In other words, Toyota is planning a price increase, even though it will cost them some market share.

I really should also mention that this is about as brazen a violation of the antitrust laws as you're ever likely to see.

Once bitten, twice shy -- Toyota execs remember the Japanese automaker bashing of the late 1970s and early 1980s when they, Nissan, Honda and even Mazda started lopping off U.S. automakers' precentage of car sales, leading to the Chrysler federal bail-out. Even though I doubt politicians and the UAW would be able to drum up the same sort of protests nowadays, Okuda would rather avoid the headaches and stop at the line now (though I'm sure they would move forward later if they held their share as it is and General Motors still goes belly-up).

David - It's the antitrust laws that are in the wrong, not Toyota.

John - Then it was Chrysler going out of business, now it'll be GM and Ford. There would be a protest drummed up. When GM goes bankrupt and has to confront its union, politicians will look for ways to save the union and GM at someone else's expense. Toyota doesn't want to be the victim.

As someone observed back then, it didn't really matter whether a Republican or a Democrat was in office: Chrysler was going to be saved, period. It really was Too Big to Fail. I imagine the same thing will apply to GM, but moreso, since GM is bigger.

What's good for Toyota is good for America.

PJ: I'm no big fan of the antitrust laws, which are more often misused than used, but how would it be a problem if the antitrust law was actually used as intended to stop a bunch of competitors from getting together to take it easy on each other?

From a quality perspective there is no reason to buy an "American" car. "American" cars have gotten better in this area, but they still don't match "Japanese" cars. Note that Japanese car companies have been able to keep the quality up at their U.S. plants ... ask yourself why U.S. car companies can't match what Japanese do here in the U.S.?

pj --

No doubt there will be protests. But the major Japanese car invasion during the Chrysler crisis only dated back to the first oil embargo in 1973, so back then it was easier for the jingoists to stir up the public that Japan was invading "our turf" and taking our jobs overseas, which offset the fact that the cars the U.S. automakers were building were crap (I rented a 1979 Chrysler New Yorker with 750 miles on the odometer that had some amazing wiring -- when you touched the metal radio knob, you got a shock, and when you stepped on the brake, the new-fangled digital clock on the console changed time).

A quarter-century down the line, people are much more accustomed to buying Japanese cars, and now are also comfortable buying them as luxury and sport utility vehicles, not just for gas milage. Add to that the number of plants the Japanese have built in the U.S., and I think the union and GM are both going to have to ante up a lot more in competitive give-backs to get any sort of federal assistance, at least from the current Congress and administration.

They may be willing to give them cash, but odds are GM and the UAW will want the feds to start picking up some of the health care costs as well, and the Democrats will use the threat of health care benefit cuts to start digging Hillarycare out of the grave.

"We need to give time for some American companies to take a breath"...or maybe time for another round.

http://slate.msn.com/id/2116905/&#threebeer

David,

What you say would make sense if there were the slightest hint of actual collusion between GM and Toyota, rather than being (as it actually appears to be) a unilateral move by Toyota.

Or are you also going to charge WallyWorld and some little town's main street shops with antitrust violation of WW decides not to build a superstore in the vicinity?

The tricky part of any cartel is negotiation and enforcement of the cartel agreement. That's why the most successful cartel's are those sponsored by, or at least tolerated by, the government.

With that in mind, let's look at what Okuda San actually said: "Japanese carmakers should give their US rivals some breathing space or risk a political backlash" and "We need to give time for some American companies to take a breath." Comments the reports, "Toyota is expected to follow Honda and Nissan in reporting record profits for the past year."

In other words, he's not saying, "Toyota, from the goodness of its heart is going to subsidize GM", although that, too, would be a antitrust violation. Rather, he's saying, "Hey, Honda and Nissan, let's use this political cover to back off, ease up, raise our prices and sell fewer cars." And he's saying it right out in public, which ironically makes it safer.

This is like the Chairman of "WallyWorld" giving an interview in which he says, "One of the big problems our society is facing is suburban sprawl. As a citizen, I understand and share people's concern in seeing farm land and forests being plowed under for another cookie-cutter store. Further, if we in the big-box store industry don't police ourselves, we're going to find ourselves the target of a political backlash. Therefore, I think that both good stewardship and hard-headed business require that WallyWorld and KevinMart and HomeDespot and PaperClips all realize that there shouldn't be more than one big box store in a given market and we all need to pull back and respect each other's territory."

I will never buy anything built by GM, period. I cn explain why in four digits and two words: 1975 Chevy Vega.

I will never buy anything built by GM, period. I cn explain why in four digits and two words: 1975 Chevy Vega.

David - I think it would be enough if the government & courts refused to enforce cartel agreements. Positive enforcement by the government, going out and finding companies to persecute, has overwhelmingly targeted beneficial activities in my view. Where collusion lacks a compelling economic rationale, there is always a strong economic motive for at least one colluder to cheat (and for new entrants to compete). If collusive agreements can't be enforced in the courts, then cheating and new entry will quickly destroy the cartel.

John - I agree with essentially everything you say. There are many political factors making GM-UAW protests less likely to be successful today than Chrysler-UAW protests in 1980 ... including the decline of union power, the decline of the Democrats, the declining importance of manufacturing, increased support for free trade, the move of the Japanese auto companies to US manufacturing plants, increased consumer affection for Japanese auto brands, etc.

I just think the countervailing influence of (a) the larger size of GM and Ford, and (b) the reluctance of the Bush administration to appear hostile to any significant American interest group, will encourage people to whip up protests. If the Bush administration would introduce steel tariffs for the steel industry, and take dumping actions on behalf of the textile industry which hardly exists in the US any more, what will they do for autos? And the Dems will support the auto industry and unions. With tens of billions of dollars at stake, the relevant parties will invest a hundred mill or more in ginning up a political movement.

Kirk - Aren't the public comments suggestive of collusion between Toyota and Honda? Antitrust prosecutions have gotten by on much less. Remember Justice Stewart's line: "the sole consistency that I can find is that in litigation under Section 7 [of the antitrust law], the Government always wins." [United States v. Von's Grocery Co., 384 US 270, 301 (1966).]

David - In case it's not clear, I think everything you've said is 100% correct. Nice cogent explanation of the antitrust issue.

In answer to your question re this specific case, it's clear that consumers would, at least temporarily, benefit from lower prices. However, producers are people too and their preferences matter, and GM & Ford employees would benefit from additional time to negotiate their way to less burdensome collective bargaining agreements. In the absence of an agreed evolution, there is likely to be destructive conflict and unnecessary unemployment. In the long run, consumers may benefit from the survival as leading carmarkers of GM, Ford, and Daimler Chrysler. Another factor is the political reality that a sudden decline in GM's market share might lead to destructive government economic policies. Taking these together, it seems to me plausible that the economically optimal outcome is for the automakers to collude in the way they are doing. I think the price increases Toyota and Honda are making are modest, probably less than 5%, and that much larger relative price increases would not be tolerated by consumers (who have bargaining power too). And I think this is buying GM & Ford only a few extra years. They will continue to shrink, only less quickly.

I remember when in 1985, IIRC, GM said they were raising their prices to compete w/the Japs.

Ok, you want to sell more cars and you raise your prices???

I think GM and Ford should combine, slash, and some of those plants turned into munitions factories. Or refineries.

We need to keep something on the side just in case, can't outsource it all.

I also think it's funny the Japs are playing the currency by shipping their cars made here to Europe.

But on the other hand, the Chicoms are doing that in mfg.

The Wall Street Journal has a front-page story on this today (http://online.wsj.com/article/0,,SB111455808016217668,00.html?mod=home%5Fpage%5Fone%5Fus). Note the good response from the President, hope he keeps it:

When President Bush was asked on CNBC about GM's troubles last week, he said: "I think they're going to have to learn how to compete."

The changed attitude reflects the markedly reshaped political situation in the auto industry. For two decades, Japanese and European auto makers have sprinkled job-producing auto-assembly plants across the U.S. Those have created a political constituency for foreign auto companies that didn't exist before.

"I don't think the government's going to step in and become a partner with every enterprise," says John Engler, who heads the National Association of Manufacturers and is a former Republican governor of Michigan. "We cannot, with the deficits we face today, step in and put loan guarantees behind any company."

Yeah, and Chrysler didn't want to pay back the loan, IIRC.

It is sad to see GM and Ford going downhill. But like the prez said they must learn how to compete like the Japanese. If they don't, Toyota, Nissan, and Honda will become as American as apple pie. What GM and Ford needs is something that will lure back American customers. Chrysler has the 300C, and GM has the right guy, Bob Lutz who was there for Chrysler in the 80s. Ford is on the right track with the Mustang, and GM needs to come out with something that is distinct. GM tried with the GTO, and the SSR is popular but too pricey. If they priced their products right for the middle class, Im sure we will see a shift. Japan Inc. is already rolling out big new pickups (or redesigned), Tundra, Tacoma, Titan, Frontier, and Ridgeline. Now the Japanese will be effectively competing in all segments of the auto arena. Right now I think Lutz is doing some good to GM however. The Solstice looks like a hit, and the G6 coupe is pretty nice. The Buick LaCrosse is nice too. If Lutz pulls this off, GM should have a car or division named after him.

Did I hear one of the rightwingers say cartel?

Heaven forbid such a thing should develop in a free market.

Then it wouldn't be free.

However, I don't understand Paul when he says government should (or could) enforce cartel agreements. A good cartel is self-enforcing.