France Denies the Law of Supply and Demand

Well, just when I was starting to like the French again, they go and try to void the law of supply and demand. More specifically, as reported in the Wall Street Journal, Luc Chatel, the junior industry minister, wants French automakers Renault and Peugeot Citroen to promise not close factories in return for a government bailout.

While I am all in favor of setting conditions for government money, those conditions shouldn't place the company in an uncompetitive situation. For if the company is uncompetitive, the taxpayer is chasing good money after bad. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Consider that labor, in general, is demanded by manufacturers. Labor is then segmented by its market and skill. Different countries have different quantities of skilled labor at different prices. We have all seen that with BMW plants in South Carolina and Hyundai plants in Alabama. Well, Turkey is much like Alabama, relative to skilled labor.

For the French automakers to survive, they need to find cheaper labor than 35 hour a week union members who take 6 weeks off and go on strike when the wine in the company cafeteria doesn't pair properly with the foie gras. Let's also not forget the smoke breaks.

However, M. Chatel thinks that by forcing the factories to stay open and carry excess capacity (15% for Renault per Credit Suisse), that will make things all better. WRONG! Let's consider the US plan which is to provide badly needed capital in return for a stake in the automotive companies. The governement is working to set benchmarks to streamline production, control costs, etc., though isn't calling for make work jobs, at least not yet. Come on, Obama was just inaugurated and the Congress hasn't finished all of the Inaugural ball debauchery. Compare Auto Insurance Quotes and Save!

In short, demand for cars in France is down with French labor being some of the most expensive in Europe. To stabilize their automotive industry, the automakers need to reduce costs, and lower cost labor may be the key. In the meantime, M. Chatel should go back and take a basic economics course and let that be his basis for recommendations, and not politics.

Electric Car Finds its Niche

In a brutally honest (and refreshing) piece in Reuters, titled "Electric cars -- It's the economy, stupid!" the author gives a real-world assessment of her Reva G-Wiz, pictured on the left. Guess what, it isn't all pretty, but that's not why I like the article.

The author purchased the car to be able to drive in London and avoid the congestion tax, as well as the $9 a gallon gasoline, and also take advantage of free parking. To that I say, "Good for you!" She wisely identified that her objective was to have self-determination in transportation and a cost that suited her budget.

From the article, "...I set up a spread sheet when I bought the car and I fill in the savings I make on the congestion charge, estimated on petrol and on parking... I sold my old car and I have now "made back" the expenditure on the G-Wiz through these savings... I "paid off" the car in March this year and am on the way to "paying off" the total amount."

So what' the catch? The car go only go about 40 miles per charge. Additionally, that 40 miles is really only in mild weather on flat roads. It has poor acceleration and is very small. The author also stated that going up hills was like riding a bicycle.

What this article really is about is choice, and that's what I like about the article. The consumer had a choice of the beefier car, but was faced with congestion tax, parking fees, and very expensive gas. She chose an alternative which saved her money and suited her needs. Long live the free market!!

Enjoy this Jeremy Clarkson ( of the BBC's Top Gear) video of his take on the G-Wiz. It is in about 2 minutes or so. He takes those two minutes to mock the French.