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November 20, 2008

Psst...Obama...It's Called "Capitalism"

A Dartmouth economist has a message for the president-elect.

The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States. On Sunday, President-elect Barack Obama asked, "What does a sustainable U.S. auto industry look like?"

Well, it looks a lot like the automotive industry run by "foreign" car companies that insource jobs into the U.S. In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.

At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.

The difference, in part?

Ahem.

An auto bailout would do more than simply reward poor business practices. As the article points out, it could have greater repercussions in the global market, including diminished investment in the United States, expanded protectionist trade policies in other countries, and a reduced foreign demand for US assets.

Plus, I hate to nitpick, but to steal one of Glenn Reynolds' favorite sayings, I'll believe the US auto industry is in crisis when its executives start acting like there's a crisis.


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posted by Slublog at 09:04 AM

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