Car Market Competition

Nearly lost in everything else this busy week, the President has hinted at more aid for the auto industry, albeit with major conditions.

The aid package for the companies will be unveiled in the next several days, he said, and will be contingent upon the companies adopting business plans that reflect the fact that they have a smaller share of the auto market.

"We will provide them some help," Obama said during an online "town hall" event.

"I know that it is not popular to provide help to autoworkers -- or to auto companies -- but my job is to measure the costs of allowing these auto companies just to collapse," he said [...]

"If they're not willing to make the changes and the restructurings that are necessary, then I'm not willing to have taxpayer money chase after bad money," Obama said. "And so a lot of it's going to depend on their willingness to make some pretty drastic changes. And some of those are still going to be painful, because I think you're not going to see a situation where the U.S. automakers are gaining the kind of share that they had back in the 1950s."

I think that's essentially right. The auto market has fractured and we can no longer expect the US industry to be sustained by the government at the same level. By the way, the creditors, specifically the bondholders, have to understand that as well. Everyone's going to have to take a haircut, and then we'll have some good old-fashioned competititon.

Just this week, India's Tata Motors released the world's cheapest car, but that will be confined to the local market unless it includes safety measures to allow it to be sold in the US. The electric market in this country is starting to heat up, from the 200 mpg Aptera, a futuristic three-wheeled vehicle which is trying to change its status as a "motorcycle" (which disqualifies it for certain tax breaks for consumers), to Tesla's just-released $50,000 sedan, the cheapest all-electric vehicle currently on the market. The prices will continue to drop through increased competition, spurring innovation. It feels a little like the 1920s, with a proliferation of smaller car companies competing for market share. That's probably better for consumers, and since the competition is playing out on fuel economy, better for the environment as well.