Friday, May 22, 2009

There's a good reason why the Detroit automakers are failing

Harvard economics professor Greg Mankiw is car shopping and has the following thoughts on the Detroit automakers:
I got a copy of the Consumer Reports auto issue (April 2009).

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.
I subscribe to Consumer Reports, and I had a similar thought when I read that issue, but didn't think to blog about it. Here's a scan I made of page 15. Ford is fourth from the bottom. Click on the image to see a full-sized version:

Why are we spending billions of taxpayer dollars to bail out these underperforming automakers again? Oh yeah, unions vote Democratic.

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