Krugman: Concentration Of US Auto Industry Will Probably Disappear

STOCKHOLM, Sweden — Nobel economics prize winner Paul Krugman said Sunday that the beleaguered U.S. auto industry will likely disappear.

"It will do so because of the geographical forces that me and my colleagues have discussed," the Princeton University professor and New York Times columnist told reporters in Stockholm. "It is no longer sustained by the current economy."

Krugman won the 10 million kronor (US$1.4 million) Nobel Memorial Prize in economics for his work on international trade patterns. Some of his research on economic geography seeks to explain why production resources are concentrated in certain locations.

Speaking to reporters three days ahead of the Nobel Prize ceremony, Krugman said plans by U.S. lawmakers to bail out the Big Three automakers were a short-term solution, resulting from a "lack of willingness to accept the failure of a large industry in the midst of an economic crisis."

Facing massive job losses, the White House and congressional Democrats are negotiating a deal to provide about $15 billion in loans to prevent the weakened U.S. auto industry from collapsing.

Comments

[CaptainVideo]

Krugman says he was misquoted. As he says on his blog, the Conscience of a Liberal:

"Urk. I gather that there’s a report on the wires quoting me as saying that the US auto industry would disappear. What I actually said was that the concentration of the industry around Detroit would disappear.­"

[billw8017]

Elsewhere in these comments, I expressed my disagreement with Krugman; something that I would only do with the greatest trepidation and unhappiness. His correction makes perfect sense. It actually appears that Detroit itself is about to disappear. (There has been some discussion of the city government dissolving and its territories being merged into the suburbs.) General Motors has probably been wise to scatter its factories to create different regions of political support and should only do it more so.

[freelyb]

Would love to hear from Krugman every single day.

[leestorm]

Who says we need a Big 3, anyway? How about a Big One? They better think about it or we might just end up with the Big None.

My experience with "American" cars has been very poor - but very good with Japanese cars. How are they going to convince people like me to take a $30,000+ chance they've improved?

[Notawingnut]

The way we keep the Big 3 is by inducing American innovation into the industry. Obviously SUVs and trucks are on their way out. If they can produce cost effective electric cars, and in the short term plug in hybrids, they'll recapture market share. The problem we face right now is that nobody wants to be the first one to take a leap on one of these middle-of-the-road vehicles. We're in between technology and everyone knows it. My mom's been in 4 toyotas in a row (all Camry) because of their warranty and track record. We had a little toyota pickup when I was a teenager that went 180k miles before we sold it without any major powertrain issues. 10 year/100k mile warranty = buy American. Chrysler is already jumping on this idea with their lifetime powertrain warranty. When they start offering that on an electric car, or at least a plug in hybrid, they'll recapture American market share and survive. In the short and medium term the outlook is grim, but if we are able to prop them up for at least a year, we'll see a return to Big 3 dominance around the world. If we allow it to be a foregone conclusion that they aren't going to sell many cars in the next 12-18 months, and wholeheartedly finance their transition to electric cars, we'll be better off in the coming decade for it.

[CaptainVideo]

My experience with the American cars I have owned has been very satisfactory. I guess it depends on which cars you own.

[Colleen33]

The day of the Americian automobile is now officially a dead horse. So why feed a dead horse? For lack of anything better to do? Actually it would be easier to clean up after a horse than one of Fords big old trucks on the environment. Small is the way of the future as bigger is bad, bad for the environment and unable to compete with small car manufactures.

[ctman2]

The combination of developing and using new American energy and alternate fuel hybrid American made cars is a terrific opportunity for America to get off foreign oil and create lots of good new American jobs.

We eliminate a large portion of the unsustainable balance of payments problem and cut off funding for more Petro wars while we renovate American job creation even if we have to put in place tariffs or rebates for those cars.

America needs balanced trade not free trade and tariffs and rebates must be used to do this rebalancing.

[CAMBEL]

What is more American..­..a GM built in Mexico or a Toyota built in Indiana? If the "Big Three" are expecting Americans to get up and salute the flag to not let our "All American" auto industry go under, maybe they should have stopped closing down all their operations over here and moving their plants overseas. Frankly right now, I don't see anything more american in a Chevy than a Honda. Both have factories here and in other countries, with the one difference that Honda seems to know how to make a profit.

[killpack]

Additionally, I don't see what's so noble about buying American anyway. My whole life people have told me to be open minded and respectful of other cultures and nationalities, not just the "American way." I'm not going to lie, that has always been a struggle of mine. More and more, however, I'm beginning to appreciate how other people do things, both here in the U.S. AND abroad. Why is it that the same people who have pushed me towards tolerance (and I mean that in a good way) are the same ones RAILING on Chinese, Japanese, Mexican and all kinds of foreign producers for taking away American jobs. It's xenophobic and it's hypocritical. I mean, we HAVE to be nice to other countries, but it's okay to prevent someone in Japan from competing for MY business?!?! Why should I care any more about workers in Detroit than I should workers in Japan. I don't know EITHER from Adam. Why should I pay the guy in Detroit MORE and get LESS, because somehow that's more noble?!?! Doesn't the Japanese guy deserve a job too?!?! Aren't we all human?!?!

[Jp2]

Maybe because the american autoworker pays state and local taxes that support state and cities retirees(t­eacher,fir­efigbters,­policeman,­ect.Maybe because he pays federal taxes to support federal employees pension and healthcare and helps fund social security.M­aybe because without a big chunk of what remains of the middleclass your standard of living will deline and the whole house of cards will collapse

[curiousdwk]

Where is the prediction of what will happen to the other two automakers when the first one fails? Every article I've seen has raised the bogus issue of them all failing at once at the same time. That's hogwash. When one fails, the other two will experience more of an add than they've felt a drop and they'll be fine.

But no one is even looking at the scenario of what happens to the other two when one fails.

[MrMostly]

Krugman in him blog says he was mis-reported:
"Me, misreported
Urk. I gather that there’s a report on the wires quoting me as saying that the US auto industry would disappear. What I actually said was that the concentration of the industry around Detroit would disappear.

And did I really say “me and my colleagues”? I guess it’s possible — but that doesn’t sound like I speaking."

[SteveDenver]

I was thinking the same thing and decided to let it go. Having your spoken words written without your ability to edit is tough. I just planned to hold my criticisms until after I did anything worth Nobel recognition.

[Realization]

We need wider discussion on a number related of issues. We must: rejuvenate the economy, eliminate oil dependence and the trade deficit, decrease foreign borrowing, rebuild infrastructure, ensure technological leadership, revamp health care ...

As Boone Pickens says, "A fool with a plan will beat a genius without one." What is ours? Doesn't have to be perfect but you need good info, clear thinking and must talk about taboos. And stop knocking U.S. industry with personal prejudices. (Worst car I ever had was a Toyota. Best was a VW. My daughter's Jetta has continual expensive problems. My Ford and Chrysler have served me just fine.) We are talking about national power.

Japan and Korea have supported and protected autos as a strategic industry. Not to support U.S. auto execs, who I think are idiots. But foreign firms setting up here have advantages which make comparisons hard. The Senator from South Carolina is against bridge loans. How much did SC pay to get Toyota? Are they willing to be consistent and take the subsidies back? What, exactly, do these firms contribute to the U.S.? We need full info about them and the Big Three.

Korea and Japan know who their firms are and help them. If we don't play the game, we lose. We don't even understand the game anymore. Free trade doesn't exist. We should be exactly as open as our trading partners, or as closed.

[Wiserone]

Boone Pickens has invested heavily with "rhetoric" for wind energy and guess who is going to pay for it?? Yep, you, me and all taxpayers with being heavily taxed for T. Boone's great idea. He's an oil man, he doesn't start a new venure without realizing there will be a huge profit for him, first and foremost. He pitches the idea and then uses taxpayers money to finance his deals.

[leestorm]

Exactly! Last fall T Boone was everywhere - until the markets and energy tanked. I kept trying to convince people that the man is nothing more than a greedy opportunist. He bought worthless land in west TX then just waited until the time was ripe to cash in (sorta missed that boat, tho). He didn't have anything new or innovative­... the utilities have been struggling with wind electrons distribution for years. Ole looney-Boone just figured the taxpayers could pay to condemn all that private land and pay for those big transmission towers criss-crossing the state.

For that, we should get solar out there, and nukes, too. And maybe a pipeline from the Gulf and desalinate­....

[Jp2]

Your comments are exactly what I've been saying for years.Take the columbia free trade deal.Bush and the republicans say we need it to level the playing field.Why?­Because they put a 35% tariff on are goods and we let them import duty free.What kind of idiots are we sending to congress.I­f they charge us 35% than we charge them 35%.Proble­n solved!

[allwrite]

Could we please take time to study our nation-wide transportation system and divine what is the best mix of rail and road transport to serve the country in an era of declining fossil fuel resources and associated cost increases?

[Cogitoe]

I agree and it is possibly the only good reason to throw $15 billion at the Big 3 to keep them alive. We may need to retool and refocus their efforts to more prodcutive transportation objectives. Otherwise, I agree with Krugman. The Big 3 are dead men walking.

[wayoutleft]

not a chance. we're dealing with shiny objects and money here- and things that go fast. .

[bioluminescence]

Build brand new, green self sufficient communities throughout America's underpopulated interior states using thousands of earth moving machines and road building equipment from reconverted Detroit assembly lines.

Give the land away free and create tax environments where business will follow.

Motown can become ConstructionTown.

[Cogitoe]

I like this idea, even if it is only done once as an experiment. China, South Korea, Dubai and others are creating from scratch the new cities of the future. Ours, like New York, have century old exploding steam pipes, outdated mass transit, energy inefficient buildings and pathetic airports.

[dejayel]

Have you ever considered that perhaps the "underpopulated interior ststes" don't want a bunch of new green self-suufficient communities thrust on us by Washington?

The big question is: If the American auto makers are forced into bankruptcy, they lower the wages of their employees, renege on the promises they agreed to regarding their retirees and the rest of the demands by the anti-union labor pols; who's next?
The big box retailers are destroying mom and pop businesses everywhere, manufacturing has been sent overseas to lower costs because we Americans beileve we are entitled to cheap prices, and there are only so-many information technology careers available, what fuels the American economy?

[ChrisThilges]

Here's my favorite Darwin quote ... Whats yours?

Its not the strongest of the species that survives,
but those most responsive to change. -Darwin

[ShephDJ]

I thought the whole point of bailing out the auto industry was to keep the manufacturing workers and apparatus here so that we can convert these to a production system for much greener vehicles. Sure, the auto industry *as we know it* won't last. And it shouldn't.

[RayL]

Besides, there is a national security rationale for keeping auto manufacturers operating: We would need their productive capacity and expertise if we ever had to mobilize for another world war.

[GravitonX]

Is it me or are American cars just the ugliest cars on the road?

I would love to buy an American car, but they need to do a quantum leap in their cosmetics, at the very least. GM's new Cadillac was a start. A good friend of mine had one. Then after two years, it died on the road and the damn thing was on line support, in and out of the service shop ever since. Meanwhile, my VW Passat has never given me any real problems (a sporadic "check engine" light that was fixed by replacing a sensor). One thing about VW, they are extremely proactive. They've had several recalls of which I was happy to bring my car in to get taken care of. It's better than getting stranded on the road.

[BobinPgh]

Not just the cars, if you see any of the clips filmed in an auto plant the auto workers are pretty ugly too, just remember, it is not a fashion show.

[JohnnyPDX]

VW are just too. Always the engine light. Electrical problems all the time, bugs, rabbits, jettas. I kept buying them and kept having the same problems decade after decade. I drive and Chrysler T&C and it might be ugly, but for its age 1993 it has been a great work car. Japanese cars are better, my Toyota PU has 240K and still functions great.

[dhinds]

All Krugman said was that the concentration of the USA's auto industry in Detroit would disappear. It was obvious from the start: something is wrong with that quote, I thought.

American cars aren't that bad, IMO. I myself have a '95 Ford Ranger with a manual transmission, four cylinder engine and a camper shell that I bought a little over 10 years ago. It uses little gasoline and burns no oil.

I have never had a vehicle that has given me so much service and so few problems; and on the few occasions that I did need replace a part, it was readily available at a reasonable price. The original spark plugs lasted 50 thousand miles.

It may not be as good a cruising vehicle as a Porshe but it's a lot more practical and I can go places I couldn't go with the Porshe, albeit at a somewhat slower pace.

[ishok]

Good post DHinds.
There are too few people willing to tell about their good experiences with American autos. There seems to be a need to pile on.
Toyotas and Hondas (while good cars) break down on occasion.

I have a couple of GM service vans in my business and I haven't had a problem yet.

[Pharos]

AS I've posted before, We've had Saturns for the last 10 years. They are also very proactive about recalls. Service is about half of what it was for my earlier Hondas and Toyotas (which were great cars too). I would love to buy a car right now. - can't get a loan (wasn't that the purpose of the bailout?) and don't want to use savings to but a car.

[krabby]

Good post ishok.
Why are people piling on? I've read the same, tired arguments dozens of times on Huffpo. The problem is, most of them (one of their own bloggers even) are recycling complaints that they had decades ago. All of my cars (dating back to the late 80's) have been domestic autos, and I've never had any serious problems. Actually, my cars have been great, with the exception of one: my Jetta. A 1996 that I bought from a dealer with about 25K miles on it. It was an absolute nightmare of a car. I ended up putting more into it than what I bought it for.
But I don't go around bashing VW. I don't assume that because I had a miserable experience that all of their cars are cr@p. But that's what people here have been doing. It's like they're reveling in the failure of the Big 3 and I don't get it.

[Jp2]

I had a 1971cutlass supreme convertabl­e.First new car I every bought.Sol­d it to my mom bought it back two years later.drov­e it for three years sold it to my sister-in-­law.She drove it back and forth to college.Ha­d it sitting in her garage for two years.Boug­ht it back and put all new sheet metal on it and drove it for another six years.Fina­lly sold it out of the family when it had 321,000 miles on it.As far as I know it's still running today.Damn I miss that car.

[ctman2]

The US has an outstanding opportunity to excel by combining the elimination of foreign oil and introduction of advanced technology into transportation by American manufacturers using these new energy sources.

The replacement of foregn oil will be multi-modal at first as the winners and losers sort themselves out in the next decade but for now we must try the ones most likely to be the winners.

These include Pickens exploitation of natural gas for large vehicles and freeing up the natural gas used now for electric generation with either renewables or nukes.

Consumer transportation will be lead by hybrids and extended electric drive.

The US however needs to generate good American jobs and therefore needs to make this mostly an American effort and not allow foreign dominance. This could be achieved with tariffs whose revenue could be diverted to development of advanced energy or power trains in combination with rebates for buying American cars and trucks.

Just like the depression generation the current one is beginning to see that a job is precious and cannot be traded for short term cheaper consumer goods.

By making these two mega trends American we generate good American jobs and use American energy which reduces the current and unsustainable balance of trade with associated loss of jobs at the same time it makes the Homeland safer by not funding the current or future Petrowars that will surely come if we do not do this.

[Lucky dog]

I agree that the government should encourage people to buy American made autos, but only on the extended electric drive and hybrids that get better than 40 miles per gallon for passenger cars. The rebates should be substantial and not limited to a certain number of cars per year.Hybri­d light trucks need to use CNG or biodiesel in the near future IMHO. While I am on my soapbox i might as well submit the best biomass for fuel is of course commercial hemp, and leave the corn for the cattle and food for people, but that's a whole new can of worms!The less we spend on imported energy the more we have here at home to spend on the next generation of personal transportation.