Auto (& other transportation)

Overview: Big Three Automakers favored with bailouts while competitors are pushed out by government; Big Four Airlines favored by airport favoritism, Big Four Railroads favored by tight federal and state regulation; taxis monopolies favored by restrictive licensing that has led to Uber; and truck drivers limited by burdensome CSA regulations.


(1) Transportation Sector Supply Chain 

Auto manufacturing = motor vehicles, bodies, trailers, parts
Non-auto manufacturing = civilian aircraft, engines, parts
Auto Imports = Japan, China
Wholesale Trade = warehousing/storage/transport
Retail Trade = motor vehicle/parts dealers
Auto (personal) = personal consumption
Trucking = commercial
Air = airline passenger and freight
Rail = railroad passenger and freight
Other = water, transit, ground, intercity, pipeline 

(2) Regulations favoring monopolies

Global automobile manufacturing is dominated by China.
> small cars
> no labor unions

The transportation industry is regulated by the U.S. Department of Transportation (DOT) 

U.S. government regulations led to monopolization of the American automobile manufacturing industry by the Big Three oligopoly, General Motors, Ford and Chrysler, in four phases: 

i) After World War I, the government-sanctioned Federal Reserve banking monopoly wiped out the competition. The Fed raised interest rates to cause the depression of 1920-1, which bankrupted many companies, especially manufacturers. The number of active automobile manufacturers dropped from 253 in 1908 to 44 in 1929, with about 80 percent of the industry’s output accounted for by Ford, General Motors, and Chrysler (formed from Maxwell in 1925 by Walter Chrysler).  The Fed wiped out most of the remaining independents, including Pierce Arrow and Duesenberg in 1938, by raising interest rates again to cause the 1929-1940 Great Depression. 

ii) After World War II, U.S. government laws and agencies prevented competition from the few independents left and those that tried to enter. In 1948, Tucker was forced to close after one year because he was harassed by the Securities and Exchange Commission (SEC). In the late 1950s, both Studebaker-Packard and Kaiser-Frazier fell to government-favored labor unions demanding higher wages and benefits than they got from the Big Three. Bricklin failed due to new environmental regulations imposed in 1973-4 by Nixon’s new Environmental Protection Agency (EPA). In 1979, DeLorean was also harassed by the SEC, before the FBI entrapped him in a cocaine sting (he was later acquitted). The most successful independent was likely American Motors (AMC), which originated from Nash-Hudson in 1954 and was bought by Chrysler in 1987. 

iii) In the late 1960s, Japanese automakers rose to prominence with fuel-efficient, functionally designed and well-built small cars, aided by the U.S. government-caused health care crisis, the OPEC-induced global energy crisis and environmental laws. The end of U.S. dominance began with the imposition of federal standards of automotive safety (1966), emission of pollutants (1965 and 1970), and energy consumption (1975); with higher gasoline prices following the oil shocks of the 1970s (and later 2000). Although the Japanese had similar hourly labor costs, they benefited from four times lower health care costs, amounting to $1500 per car, which made them perpetually more competitive than the U.S. After peaking at a record 12.87 million units in 1978, sales of American-made cars fell to 6.95 million in 1982, as imports increased their share of the U.S. market from 17.7 percent to 27.9 percent. From 1980 until about 2010, Japan joined the U.S. as the world’s two leading auto producers. The U.S. government, which had historically forced independents out, cemented the Big Three oligopoly within the American industry by favoring them with the bailouts of Chrysler in 1979 and all of the Big Three in 2008. Domestic auto bailouts ("too big to fail") that favors larger companies and unions, including reducing financing costs. When combined with U.S. laws favoring unions, high health care costs have discouraged new entrants anyway. 

iv) Since 2010, China has used its low wages to become the world’s dominant automaker (although most are sold in their market). Now, the U.S. should reduce labor as well as health care costs. However, since the U.S. has consistently favored the Big Three, advanced manufacturing (e.g. robotics) is less likely to be solved by entrepreneurs that do not receive political favoritism. 

Personal automobiles are not highly regulated or monopolized and it would be difficult to do so. 

State licensing laws limit the supply of taxi drivers, whose high rates led to Uber

Commercial trucking is not highly regulated or monopolized with over 90% of long-distance freight truckers are owner-operators, although

> burdensome Federal regulations in Compliance, Safety, Accountability are worsening driver shortages and encouraging consolidation
> trucker collective activities are regulated by the Surface Transportation Board (STB) of the DOT

Airlines is dominated by American, Delta, Southwest and United, with each having their own “fortress” hubs that limit competition in major markets.

> airline safety standards and other operating procedures are regulated by the DOT.
> airlines are mostly regulated by local governments, which own and manage the airports in their region and therefore control key bottlenecks to airport services. Local airport commissions regulate access to boarding gates and runways without a formal process, such as a bidding. Often, they require proof that the airline would operate in the best interest of the public.
> airlines receive preferential treatment from airport officials, including allocation of gates at terminals, expansions and other projects, and security-service contracts, and also by state officials including offering fuel tax breaks 

Railroads are regulated by STB (and the states), including rates, service, the construction, acquisition and abandonment of rail lines, carrier mergers and interchange of traffic among carriers.
> Railroad freight is dominated by BNSF, CSX, Norfolk and Union (with only two competing railroads in each of the eastern and western markets). 

STB also oversees intercity bus carriers, moving van companies, and water carriers engaged in non-contiguous domestic trade 

Each US state has their public utilities commission which regulates the privately owned railroad, rail transit, water, and/or passenger transportation companies 

(B) Technologies 

US government subsidizing Tesla electric cars

10a14779394030181.jpg  (3) Monopolies are leading to economic problems, including history 

The transportation industry has not led economic crises, likely because it is dominated by the competitive personal auto and trucking industry, but it has led to higher costs of transportation. 

(4) Economic problems can be solved by deregulation reform

> eliminate burdensome Federal regulations in Compliance, Safety, Accountability and the STB of trucking
> eliminate preferential treatment of airlines by airport officials,
> abolish regulation of railroads through the STB and the states,
> abolish STB oversight of intercity bus carriers, moving van companies and water carriers,
> abolish restrictive licensing laws that limit the supply of taxi drivers


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