Halftime in America? Stockman Doesn’t Buy Auto Recovery Story

David Stockman is interviewed in the story Halftime in America? Stockman Doesn’t Buy Auto Recovery Story from Yahoo! Finance.

It is not clear which part of the story he buys the least.  In the beginning of the interview he responds with this:

“If you look at the sweep of things, [the January auto sales data] this was kind of a blip in the sub-basement,” he tells me and Aaron Task in the accompanying video. Even if car sales run at an annual rate of 14 million, Stockman argues, that’s still at a much lower rate than several years ago. And the industry is still dependent on the free and easy extension of credit.

Many years ago when I was still working for Digital Equipment Corporation, we had a lecture from a former Ford executive.  He may have just been hired by Digital, but I am not sure of the circumstances anymore.  There is one thing I remember very clearly from his lecture.  It had to do with the break even point of a company.  At one point in its recent history at that time, Ford had to make 90% of its sales projections before it broke even – made a profit.  This was a very precarious position to be in.  If they fell 10% short in sales, then they would lose money.  What the lecturer explained, I think, was Ford’s efforts or maybe it was Digital’s efforts to make sure that the company’s break-even point was changed so that it would be far less than 90%.  I think the target was more like 50%. By the time I left Digital, they had probably forgotten the lesson.

What David Stockman’s comments fail to acknowledge is that though GM may be selling fewer cars, it probably has lowered its break-even point significantly since bankruptcy.  In other words, it does not need to sell as many vehicles as it used to in order to turn a profit.  This is just stating a fact.  It is not passing judgment on the methods GM used to lower its break even point.

Whether there is any wisdom in the rest of what he has to say, I will not pass judgment at this time.

It is odd that whenever Bill Moyers interviews David Stockman, he never mentions that he is a Congressman from Michigan.  I guess he only wants Stockman to talk about the parts of his beliefs that fit Moyers’ agenda.  (Oops! did I hint at questioning Moyers’ journalistic ethics?  Naw, couldn’t be.)

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