Tuesday, February 3, 2009

Post No. 81: Rear View Mirror: Post - Super Bowl Edition (or How Quickly We Forget)



© 2009, the Institute for Applied Common Sense

We are once again delighted to have a contribution by The Laughingman.

In the summer of 1971, then President Richard M. Nixon introduced the American public to mandatory wage and price controls, pursuant to the Economic Stabilization Act of 1970, setting off a wave of unintended consequences.

(For those of you under the age of 45, we have provided you with some nifty links enabling you to further explore this seemingly ancient history.)

President Nixon's action was largely the result of the cost of America's longest war... and its first defeat.

Both Nixon and his predecessor, Lyndon Baines Johnson, had correctly assumed that support for the conflict would totally evaporate should the American people get any idea of what it was actually costing. Consequently, both men played their economic cost cards very close to their vests.

Wage and price controls had two immediate impacts on both corporations and labor.

For corporations, any reduction in the price of a product to address declining economic circumstances was viewed as suicidal because of the possibility of the corporation becoming locked into that lower price into perpetuity.

For labor, compensation negotiations shifted from current pay to future benefits, effectively moving what the workers earned from pay to future promises of health care and retirement income.

Both groups had one thing in common - neither trusted the federal government.

As both struggled with this new reality, the government went chasing niche interests in hopes of building support for an increasingly unpopular war. Detroit was given a couple of years to make mandatory seat belt/ignition interlocks standard equipment on every car sold in the United States by the 1974 model year.

Our news papers became awash in "coupons" to be submitted to the retailer, or sent directly to the factory to obtain a temporary price reduction on just about anything. As soon as P&G discovered that more than 40% of these coupons were never redeemed, it began to change its strategy, from strength of wholesale sales based on pricing and advertising superiority, to coupons, thus shifting pricing and advertising largely to retailers.

Welcome to the game, Wal-Mart.

Unions came up with ideas like "job banks" to insure that if their workers could not share in economic upturns, at least they would not lose their income when the market turned down.

President Nixon, with new problems of his own, finally pulled American combat troops out of Viet Nam on March 29, 1973, but the cost of the war remained a lingering problem, even as that only class of criminals native to the United States, Congress, debated how the "peace dividend" could best be spent to their individual benefit.

It was a short debate.

The Yom Kippur War only lasted from October 6 to October 26, 1973 (some have advanced it lasted until December 23, 1973), but the Arab Oil Embargo lasted from October, 1973 to March, 1974... temporarily quadrupling the cost of oil.

On January 2, 1974, President Nixon signed the "Emergency Highway Energy Conservation Act" into law, basically denying federal highway funds to any state not immediately enacting a 55 mph speed limit.

The United States became the laughing stock of the world-wide automotive community.

The idea was to cut U.S. oil consumption by at least 2.2%. Interestingly, U.S. oil conservation never exceeded 1%... and by most independent analysis never got above .5%... nevertheless, the law remained on the books until 1995.

The laughter only got louder as the American consumer simply refused to buy an automobile equipped with technology that made it impossible to start unless everybody (and every heavy package) in the car was wearing a properly connected seat belt.

Not only did American corporations and labor no longer trust the government, it appeared that the government no longer trusted them.

Not surprisingly, light vehicle sales tanked. 1975 looked as if it would be lucky to reach half of 1973's volume.

On August 8, 1974, during the acoustic segment of a Crosby, Stills, Nash, and Young concert in Newark, New Jersey, Richard Nixon resigned the presidency.

Six months later, during half-time at Super Bowl IX, Joe Garagiola suggested that the solution to all our economic ills could be solved fairly simply: "Get a car. Get a check."

Five years later, round about January, and on its way to 70 something consecutive monthly sales records, Tom Messner and Barry Vetere produced a $100,000 television commercial for Saab with a visual of empty car haulers driving down various roads.

The voice over ran something along the lines of, "Last year, Saab sold every single car they imported to America...even the 36 neon green ones with the orange interiors, and the rubber floor mats. So, if you want to buy a Saab this year, you might want to hurry."

This was clearly out of step with what had become standard automotive sales procedure, but according to Bob Sinclair...CEO of Saab NA at the time; "If you build cars that people want to buy, and price them accordingly, you don't have to bribe them to buy them."

Now that we’ve gotten beyond the hoopla of this year’s Super Bowl, and the depressing atmosphere at the recent North American International Auto Show, I would sure feel a whole lot better about the future or our automobile industry, if President Obama could find the time to have lunch with Bob, before we begin production of the new Pelosi.

© 2009, the Institute for Applied Common Sense

8 comments:

  1. One of the things Saab did that year was not overestimate its US market. In fact, it may have deliberately underestimated it. One of the things that US car makers have traditionally done is overestimate its domestic market. Perhaps it has always felt it could this because the cars would eventually get sold by the dealers, who have already paid the car makers for them. And perhaps that was the only way they could meet their payroll and operating expenses and still show a good profit to the shareholders. But it has turned out to be a kind of pyramid scheme in the face of a drawn out downturn in the economy.

    We are in for more "interesting times" before things get better.

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  2. Anytime the government tries to put controls on something, some where else things will go out of control. Can't say that the government shouldn't create some controls, but any regulation should be well thought out, with real consequences recieveing more consideration than political consequences.

    If Obama is actually serious about change, he should look into this.

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  3. "only class of criminals native to the United States" another fan of Samuel Clemens! "It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress." from Pudd'nhead Wilson's New Calendar


    "we begin production of the new Pelosi." The Pelosi would naturally need to have super large headlights popping out of the hood, a loud and piercing horn, steering that requires the driver to turn the wheel right when making a left turn, a fuel tank filled with the new renewable energy called Hot Air which when released into the fuel lines and engine melts the Silly Putty causing the 825 billion parts to collapse.

    I enjoyed the history lesson Laughingman. I lived thru it all shaking my head and quoting or paraphrasing Clemens too. BB

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  4. Douglas, thanks for visiting us as always. Check out the name "Robert Sinclair" on wikipedia, and you will get a list of different Sinclairs, and pick the disambiguation for Saab NA, which will take you to an article about Bob Sinclair and the Saab 900 convertible, during the mid-1980s, and provide you further context for your comment.

    One other thing: When I first started representing Ford, GM, and Chrysler, in the late 1980s, I was surprised at the complexity of, and different forms of, relationships between the manufacturer and the dealership. Suffice it to say that it is difficult to make a blanket statement about inventory.

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  5. Jonathan: We generally agree with your sentiments expressed in your comment. We'll say this: To repair most things in the universe, a state of suspension needs to be established, even if just for a short period of time. With a car, you need to park it and stop its engine. With the surgical removal of cancerous cells, you put the patient under, still on the operating table, and control his or her systems. Imagine the complexity associated with repairing a DYNAMIC system, where you do not have any control over most of its component parts, and there are influences "foreign" to your organism.

    In this situation and in light of these conditions, it might take some massive, forceful, unprecedented, crude act to get this monster under control. It’s not about human capabilities at this point. We’re afraid that it’s about serendipity and a lot of luck.

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  6. Brenda: Welcome back. You'd probably find The Laughingman quite interesting. Yes, he's a big fan of Twain. We're trying our best this evening to get him to take a few minutes away from his busy schedule and provide us with a few comments.

    As for the picture of the Pelosi which you painted, we can guarantee you that he will love that. We know that we did.

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  7. I don't think it is difficult at all to make blanket statements about inventory strategies. Especially in the context of the auto industry. The complexity of any industry is a by product of the evolution of said industry.

    ReplyDelete
  8. "only class of criminals native to the United States" another fan of Samuel Clemens! "It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress." from Pudd'nhead Wilson's New Calendar


    "we begin production of the new Pelosi." The Pelosi would naturally need to have super large headlights popping out of the hood, a loud and piercing horn, steering that requires the driver to turn the wheel right when making a left turn, a fuel tank filled with the new renewable energy called Hot Air which when released into the fuel lines and engine melts the Silly Putty causing the 825 billion parts to collapse.

    I enjoyed the history lesson Laughingman. I lived thru it all shaking my head and quoting or paraphrasing Clemens too. BB

    ReplyDelete

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