by Mark Hendrickson
The “Big Three” — Ford, General Motors, and Stellantis — have had a tough go of things lately. The recently concluded strikes by their employees were perhaps the most visible indication that all is not roses in U.S. Autoland, but there is a larger problem. That problem is summarized by the following headline from the Wall Street Journal: “Automakers Have Big Hopes for EVs; Buyers Aren’t Cooperating.”
The financial results of weak EV sales have been devastating for the Big Three. Ford reported a third-quarter operating loss of $1.3 billion in its EV division. Since it sold 20,962 EVs in the third quarter, the per-unit loss on each of those vehicles is an eye-popping $62,016. Ouch!
What is the underlying problem here? Whose fault is the mismatch between automakers’ “hopes” (as the headline put it) and car buyers’ behavior?
Let’s pay a brief visit to Business 101. Say you start a business: What is your goal? To make money, right? And how do you accomplish that goal in a market economy? You do so by selling your product or service to customers — a large enough number of customers to earn a profit.
The great Austrian economist Ludwig von Mises named this market phenomenon “consumer sovereignty.” Consumers, by virtue of their decisions on what to buy and what not to buy, choose the winners and losers among the businesses competing for their consumer dollars. Businesses that provide consumers with what they want at a price they are willing to pay earn profits. Businesses that fail to do so sustain losses.
The notion implied in the Wall Street Journal headline about buyers not cooperating with the Big Three’s plans for EV sales is economically absurd. The responsibility in a market economy is not on consumers to “cooperate” with producers by buying whatever producers want them to buy; rather, it’s on the producers to produce what consumers want. The Big Three obviously are failing to do this.
The Big Three are trying to please two masters. On the one hand, they need to produce the kinds of vehicles that people who are in the market for automotive transportation want. On the other, they are trying to pivot to a future that has been envisioned, planned, and mandated by government — a future in which EVs will replace autos that run on internal combustion engines. At the national level, the Enivronmental Protection Agency has adopted regulations that limit total automotive emissions of gases that can only be met if most autos manufactured are EVs. At the state level, California already has outlawed the sale of autos using internal combustion engines in the not-so-distant future.
You can readily see that this is an untenable situation for the Big Three. Government regulators and tens of billions of dollars of government subsidies are strong-arming them into building EVs while not enough car buyers want to buy EVs. (At least, they’re not willing to do so at anywhere near current prices — which have been falling, incidentally, but not rapidly enough to keeps sales growth slower than the Big Three were hoping for. As Ford et al. are finding out, “hope” is not a solid business strategy.)
What is happening with the American auto industry is exactly what happens in a socialist economy: Elite government planners trample all over consumer sovereignty and decide what kinds of products are to be produced. What the people want doesn’t matter. “We know what is best for you” is the government’s conceit. And so, through the power of government, socialism destroys economic value by mandating the production of things that people value less while failing to produce what people value more.
It seems clear that the Big Three are in the process of being bankrupted as government subsidies and mandates “induce” (a euphemism for “compel”) them to manufacture costly vehicles that consumers don’t want. Don’t be surprised if, in true socialist fashion, government proceeds to throw good money after bad, repeatedly increasing government subsidies and mandates forcing the traditionally private auto manufacturers to obey their government masters. Consumer sovereignty will be overthrown, car buyers will be unhappy as they have to settle for less appealing and more expensive automotive options, society will be poorer, and government power and control over our lives will increase.
What is happening to the Big Three is a preview of a socialist future for America. Oh, it may technically be the fascist version of central planning under which corporations remain nominally private, but the government increasingly will be the entity running the auto manufacturing industry, just as it has expanded its controls over energy production and distribution, health care, education, etc., etc. — unless voters wake up to the fact that the Left is pushing us down a path of impoverishment and follow that up with a strong repudiation of Democrats at the ballot box. Americans must decide they prefer to be sovereign consumers instead of having to settle for whatever elite government planners think they should have.
– – –
Mark Hendrickson is an economist who retired from the faculty of Grove City College in Pennsylvania, where he remains fellow for economic and social policy at the Institute for Faith and Freedom. He is the author of several books on topics as varied as American economic history, anonymous characters in the Bible, the wealth inequality issue, and climate change.