Is the Auto Industry Worthy of a Bailout?

One of the best selling issues of Consumer Reports each year is the annual auto edition, which just came out in April. Last fall I wrote that the primary reason the auto industry has been in a world of hurt is that people who wanted cars in 2008 were unable to get credit and therefore could not have their thirst quenched. This was, it turns out, only a partial reason.

GM has been losing money by the boatload since 2004. And Chrysler's reputation among auto mechanics, those in the know, has been shameful.

So it comes as no surprise when Consumer Reports gives both these companies failing grades in their “Automakers report cards.”

According to Harvard economics professor Greg Mankiw's blog commentary:

Page 15 was particularly enlightening. There, in their "Automakers report cards," Consumers Union summarized their findings for each of fifteen major car companies.

Dead last was Chrysler. CU recommended zero percent of the Chrysler vehicles they tested. That's right--zero. Second to last was General Motors. CU recommended 17 percent of GM models. By contrast, most other companies had half or more of their models get the thumbs up. Honda was the top ranked brand; CU recommended 95 percent of its models.

Is it any surprise that Chrysler and GM are now in the process of going out of business? From the perspective of the Consumer Reports advice, it looks like their business model was to count on the ignorance of the buying public about the quality of their products. Their bankruptcy should perhaps be viewed as a success of the market system.

Some people still insist that we need to encourage our citizens, or even pass laws, to “Buy American.” Why don’t we just tattoo the word STUPID on our foreheads?

O.K., that's a bit harsh. It will be interesting to see how this story unfolds. GM and Chrysler did not dig themselves into this hole overnight. The reputation of their products has been assembled piece by piece.

Note: Picture at top left is titled, "Man with a Puzzled Expression On His Face."