One of the major themes you’ll find in many of the blog posts on this site is how dishonest action meant to solve a problem creates blowback (unintended consequences) that create an even more serious problem. Blowback occurs everyday and at every scale: between individuals, within the marketplace and on the international stage. Today, I’m interested in the blowback that resulted from American car consumers purchasing inferior American automobiles.
Many Americans feel like it is their patriotic duty to purchase American cars (I don’t know why they don’t feel the same about clothing or appliances). They are, in fact, being dishonest with themselves and the marketplace by purchasing inferior products. By engaging in dishonest activity, they’re creating blowback pressure: pressure that contributed to the destruction of the automobile industry.
The market is very good at indicating product inferiority. If your product sucks, demand goes down and your firm makes less money. The Big Three had an advantage over their foreign competition: something I’ll call a ‘patriotism subsidy.’ This subsidy is equal to the amount Americans would pay to feel ‘patriotic’ about their automobile purchase. In the past, the subsidy increased demand so that the Big Three didn’t receive the market signals that would have motivated them to invest more in their products. Indeed, the market indicated to US auto executives that they were doing things right because their cars kept selling. On the flip side, foreign manufactures, having to compete against US competition ‘benefiting’ from the patriotism subsidy, had to build better products at even lower prices. This subsidy created an ever increasing gap in product quality between US and foreign manufactures and by the mid 1990s, the quality gap became larger than the patriotism subsidy and US automobile sales fell off a cliff. Draping their products in the American flag no longer produced the results it once had.
In 2008 it became abundantly clear that the Big Three couldn’t survive any longer without assistance from the US tax payers. Indeed, it appears ‘patriotic’ consumers have gotten what they wanted: now all Americans have to ‘support’ the Big Three US automobile manufactures, whether they like it or not.