will. The Fed, which in my opinion should respond, probably won’t. And my job, as an Equal Opportunity PunditTM, is to kvetch about them all.