On Chicken Tax

"FJ80WaitinForaLSV8" (fj80waitinforalsv8) 08/02/2013 at 14:49 • Filed to: None

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So Torch wrote an interesting article on the chicken tax on Jalop this week. This is my response:

Torch,

You neglected to mention the benefits of this tax. If you look at the American automotive landscape, trucks are literally the only segment in which the Big Three still remain completely dominant. This has been a crucial boon to these companies as their passenger car business has been slowly eroded away by both over zealous government regulation and completely one-sided trade deals that sacrificed American manufacturing for geo-political interests. The fact is that the profits on trucks has sustained the big three through thick and thin and for that we should really thank the chicken tax. Another way to look at this is that without this monopoly on trucks, we wouldn't have awesome products like the CTS-V wagon or the Boss 302 or the Charger SRT 8. The Big Three simply wouldn't have the profit margins to pay for R&D and subsidize these niche cars.

Now in terms of making a car based Ute, Ford and GM made utes for a long time after the Chicken tax was enacted. The El Camino ended production in 1987 and the Ranchero ended production in 1979. I think that these Utes were simply redundant when you looked at the Ranger and S-10. The El Camino and Ranchero were body on frame cars with solid rear axles- sounds a lot like a ranger or and s-10 no? I simply don't believe that the chicken tax led to the demise of car based Utes.

Rather, I think decreasing fuel prices, increased pickup truck refinement, increased pickup capability, and most importantly continued segmentation of the pickup truck market account for their decline. I would argue that the corvair based utes were an aberration in American trucks and proved too small for the rigors of the American truck using public. Pull sales numbers and prove me wrong, I would genuinely be curious to see how these things sold. The Apache based light duty truck is much more of a one size fits all approach to trucks than what GMs line up will look like with the reintroduction of the Canyon/Colorado. Think about it these Apaches were only sold in one cab configuration and two bed lengths.

So where does that leave us? Why isn't there a modern car based ute like the falcon or commodore? I'm not sure I know the answer, but my guess is the OEMs have done some pretty sizable focus group research into this and there is a reason they are on the fence.

Are they not importing them from Australia because of the chicken tax? The answer to that is clearly !!!error: Indecipherable SUB-paragraph formatting!!! , there is no chicken tax on Australian trucks. If there really was a strong market I would have to imagine that either GM or Ford would be importing these things. And no, I don't buy the collusion argument. This isn't 1960 where the Big Three control 90% of the market. GM and Ford are very close in terms of sales and game theory suggests that any product that will give them an edge would be put into production.

Anyway if I had to chose between and Ute from Thailand and a US made Colorado/Canyon I would suck it up and get the bigger US truck. This policy might not be the best for consumer choice in Utes but it is the best policy for the American economy and the American automotive landscape as a whole.

Bob Loblaw Made Me Make a Phoney Phone Call to Edward Rooney > FJ80WaitinForaLSV8 08/02/2013 at 14:54

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We have a trade barrier to thank for keeping an industry afloat? I disagree with the premise, but even if it held true, it's the wrong conclusion; all we would have is a trade barrier to thank for preventing 30+ years of progress that could have been made with resources that could have been otherwise utilized.

There's not much of an economically-sound argument in favor of many tariffs; you're merely pushing the inevitable back or encouraging resource inefficiencies.

Just wear your damn mask... > FJ80WaitinForaLSV8 08/02/2013 at 14:59

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I don't think there was any reference to utes in Torch's article. The entire reason we had a decade of S-10s, Rangers and Dakotas was because the Japanese manufacturers found a loophole in the Chicken tax and were able to import their small truck into the U.S. Don't forget that the Big 3 each had their captive imports until they could get their own small trucks online. The competition from abroad forced the Americans to innovate and compete. Then the loophole was closed (who lobbied for that?) and the Big 3 slowly killed off their small trucks because it is more cost effective to sell everyone an F-Series, Ram or Silverado, the market be damned.

TheOnelectronic > FJ80WaitinForaLSV8 08/02/2013 at 15:03

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Being held afloat because nobody is allowed to compete with you is not success, it's failure.

Italy had a law for a long time that no Italian carmaker could use parts that were not also Italian. This resulted in Italian cars having hilariously bad electrical systems, because they couldn't get, say, Bosch components.

Additionally, we only have things like the CTS-V wagon because of competition with other brands. The CTS-V was basically built to beat the M5, and the ATS was built to beat the 3 series. Competition only improves a sector.

American cars for years had massive, 7 liter V8's cranking out an earth-shattering 200hp. It wasn't until Japanese cars arrived making similar or more power out of much smaller engines that the big 3 actually had to start putting some thought into making power, and not just making the boom-boom parts bigger.

desertdog5051 > FJ80WaitinForaLSV8 08/02/2013 at 15:10

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Well, I for one, agree with you.

FJ80WaitinForaLSV8 > TheOnelectronic 08/02/2013 at 17:51

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Completely agree with you on the fact that industries need competition to improve and thrive, however, this is only true if the competition is fair. In fact, basic economic dictates that free trade is only beneficial under certain restrictive assumptions such as that all markets are perfectly competitive, that exchange rates are fixed, that there is full utilization of resources, that there are no economies of scale, and that there are no cross border flows of capital, technology, or labor.

Its very clear that these assumptions hold true in very few cases when it comes to the modern global automotive industry. This is why the chicken tax exists, to help create the semblance of fair free market.

As far as 7 liter V8s making 200hp you can thank aggressively implemented environmental regulations for that. Take a look at the engines pre 1973 and you'll see big HP numbers.

FJ80WaitinForaLSV8 > Just wear your damn mask... 08/02/2013 at 18:03

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There are lots of references to utes, he uses them as examples throughout the article: see BRAT and Corvair based utes that he mentions as an ideal vehicle.

Also I reject the argument that the Big 3 killed off their small trucks to create a bigger profit. GM is bring back their small trucks like everyone is clamoring for. And lets not for get that Nissan and Toyota still make their small trucks here in the states. Part of the reason that the Big 3 kept their small pickups around in the 80's and 90's was that they used the chasis to also build hugely popular SUVs. There simply isn't the volume in the chasises that there use to be. People simply aren't clamoring for these vehicles when full size rigs offer so much more capability with similar TCO.

Please don't get me wrong I like small trucks, I just don't buy that there isn't enough competition in the US to force OEMs to offer small trucks. They do it just happens to be less than before when everyone was buying BOF SUVs.

FJ80WaitinForaLSV8 > Bob Loblaw Made Me Make a Phoney Phone Call to Edward Rooney 08/02/2013 at 18:08

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Bob you are wrong about there being few economically sound arguments for tariffs. I absolutely agree with you that free and fair trade is a much better policy than tariffs, however, these are not the options the US is faced with.

Basic economic theory dictates that free trade is only beneficial under certain restrictive assumptions such as that all markets are perfectly competitive, that exchange rates are fixed, that there is full utilization of resources, that there are no economies of scale, and that there are no cross border flows of capital, technology, or labor.

The global automotive industry presently satisfies few of those assumptions. Thus, tariffs serve to protect economies from unfair competition and as a result can prove to be economically beneficial.

Just wear your damn mask... > FJ80WaitinForaLSV8 08/02/2013 at 18:36

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I think we are getting tripped up on terminology. The Corvair pickup was based on the Corvair van, which was more analogous to a VW Microbus than a car. I guess the Brat is a ute, but we don't use the term "ute" in the U.S. The El Camino and Ranchero, while car based, were always referred to as pickups. They also never sold in large volumes.

There currently is no motivation for the Big 3 to offer small trucks when it makes complete sense from a purely production stand point to offer lightweight versions of their existing full-size line. Toyota still sells more Tacomas than it does Tundras, but that is because they've never really been taken seriously in the full-size market. I'm willing to bet that Nissan sells more Frontiers than Titans for the same reason.

TheOnelectronic > FJ80WaitinForaLSV8 08/02/2013 at 19:44

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" Optional R/T engines were the 375 bhp (279.6 kW) 440 cu in (7.2 L) Magnum, the 390 bhp (290.8 kW) 440 CID Six-Pack and the 425 bhp (316.9 kW) 426 cu in (7.0 L) Hemi." for the Challenger, presumably pre-emissions.

You've got a point there, I'll give you that.

I'm not sure what you mean in your first paragraph, however. Yes, if, for instance, China subsidizes solar panel production and tries to sell them way, way under what any domestic company can sell them for, that creates a problem. I'm not aware of this being an issue in automotive spaces, however. Do you have any examples?

Jason Torchinsky > FJ80WaitinForaLSV8 08/09/2013 at 02:31

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These are valid points, and the lack of Australian trucks is interesting. I do think that whatever benefits it gave to American automakers have run their course, and it's time for real competition again. The US truck market is still one made of very few players, making a fairly limited range of vehicles.

But I will think about what you've written, and thanks for writing it.

FJ80WaitinForaLSV8 > TheOnelectronic 08/23/2013 at 17:05

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Totally forgot to respond to you on this point. What I was saying in the first paragraph is that competition or free trade, is only beneficial to both countries when a specific set of requirements are met. I listed those above. If these requirements are not met, free trade, or as I refer to it: unfair trade, is often beneficial for one country while detrimental to the other.

The most obvious example of this has to do with fixed exchange rates- if countries are able to manipulate their currency they can artificially lower the price of their exports goods. Japan is notorious for doing this over several decades and has recently begun once again begun using currency devaluation to support its export industry (autos being a major Japanese export).

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Therefore, certain corrective measures such as tariffs are often warranted to combat these market distortions.