~ Archive for June 4, 2003 ~

The Chinese car

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The June 14 issue of The Economist has “Extinction of the Car Giants — Why America’s car industry is an endangered species” on its cover.  The magazine predicts the death of GM, Ford, and Chrysler at the hands of Honda, Nissan, and Toyota.  The Economist cites statistics such as the $1000 per car cost to GM of pension benefits.  Perhaps if they were to look 10 years out they would see a lot more turmoil.

 

Home Depot sells window air conditioners for $80.  They are made in China.  When it breaks you throw it out.  Twenty years ago a window air conditioner cost $1000 in today’s money.  When it broke you called the repairman.

 

You can buy a 27″ TV for less than $200.  It is made in China.  If someone asks you what brand of TV you have, unless you’re a geek with no life, you won’t have a clue.  You don’t see ads for Daewoo or Apex TVs.  When it breaks you throw it out.  Forty years ago the TV industry employed at least one million Americans.  TVs were made here.  They cost so much that they needed to be financed, thus creating jobs in banks.  If they broke every neighborhood had a TV repairman to come out and service the machine.  Some of the most expensive advertising campaigns of the day were for cars.  Consequently, consumers were intensely brand-loyal and proud to own an RCA, a Philco or whatever.

 

Once something can be assembled in China out of 100% Chinese-made components it can sell for approximately 1/10th the previous price.

 

Let’s look at cars.  According to http://www.autoalliance.org/ecofacts.htm the auto industry employs at least 5 percent of Americans.  People have jobs making cars.  Because cars are so expensive people have jobs financing them, repairing them, and insuring them against collision and theft.  Because cars are so expensive, people have jobs marketing and advertising them (more than $1000 of the price of a normal car has gone into advertising, probably closer to $5000 for a Mercedes or BMW).

 

Within 10 to 20 years the Chinese will be able to sell a car that is very similar to today’s rental car:  4 doors, 4 seats, air conditioner, radio, new but not fancy.  It will cost between $2000 and $3000 in today’s dollars.  With cars that cheap it will be unthinkable to manufacture in the U.S.  Consumers won’t bother to finance a $2000 purchase separately (maybe they’ll add it to their credit card debt).  Drivers will still carry liability insurance but won’t bother with collision or theft coverage.  With cars that cheap it won’t make sense to advertise.  If Ford or Toyota tried to sell the average person a $25,000 car they would simply laugh, much as a Walmart shopper would think you’re crazy if you tried to persuade him to spend $2,000 on a TV.

 

People react with disbelief to this idea.  Americans love their cars and identify with them.  Consumers will pay for prestige and image.  All true, of course, but think of how liberating it is to drive a rental Camry or Taurus with the Collision Damage Waiver.  You don’t lock it.  You don’t worry about it.  You’re care-free.  You don’t say “this is the greatest driving experience of my life” but the car is more than fine for sitting in traffic, which is mostly what urbanites do.  After three years when it begins to require service you re-export it to Latin America and buy yourself a new one.

 

So it is true that there will probably still be a market for $50,000+ cars that say “I’m a rich bastard and can afford to squander money”, just as there are still $4000 plasma TVs in an era where most people spend $200 at Walmart.  But the market share will be negligible.  It is one thing to step up from a $27,000 Honda Accord to a $45,000 BMW.  It is another to say “I think I’ll give up the vacation cottage and restaurant meals so that I can upgrade from my Crawling Tiger car to an American or European car of roughly the same function”.

 

Aside from vast job losses the implications of the $2,000 car are profound for the U.S.  Parking and traffic jams, already hellish, will get far worse.  If the U.S. ever develops an appetite for information technology again we’ll charge people for using the roads during periods of congestion (using Fast Lane/EZ-Pass style sensors).  If not, the government will force people to buy a $3000 annual “right to drive” disk like they have in many European countries.  The alternative will be most U.S. urban areas descending into a Bangkok-like snarl.

 

[If George W. had only declared war on urban traffic congestion instead of Iraq!  We’d have sensors in the roads talking to navigation systems in the cars telling drivers which streets to avoid (London is doing this right now).  We’d have computer-organized ride-sharing systems.  Instead of handing out cash to people who hate the U.S. we’d hand it out to people like http://www.zipcar.com/ (I’d be a user of the service myself if not for the fact that you’re not allowed to bring a dog).  We might have ended up saving enough gasoline that we wouldn’t have needed to add Iraq to our collection of overseas possessions.]

An armed society is a polite society… (Israel and guns)

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Something I learned here in Israel…  it is virtually impossible for most Israelis to own a gun.  Aside from air rifles and .22 target guns you must be either an active duty soldier in the army or meet some very stringent requirements in order to pack heat.  The average Israeli household cannot own a shotgun or hunting rifle (there is nowhere to hunt in the maze of concrete high-rises that dominates the landscape of the Mediterranean’s most densely populated country).  A fully automatic weapon is completely out of the question for civilians.


[Arabs in the West Bank and Gaza can and do own weapons, of course, and in fact most of them were supplied by the Israeli government.  Yes, that’s right.  The Labor government supplied the Palestinians with thousands of rifles and pistols so that they could set up a police force.  These weapons have now found their way into the hands of Palestinian civilians.  Thus when a Palestinian shoots an Israeli civilian or soldier it is very likely done with a gun paid for by that Israeli’s taxes.]


I used to be amazed that Israelis showed such restraint.  They are crammed in like sardines.  They have world-class traffic jams and a disregard for traffic laws (more Israelis are killed in car accidents than by terrorism or war).  Just walking around on the street you hear a lot of people shouting at each other.  I figured “it is amazing that more people don’t pull the M-16 off the top of the fridge and fill the air with lead”.  It turns out that they don’t have M-16s or any of the other toys that give meaning to life as an American.


An Israeli asked me whether it was true that Americans could own serious guns privately and expressed amazement that this was indeed possible.  He said “We read about this in the newspaper but the Americans that I’ve met seem quiet and non-aggressive.”  My reply:  “An armed society is a polite society” :-)

Brits want to know where are the Weapons of Mass Destruction

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Folks in the UK are upset that no weapons of mass destruction have
been found in Iraq, calling for the resignation of Prime Minister Tony
Blair on the theory that he lied to Parliament about Iraqi
capabilities.  People have a difficult time believing that
intelligence reports could have been so wrong.  This is ironic because
Berlin, The Downfall 1945 is currently on the UK
bestseller charts, an authoritative work by the British historian
Antony Beevor.  Page 171 discusses the Soviet belief that the Germans
would use nerve gas to defend against the Red Army’s attack across the
river Oder.  Russian soldiers were ordered to drill and sleep with gas
masks on based on reports from multiple sources in multiple countries.
Top German leaders made grand claims about their Wunderwaffen (“Wonder Weapons”) and appeared unconcerned about the fact that their
forces were outnumbered by more than 10:1.  In the end it turned out
that the Germans hadn’t ever had a very large nerve gas supply and
apparently destroyed nearly all of their chemical weapons as the
Russians advanced.


[The historical analogy only goes so far.  Nobody back in Russia ever
called for Comrade Stalin’s resignation over his misestimation of the
German capabilities.  Nor were there mass protests against Russian
occupation following the victory.  At first a few Russian soldiers
were picked off by German die-hards (“partisans” then but today we’d
call them “illegal combatants”).  The Russians presumed that the
partisans could not operate without some support from local villagers
so they simply killed everyone in any village where one of their
soldiers had been shot.  The German resistance evaporated.]


Here’s a snapshot from York, England:


People in York, England angry that weapons of mass destruction were promised but not found in Iraq.

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Internet connectivity in the UK

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After driving more than 1000 miles around the UK (supposed to be an EU country but they still use miles there, they pay with Pounds instead of Euros, they drive on the left, etc.), I figured out how to get Internet connectivity.  My 802.11 card never found any wireless networks.  Brand-new $300/night Hilton and Sheraton hotels did not have connections in their rooms.  Most Brits that I spoke with had never used the Internet and of those who had, most had done so only from work.  There are Internet cafes in the big cities but you can’t connect your own laptop.


How to connect then when in the UK?  It is as simple as getting on a plane at Heathrow Airport…  I’m in Tel Aviv now.  Expect some leftover postings about life in England, Wales, and Scotland to appear in the next few days…

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