Maryann N. Keller wrote an interesting article published in the Business Week Magazine about how the auto industry does not abide by the basic laws of economics and the market because governments refuse to let large auto companies go under.  According to the article, there are two theories of how to fix the current problems in the auto industry, one being through entrepreneurs, and the other through global consolidation. Neither theory will work because governments step in and do not allow the basic laws of supply and demand to be met.

Entrepreneurs, even though they may be able to integrate new technologies quickly, don’t stand a chance against larger auto companies that have the capacity to mass produce.  Rather, the larger companies will be able to integrate the new technologies created by entrepreneurs and offer the same or superior product to the public with a much cheaper price tag. Thus, entrepreneurs will either operate in limited niche markets with high prices or will fail.

The theory of five or six globally consolidated companies ruling the market by destroying more vulnerable, less efficient companies and closing uncompetitive assembly plants is a theory that would work if governments allowed it to be implemented.  Weaker, less competitive auto companies would die off and only the most efficient companies would be left to compete with one another. The problem of excess production capacity, which is currently 30 million units annually, could then be solved, leaving the market to operate more effectively under the laws of supply and demand.

Unfortunately, neither of these solutions will work because governments would rather recycle large auto companies that are struggling to survive rather than let them die off.  Governments choose to protect automakers for reasons of national self-interest.   The auto industry is an industry much different than other industries according to the article because of, “The economic reach of the industry, its ability to spur technological development, the high-paying jobs it supports, the politically powerful unions that represent it s workers, and, not insignificantly, the industry’s impact on trade deficits and surpluses.”

One of the biggest problems with the auto industry is that the essential element of capitalism that government’s role should be limited is not met. Rather, government plays such a significant role in the industry that quite often large auto companies do not have to deal with the negative consequences of poor decisions.  Large auto companies know that if times get tough they can expect a handout from the government for more money.  Over a hundred billion dollars of taxpayers’ money has already been spent by governments to keep auto companies in business.  The big auto companies thrive at the expense of the taxpaying public.  Even though some amount of government regulation may be necessary, the government is currently playing too large of a role in the industry interfering with natural market forces.

The auto industry illustrates every level of corporate power, specifically great technological and political power.  Is the industry using this great power legitimately for the common good? If the most influential auto makers know they can rely on the government for support are they really going to be concerned about using their power to benefit consumers?  With the amount of corporate power the auto industry already has, they should not also need the government to pass them a check.

In conclusion, the best solution for the auto industry is to decrease the role government plays and to let the market operate more efficiently through the laws of supply and demand.