Kevin Depew on the Automakers, the Banks and the Elephant in the Room

Posted by Kendall Harmon

Ordinarily, when a business/industry fails from poor management and/or (in the case of the banks) overleveraging, what happens? Put aside the issue of what the business/industry is for a moment. Just ask yourself, what happens?

You know what happens intuitively, even if you've never opened an economics textbook. It is very simple. Entrepreneurs, seeing the mistakes made by those business/industry operators, rush in to start competing businesses to 1) take advantage of the weakened competition, and 2) operate the business better than the competition having the benefit of seeing their mistakes.

Under normal circumstances, this process happens in every industry. It is the normal cycle of capitalism.

But look at what is happening now. Are there any entrepreneurs setting out to start automotive manufacturing businesses? What about entrepreneurs setting out to charter new banks? You already know the answer to that. The question, then, is why?

Read it all.

Filed under: * Economics, PoliticsEconomyThe Possibility of a Bailout for the U.S. Auto Industry

2 Comments
Posted December 30, 2008 at 4:20 pm [Printer Friendly] [Print w/ comments]



1. Jeffersonian wrote:

To the author’s excellent list of reasons, I’ll add the cost of regulation.  It’s so burdensome that only large companies can afford the type of staff to administer it all…little guys can forget moving into a capital-intensive industry like auto manufacturing (though electric cars are a field of up-n-coming builders largely because they use existing platforms and drive trains are almost completely unregulated).

December 30, 6:27 pm | [comment link]
2. Tired of Hypocrisy wrote:

For a more accurate assessment, read Ed Wallace’s column in the Ft. Worth Star-Telegram, or in Business Week. For example, see this. Mr. J, it is true that this industry is incredibly capital intensive, it is unlikely anyone would put the kind of money needed to succeed at risk for such nominal returns. Another reason to add to the list is knotty distribution regulations at the state level that make it nearly impossible to sell a new car unless you’re a conventional auto dealer who spent a lot of money over the years to buy the laws that lock out competitive channels.

December 31, 1:03 am | [comment link]
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