Optimism in Detroit

Optimism in Detroit

By Dr. Jonathan Tiemann, January 24, 2017

Presidents, especially new ones, make headlines, and the current holder of that office is generating his through a peculiar combination of outlandish statements and high-level meetings with business leaders. Today (January 24) the President summoned to the White House executives from the major US automakers, ostensibly to urge, or perhaps cajole, them to repatriate much of the production they are currently doing outside the US, especially in Mexico.

On the White House driveway after the meeting, CEOs Mary Barra of GM and Mark Fields of Ford both described the session as encouraging. Sergio Marchionne of Fiat Chrysler lurked near the camera, but did not offer a comment.

The Administration may imagine — and certainly wants us to imagine — that the result of their meeting will be to encourage the automakers to invest billions to re-establish manufacturing capacity and jobs in the US. The upbeat reaction from Ms. Barra and Mr. Fields might seem to reinforce that impression. But on CNBC this morning, Ed Conard, former managing partner of Bain Capital had a different view of why Ford’s and GM’s executives and investors might have liked today’s meeting:

“I think they think they’re going to be able to raise prices on cars, ’cause they’re not going to add a lot of capacity, so the more we restrict imports, we bump up against capacity in the US and the better off they’re going to be, so I’m not surprised that their stocks are rallying in the face of that.[1]”

Restricting capacity means producing less, which means higher prices because producers can sell everything they make to those consumers willing to pay the most. What restricting capacity does not do is promote investment and employment. Of course, Mr. Conard might be wrong. He does have a particular point of view — after all, reducing capacity and raising prices have been central pillars of Bain Capital’s modus operandi since the days when a young, energetic Mitt Romney ran the firm.

Whether Mr. Conard is right, or the President is merely trying to tilt the playing field in favor of a small number of incumbent US carmakers, what we aren’t seeing at work is the traditional Republican orthodoxy of free-market capitalism.

[1] Transcribed from CNBC’s “Squawk Alley” program just after 11am EST Tuesday, January 24. Mr. Conard was responding to a question from Carl Quintanilla. As often happens, although the quote reads oddly as text, it sounded natural as normal speech.

By | 2018-03-27T20:39:31+00:00 January 24th, 2017|Business News, Politics|0 Comments

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