Protecting the Environment - or domestic automakers?

It is an oft-heard complaint that the continued operation of domestic automaker Zastava Automobili makes for higher prices of imported new and used automobiles in Serbia. One could argue that a country's ability to produce its own cars is worth the cost incurred, but it would be immaterial; Zastava itself hardly receives the proceeds of customs taxes. What is clear is that Serbia is far from alone in grappling with the issue.

Hungary and Poland's auto production may be limited to the assembly of vehicles designed elsewhere, but these industries are important enough that both countries have in the past slapped taxes on imported used cars. Both, by way of having lost their cases in legal action brought by the European Commission, have lost their abilities to do so. If Eastern Europe thought that EU membership would save it from old vehicles, it was clearly mistaken.

Yet two recent EU members—Romania and Bulgaria—have no intention of giving up the fight. "We must not become the trash can of Europe," warns Romanian Prime Minister Calin Popescu Tariceanu. "We must have the courage to confront the European Union if we have other interests."

While Bulgaria grapples with smog from old cars, Romanian automakers Dacia and Daewoo Craiova do not want a repeat, in their own back yard, of what happened in Poland upon its ascension to the EU in May 2004, when a wave of imported used cars sent sales of new cars spiraling downward.

Despite the objections of the EU, Romania's first-registration car tax will continue as part of the country's fiscal code. The tax ranges from about €120 for a new car, to up to €7,000 for older ("dirtier") imported used vehicles. The EC, of course, believes that the tax prevents free competition, thus violating EU rules.

The tax, says the EC, discriminates; does not correlate the age of the vehicle and its propensity to pollute with the amount to be paid in tax, and only covers a limited period of the car's life.

Dacia figures that its sales could fall by 50% if the tax is scrapped, and warns that layoffs may result.

Of Automobiles and Public Policy

Chrysler's startling recovery in the early-80s is today an oft-recounted story, yet one that invariably characterizes the event as a "bailout." It is perhaps this attitude that has permitted President Bush to be quite unperturbed by the plight of America's Big Three automakers, judging by a flippant series of on-again, off-again scheduled meetings between the White House and the Detroit CEOs.

Perhaps the Big Three's most acute problem is that these companies bear an enormous health care burden versus the younger Japanese automakers.

Yet much though health care might legitimately be viewed as an issue with implications reaching far beyond the automotive industry, there remains little chance of a wider discussion beyond that which blames the Big Three for their overcapacity.

While the Japanese government has long supported its automotive industry both financially and politically, the idea of government intervention has in the United States long been viewed as far too contrary to the teachings of Adam Smith.

On the other hand, the old edict that free trade allows each country to maximize its production efficiency, and that it satisfies each country's consumers in giving them the greatest array of choices, seems passionless when faced with the myriad identities and emotions associated with the automotive industry's brands and products. This is quite apart from the distinction between free trade and fair trade, a distinction that curiously few opinion leaders seem wont to discuss.

Perhaps more importantly, after the specter of British MG-Rover's collapse last year, there are practical considerations at stake.

At Serbian automaker Zastava these past few weeks, an ongoing political battle has been brewing over whether the government will back the 8 million euros required to build Fiat's Punto at Zastava's Kragujevac factory. At least 1,000 jobs depend directly on a positive outcome. Since the Punto is something of a lifeline to 21st century technology for Zastava, one might add that Zastava's 15,000-strong workforce effectively hangs in the balance - as does, indirectly, the automaker's hometown of Kragujevac.

No matter Zastava's comparative insignificance, vis a vis the automakers of the United States and Europe. The bind in which Zastava finds itself may well prove to be a microcosm of sorts, in that it is commonly argued that the Serbian government cannot very well support the automaker if it wishes to do things as does the West.

Yet no less than the French government has recently moved to put more than 100 million euros into retraining approximately 20,000 employees who will likely be deemed surplus to PSA Peugeot-Citroen; this, atop a 400 million euro government injection into Peugeot R&D over the next three years.

Contrary to Adam Smith it may be, but the French are not about to make the same mistake as did the British. Thinking that the plants of import manufacturers would save their industry, the British government was content to let MG-Rover fail - only to see Peugeot recently begin moving production from Britain to Slovakia (where the government has subsidized the automotive industry to the point that Slovakia has become the largest automaker in the world, as a country, per capita).

As for Chrysler's "bailout" - rarely is it mentioned that, under Lee Iacocca, the company paid back the loan years ahead of time.

More rarely still is it ventured that supporting and retraining Chrysler's employees, had the company failed, would likely have cost considerably more than did the loan.