Wednesday, July 15, 2009

There's a Ford in my Future

I have never purchased a new car in my life. My first car was a 1975 Fiat 128, which my brother Nick acquired for next to nothing because it had a blown engine, and he worked his mechanical magic, dropping in a new engine and otherwise refurbishing it for his kid brother. Since then, my vehicular history has been as follows:
  • 1977 Fiat 131 Brava, purchased from my brother
  • 1980 Fiat 131 Brava, SW, purchased from my brother (Are we sensing a pattern here?)
  • 1981 Toyota Corolla, purchased from one of my brother’s customers
  • 1983 Mercury Grand Marquis, “purchased” from my parents (very reasonable price)
  • 1988 Dodge Caravan, purchased from one of my brother’s customers
  • 1989 Ford Ranger, purchased from a total stranger (I was getting brave!)
  • 1992 Pontiac Transport, actually purchased from my parents at near market value
  • 1991 Mercury Grand Marquis, “purchased” from my parents
  • 2000 Dodge Caravan, actually purchased from my parents at near market value

The closest I have come to owning a new vehicle was a 2005 Ford Taurus purchased used with very low mileage from CarMax (but since totaled), followed by a 2006 Taurus also from Carmax.

The 2006 Taurus and the 2000 Caravan are now sitting in my driveway, but it looks like the latter is on its way out. And for the first time in my life, I am thinking of actually buying a new car, despite the fact that new cars depreciate significantly in value the moment you drive them off the lot. So why the change? Let me go into a little history, some from last century, and some more recent. It’s a little convoluted, and not all of it has to do with cars, but bear with me.

In 1933, the United States of America was well into the throes of the Great Depression, the worst economic crisis it had seen in its history. After declaring in his inaugural speech that “the only thing we have to fear is fear itself,” President Roosevelt stated his intention to “ask Congress for broad executive power to wage a war against the emergency.” One of the first cornerstones of the broad executive powers was the “National Industrial Recovery Act” of 1933 [later shortened to National Recovery Act or NRA), which gave the government the authority to convene leaders of major industry and set up a system of fixed prices for goods and services and labor compensation. It was a radical departure from America’s traditional free market system, whereby competition and innovation sought to produce the highest quality products at the lowest possible price. The basic result of this disastrous government intervention in the free market was that both wages and prices were fixed artificially high, and competition and innovation were stifled. The mandated higher wages actually increased unemployment. Many large corporations and/or less efficient companies welcomed the wage and price codes, because the imposed controls kept smaller and more agile companies from under-pricing them and robbing them of market share. Much of the auto industry followed suit, with one major exception. According to Burton Folsom, Jr.:

Henry Ford refused to sign the NRA code and jack up his car prices, as his competitors were doing. “I do not think that this country is ready to be treated like Russia for a while“, Ford wrote in his notebook. “There is a lot of the pioneer spirit here yet.” However, General Motors, Chrysler and the smaller independents eagerly signed Blue Eagle codes, which under penalty of fine or imprisonment regulated their production, wages, prices and hours of work. Ford was astounded: his colleagues preferred stability and government regulation to competition and free trade.[1]

The good news is that the Supreme Court correctly declared the NRA unconstitutional. The bad news is that a furious Roosevelt used all the political and bully pulpit power at his disposal to intimidate the Supreme Court, attempting to pack it with justices more to his liking, and he was eventually successful at cowing them to nod to many other forms of government intrusion and intervention, be it the CCC, the WPA, the AAA and myriad other bits of alphabet soup that comprised his programs. Mr. Roosevelt is unduly credited with ending the Great Depression when in fact the opposite is true. He prolonged and exacerbated the economic crisis, which did not end until the war footing of World War II stimulated American industry into action. If you don’t believe me, see what Roosevelt’s Secretary of the Treasury had to admit in 1939, when unemployment again topped 20%:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous….We have never made good on our promises… I say after eight years of this Administration, we have just as much unemployment as when we started….And an enormous debt to boot.”[2]
Does this all sound frighteningly familiar? Fast forward seventy years. I won’t repeat here in detail what I have stated elsewhere are the causes of our current economic crisis. (See Despair, posted 01/28/2009). Namely, history is repeating itself, in that government intervention into the free market caused the mess, and further government intervention is prolonging it. And again, the auto industry provides a wonderful case in point:

The industry in general has been in crisis because it can no longer afford to pay the handsome wages and benefits that had accumulated over decades of collective bargaining with labor unions. Nor can it continue to compete under the weight of heavy government regulation. On top of that, the domino effect of the government induced financial crisis further depressed the market, which proved to be the last straw for the already moribund companies. Chrysler and General Motors were on a fast track to bankruptcy. The only thing that kept them afloat was large infusions of government cash, which gave the government huge leverage if not a controlling interest in their operations.

After effectively firing the CEO of General Motors, the government turned its attention to the more immediate crisis of Chrysler. The federal government actually brokered a deal to have Chrysler purchased by FIAT, give a controlling interest to labor unions, and force excessive concessions from Chrysler’s secured creditors (who are supposed to be paid first under normal bankruptcy laws). Unfortunately, today’s Supreme Court did not have the same courage it had shown during the Roosevelt Administration, opting not to intervene in this clearly unlawful and unconstitutional government intervention.

Similarly the government poured billions into General Motors in a foolhardy attempt to salvage that company as well. In both cases, it is money poured down a rat hole. Even if the companies survive, we would be much better off to allow the bankruptcy laws to take their normal course and let the company assets be sold off, re-packaged and then re-emerge, all without a dime of government outlays.

So what does all this have to do with my desire to buy a new car? Well, history repeats itself in more ways than one. The one shining exception to this present day fiasco is –you guessed it—the Ford Motor Company. Henry Ford, who would not be cowed or intimidated in his day by Franklin Roosevelt, would be proud that his company did not take a dime of bailout money from the Obama Administration, and it looks like they are going to emerge from this crisis just fine, thank you very much!. I don’t know how Ford quality stacks up against its competitors, but the used Taurus’s I have purchased in the past are decent enough. In solidarity with a truly American company, there will be a new Ford in my future.

[1] Burton Folsom, Jr., New Deal or Raw Deal (New York, Simon and Schuster, 2008), p. 58-59.
[2] Ibid., page 2.

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