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Comment: Automotive recovery bolsters case for government action

Keywords: Tags  economic recovery, automotive market, AMM Comment, John Ambrosia,

In modern America at least, economic recovery requires bipartisanship; better yet would be nonpartisanship. Paradoxically, this becomes truer in clearly divided political times such as today.

Yet nearly since the darkest days of the 2008-09 recession—the worst since the Great Depression, and a downturn we’re still reeling from—what America mostly has gotten from its federal government is partisan bickering rather than consensus and a joint resolve to create jobs, rebuild infrastructure and spur manufacturing.

In the December 2010 issue, just after the mid-term elections, I wrote about how the potential gridlock of the 112th Congress might make the alleged uncertainty created by the actions and standstills of the 111th Congress look like a golden age. Well, one near-catastrophe (the April threat of a government shutdown) and one nearer-catastrophe (the debt ceiling debate and subsequent downgrading of the U.S. credit rating) later, and that prediction already has come true.

The year is nearly over, and we haven’t seen a single jobs bill or other major economic program make it through Congress and reach the President’s desk. It’s been like fighting a raging fire without a drop of water, a fire engine or even a ladder.

What is apparent is that the past 10 months have seen a fight not just over what government policies should become law, but whether the government has any business adopting policies at all. As the daily news is telling us, that debate has not been good for the economy or business. That is because beneath the sound bites and political posturing there is a greater truth, like it or not: No individual, no single business, no particular industry and no general economy works and succeeds in a vacuum. The market requires a structured society, a common culture in which to grow and thrive. It requires roads and investment and workers and resources and clients and credit and a court system and trade policy and, yes, even safeguards. In other words, government action and reaction to national challenges are designed to provide general and overall certainty, not prohibit it, even when you disagree with the details of how to get there.

This raises the question that has defined the past three years and especially 2011: Is doing something better than doing nothing?

We do have some evidence to examine. It comes from the automotive sector, where steel and other metal industries are affected significantly. Carbon and stainless steel, aluminum, copper and a host of other products all have a dog in the fight when it comes to auto manufacturing—a sector in which the government has adopted some direct action. How effective has the government been at helping revive the auto industry? Even this is a matter of contention, but we have one general case and two specific ones to review.

In the general case, after seven straight years of annual sales of 16.6 million or more vehicles from 1999 to 2005, the numbers began to sag slightly in 2006 and 2007 before falling dramatically to 13.2 million vehicles in 2008 and 10.4 million in 2009. But last year auto sales rose for the first time since 2005 to nearly 11.6 million and have risen again this year, and forecasts call for even higher sales in 2012. These recent sales numbers have been good for many steelmakers, who have raised their finished and semi-finished prices over the past two years and also have been one part of a resurgence in ferrous scrap prices and demand. This lends some credence to arguments that the heart of the current downturn is more in housing than some other sectors of the economy, and it is one of the few rays of hope that perhaps some policies are working.

The first specific example was 2009’s so-called Cash for Clunkers program. The $3-billion program sought to take inefficient vehicles off the streets and spur sales of new ones. Looking at sales results, the program was successful. About 700,000 new cars were sold under the program in 2009, saving or creating about 60,000 jobs. This not only put money back into the general economy, but it created demand for steel and replenished the scrap stream. Critics at the time said that the bump in late-2009 sales would result in a downward trend of vehicle sales in 2010, but time has proven them wrong.

The second concrete example is this: If it’s even remotely still true that what’s good for General Motors is good for America, then score some points for those who orchestrated and supported the bailout of GM. This action actually pre-dated Cash for Clunkers, although the results did not start becoming apparent until last year. The bailout saved a significant number of jobs, preserved an American business icon and most likely prevented the severe psychological shock that the closure of GM would have caused. Rather than threaten the market, the move bolstered and salvaged an important part of it. Furthermore, GM is profitable again, and in the first three quarters of this year sales rose 16.4 percent over 2010. Admittedly, this is a more nuanced picture than Cash for Clunkers. While sales are up, GM’s market share is down from its pre-bailout days—although the current 19-percent share would have been zero if the company had failed. And the government’s involvement was too much for some to take, even if on balance it has been successful.

So what’s the lesson here? It brings us back to the question of what comes next. If what was done with the automotive sector can be even partially repeated with infrastructure—something the metals industry has called for time and again—then the answer is pretty simple.

Otherwise, there is this: With just one year to go before the next presidential and congressional elections, by some measures the two worst presidents on job creation since Herbert Hoover have been George W. Bush and Barack Obama. But no president bears responsibility for the economy alone. Both political parties have had control of Congress, which is constitutionally responsible for budgetary and tax policy, at one point or another during the terms of both men.

That is a bipartisan result we surely can live without.

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