Saturday, 23 May 2009

Markets work

Greg Mankiw is thinking of buying another car. He writes
[...] 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 there a message in this? Following the Consumers Union report why is anyone surprised that Chrysler and GM are going out of business? Bankruptcy for these two tells us that the market is working. These car manufacturers aren't producing product worth buying and the market punishes this with bankruptcy. Now if only the government would stay out of things.


Ed Snack said...

Leaving aside the fact that probably neither you nor I would necessarily follow the CU recommendations unless they are unlike the NZ ones I have looked at, they appear not to understand cars very well, it is a bloody good pointer isn't it ? Chrysler had none recommended, hells bells, what did they do, spit on the editors mother as well as make lousy cars ? And I wonder which few GM vehicles they found it in themselves to recommend ? Presumably these are US vehicles only.

Paul Walker said...

Ed. I'm thinking that someone at Chrysler must have been spitting on the editors mother since the cars would have to be very bad to get a zero recommendation.

paulk said...

There is only one place that you can test if the market works, and that is in the market. CU magazine reviews are not the market. GM had 4 of the top 20 best selling autos in the US in the first quarter of 2009 including the number two best selling auto beating all Honda models. Chrysler had two of the 20 best selling; and one of the only two models that actually increased sales over the 1st quarter of 2008. The other was a Hyundai.

How can anyone with any economic training claim to be analysing competitiveness while ignoring sales figures?


Here's a radical idea: how 'bout letting the consumers pick the cars they like?

Paul Walker said...

paulk. Both Chrysler and GM are bankrupt. They have failed the market test. The consumers have picked the cars they like, it's just they aren't made by either Chrysler or GM.