By:John Seiler | May 03, 2016
I’ve written several stories and blogs for Chronicles on the gold standard, in particular how leaving it in 1971 started an especially vicious boom-boost cycle for the American auto industry. When the dollar inflates, so do oil and gas prices; that tanks sales for trucks and SUVS and increases sales for small cars (as in 2007-11). When prices stabilize or deflation hits (as in the past several years), SUV and truck sales soar, but small car sales crash.
Confirmation comes from two auto magazine articles on Fiat Chrysler Automobiles ditching its mid-size Chrysler 200 and Dodge Dart in America. “Arrivederci, Fiat Chrysler Automobiles? Cheaper gas isn’t always a good thing,” reads the headline in the June number of Automobile. The story:
“Who doesn’t like cheap gas? Nobody, right? Then how come now that gasoline is at long last delightfully, delectably inexpensive, so many are sad? From petroleum-dependent governments plunged into debt crisis to newly unemployed denizens of the oil fields to the dealers who sold them their pickup trucks and provisions. Commodities markets and stock exchanges aren’t happy, and neither are the oil companies whose profits are falling. . . .
“Of interest here, however, one of the least remarked of low-dough petroleum’s surprise casualties actually might have been a foreseeable one—that is what it’s done to FCA, maker of Dodge, Chrysler, Fiat, Alfa Romeo, Ram, and Jeep vehicles. Sure, you can blame high recall expense and natural disaster, and FCA does, but in 2015, the best sales year in American history, the company just managed to turn a profit. . . .
“Incorporated in the U.K. and headquartered in the Netherlands, the carmaker with the glorious Italo-American heritage was born at a time when expensive gasoline and worldwide recession seriously curbed North America’s appetite for thirsty pickups and SUVs. Those were freestanding Chrysler’s only reliable profit centers, and when sales went away, it drove the firm into bankruptcy while making Fiat’s slender but worthy portfolio of small-car technologies suddenly appear relevant. What a difference a few years can make.”
Now the opposite is happening.
A big problem is that Fiat Chrysler was a shotgun marriage forced on the venerable American marquee by President Obama. The bailout by taxpayers of the U.S. company basically buttressed the struggling Italian firm. As was reported in the Daily Caller in 2012: “[T]he politicized bankruptcy process limited Chrysler’s growth potential by tying it to an Italian dinosaur in the midst of the European fiscal crisis. The Obama administration literally gave away ownership of one of the Big Three American auto manufacturers to an Italian car maker struggling with labor and productivity issues worse than those that drove Chrysler to near-liquidation.”
FCA honcho Sergio Marchionne was interviewed in the June 2016 Motor Trend: “Meanwhile, the North American market is undergoing a shift back to larger vehicles, especially SUVs and pickups, and that will continue even if gas prices inch back up. ‘The market has moved on tremendously,’ Marchionne said. ‘We think that is a permanent condition, especially as mileage improves on these vehicles.’ He foresees a time when consumers won’t distinguish between a pickup or SUV and a sedan on mileage. And given a choice, the sedan will lose.”
But what if the trend isn’t “permanent” and the opposite happens? What if President Hillary accelerates Obama’s assault on fossil fuels, driving gas prices much higher? And what if the Fed resumes inflation? Indeed, in just the past few months, the price of gold has bounced back to $1,288 an ounce, up from around $1,100 an ounce a couple months ago, a 19 percent increase, with oil per barrel and gas prices at the pump also rising. What if the stock market crashes, destroying much of the wealth now used to buy SUVs and luxury cars?
Motor Trend: “To that end, Marchionne is focusing U.S. resources on trucks and utility vehicles. He announced earlier this year plans to stop making small cars; it’s work he wants to contract out. In Geneva he said he is in discussions with potential partners to build the lower-volume Chrysler 200 and Dodge Dart.”
Just a guess, but that sounds to this old car watcher like importing flivvers from China, which has been salivating to follow Japan and Korea to crack our market. Meanwhile, China itself might go back to the gold standard.
We pay for the Chrysler bailout. The company is given to Italy. The Fed manipulates the dollar in ways only rich bankers can figure out. Then our jobs are shipped abroad.
No wonder Donald Trump keeps saying: We always lose.
Any wonder why Trump keeps winning?