CapitalistMarks

GM, the Macro impact of Micro failure!

Posted on 29. May, 2009 by scott in Social commentary, economic daydreaming

This is a brief lesson in macro & micro economics.? It is a friday evening musing about the failures of America’s once giant automakers and the impact these failures will have on the future.? Read this before next monday so you can watch the reality of greed versus need.

Then let me know if you think what you will learn from this is important, correct or even interesting.

En garde!

Many months ago I told a macro economic class I was teaching that GM was going to file bankruptcy (last September to be exact).? Now about $40 billion of taxpayer money later, the government and the company have come to the same conclusion.? How sad that it took this long.? I wish we had let this process go on during the trauma of late ‘08 and early ‘09 so it would be over by now.? But then our government knows best (uhhuh, like Madoff knew best).

Here is the quick catch up lesson.

Macro economics is the economics of a nation (geo macro in the case of multiple nations).? The stuff you have to understand here is GDP, interest rates, monetary policy (how the fed determines interest rates), fiscal policy (how the congress taxes us and spends our money), unemployment rates and such.

Micro economics is the economics of consumers (ultimately).? It is all about how companies manufacture, finance and market products or services and how consumers interact with those decisions.? The stuff you have to understand here is supply and demand, elasticity of demand, prices, labor costs, profits and such.

It doesn’t take a genius to figure out that the two are closely related.? Government policy helps determine whether business can afford to grow (or not).? Corporate decisions help determine whether consumers can afford (or want)? a product or service (or not).? The relationships go far beyond these obvious ones, but I am sure you get the idea.

Now, something on GM.? In an act of full disclosure I will tell you that I have not spent any money on a GM product since I bought a (very) used Pontiac Chieftain as my first car (for $200 by the way).? A second disclosure.? I have spent money on American made cars (three Jeeps) in the last 20 years but I haven’t been happy with any of them.? They break down, cost a fortune to fix, have horrible warranties that require a law degree and the patience of Job to deal with and are generally unreliable.? On the other hand the Hondas and Toyotas I have bought (about 5 so far) have been reliable though expensive to fix (even more than my Jeeps to be honest — but they last at least three times as long — one of them has over 200,000 miles on it and keeps on going!).

Next lesson.? Why the micro economic failure of GM (and Chrysler)?? These are also obvious.? Things like making the unreliable cars they believed people wanted, making cars getting less than half the average mileage efficiency of foreign competitors, making cars so big you can’t park them in a mall (in Europe I saw THREE of their cars parked in a single space next to a honkin’ big old Hummer that took two!) and so on.

Hey, Ossama Bin-Laden captured a Hummer and we’d capture him easily if we just waited for him to ‘park’ the sucker by his caveor try to fill it up at the local terrorist gas depot!

Who is to blame for the GM failure?

Management, yes.? Government, yes.? Consumers, yes.

In a world where we are using exhaustible resources (gasoline) like they were unlimited, where we import so much oil that our national defense is at risk, where middle-class consumers are continually falling down the economic ladder, where consumers allow the greed/pride pressure of ‘advertising’ influence decisions . . . we all have failed.

GM should have known better, Bush-Clinton-Bush should have increased mileage standards long ago (as promised but NEVER with follow-on), Joe Plumber should have been satisfied with a trailer for use as needed rather than a truck capable of hauling an M-1 Abrams tank!!

It is too late to pass the blame around and accomplish anything, but, it is NOT too late to learn from this lesson and make changes going forward.

GM today is a lost cause.? The market cap of the whole freaking company is less than the cost to build a good bridge.? Nobody in their right mind wants a Hummer (excepting the afore mentioned Bin-Laden).? And yet, when they declare bankruptcy next week the macro impact is going to be humm(er)dinger.? Jobs will be lost, investments will be lost, confidence will be lost.? I expect the markets will take in with benign indifference.

But they will be wrong to do so.

Jeez Louise, the president of GM was asked to resign by Obama and his team.? Are we really going to let the government run the ‘new’ company that will come out of bankruptcy?? Afraid so but sure as heck don’t want to see it.

How badly do you want to buy a car from a guy like Joe Biden, Harry Reid, or Orrin Hatch?? Its carcinogenic to even think about!

We have two choices as a nation.? Let this happen and watch from afar or let our elected officials (and our ‘retailers’) know that we want real macro change as a result of this particular micro failure.? This is bigger than the banks (CITI) , the mortgage companies (Wachovia) or the insurers (AIG).? This is about our future (i.e. more than five years down the road).

We have to stop abrogating responsibility and take power from our government.? We the people have to stop buying gas hogs.? We have to insist on cars we can park with one hand and a broken rearview mirror.? We have to stop paying attention to the ads and make decisions for our own good.? And, by the way, we have to stop using plastic shopping bags and just recycle the ones we pull off branches of trees on the way to the grocery store!

Did you think I was going to write about rising unemployment?? Lost investments?? Angry union workers?? Really?

If you did, then you are part of the problem.

The real macro impact of this failure has to be the considered response of more than 300 million American consumers.? If the government won’t do what they should, then we must shine the light for them.

Think about it . . . what kind of car do you want your children or grandchildren to be buying for their first car out of highschool?? Not a Pontiac Chietain (about 11 mpg and big enough for a mainsail and a jib).

Nope, a Prius or something like it and hopefully made in America.

The macro impact is ours to make.? Don’t miss this opportunity to stop sending our $$ to Venezuela and Saudi Arabia.? Take this opportunity to save $$ and time and our future so that our grandkids can afford to play golf or go camping.

You are the ‘micro’ in micro economics, but shoot you can also be a part of the ‘macro’ in macro economics.

I’d love to hear your opinion (but you dang well better agree!!).

Thanks to franco folini for the flickr photo

Tags: gm, hummer, macro economics, micro economic failure