On Fiat-Chrysler’s Merger Proposal to Renault: Too Broad?

As Renault was considering Fiat Chrysler’s proposal to merge, industry executives and analysts believed “that car makers must link up to share the cost of a transition from internal combustion engines to avoid being run over by fast-moving tech industry challengers like Tesla or Uber.”[1] To be sure, (b)y purchasing parts together, combining their manufacturing operations and sharing the cost of research and development,” the merger could “eventually save 5 billion euros per year,” according to Fiat.[2] The R & D would include funds spent on developing new models as well as on high tech oriented to the future. Although significant efficiency could be achieved due to under-used factories and all the money going into product development, the basic problem was one of insufficient scale (i.e., revenue) to support (i.e., finance) the very costly research and development needed on electric and/or self-diving cars. In its statement, Fiat Chrysler pointed to “the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification, and autonomous driving.”[3] The insufficient scale was particularly troubling given the declining E.U. auto market at a time when Tesla, Google and Uber were making progress on electric and self-driving cars. Fiat Chrysler could really use the expertise at Renault and Nissan on electric cars. However, I'm not sure a merger was the optimal route forward.

The full essay is at "Fiat-Chrysler's Merger Proposal."

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[1] Jack Ewing et al, “Renault Considering Fiat’s Offer to Merge Into a New Auto Giant,” The New York Times, May 27, 2019

[2] Ibid.

[3] Ibid.

Auto vs. Oil Industries on Emission Standards: Putting a Part Above the Whole

When a company or an entire industry skips over the good of the whole—the public good—in lobbying for legislation that only reflects the needs or desires of individuals (qua consumers only), the society itself (and even the Earth) is slighted and thus more at risk. For the good of the whole is more than just the cumulative needs and desires of individuals in part because the latter do not take into account the wider effects of their choices. When an individual company or industry takes this point into account and rebuffs favorable legislative proposals because they would do too much damage to society and/or the planet, social responsibility is at hand. Companies or industries that do not are thus irresponsible from the standpoint of the whole, which, through government, is justified in keeping an eye on them (especially in making transparent their efforts to influence legislation and regulation. The American auto and oil industries can be distinguished in this regard. 

The full essay is at "Industries: Putting a Part Above the Whole."

The U.S. Goes after Executives at Volkswagen: A Deterrent?

Oliver Schmidt, a Volkswagen executive who had been head of the company’s environmental and engineering center in Michigan, pleaded guilty on August 4, 2017 to two federal charges in the United States: conspiracy to defraud the federal government and violating the Clean Air Act. He “admitted conspiring with other Volkswagen employees to mislead and defraud the United States in 2015 by failing to disclose that thousands of diesel cars were rigged to evade detection of excess emissions levels. He also admitted filing fraudulent emissions reports to regulators.”[1] He faced possible fines and time in prison. James Liang, another of the company’s executives who had been charged, had already pleaded guilty to charges of conspiracy and violating the Clean Air Act. The other executives charged were in the E.U. state of Germany, which does not extradite its residents. Given the power of the auto industry in that state, such accountability applied to executives for the same fraud in the E.U. may have been too difficult to achieve. Nevertheless, for the sake of business ethics alone, prosecuting executives personally rather than just companies is in general important as a deterrent.

The full essay is at "Executives at Volkswagen."

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[1] Bill Vlasic, “Volkswagen Executive Pleads Guilty in Diesel Emissions Case,” The New York Times, August 4, 2017.

Unethical Business at Volkswagen: Loans Cut off

As R&D was at a premium in car companies reorienting to electric and even driverless cars, Volkswagen could ill-afford the suspension of the European Investment Bank’s low-cost financing in 2017. The company “was barred from receiving European Union research funding over allegations it misused a previous loan to cheat on emissions” by programming “11 million cars to fool regulators.”[1] At issue were the company’s “use of so-called defect devices, software that caused pollution controls in diesel motors to work properly only when the engine computer detected that an official emissions test was underway.”[2] Accordingly, the European Anti-Fraud Office concluded that the company had misled authorities about how €400 million ($472 million) was used ostensibly to develop engines to be more fuel efficient and thus pollute less. I contend that the company’s reply was worse than none.

The full essay is at "Unethical Business at Volkswagen."

A related book: Cases of Unethical Business, can be obtained in print or as an ebook at Amazon.com.

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1. Jack Ewing, “European Bank Cuts Funds to VW Because of Emissions Fraud,” The New York Times, August 1, 2017.

2. Ibid.

Disentangling a Worsening Trade Deficit: Sector-Specific Industrial and Macro Economic Policy

The U.S. trade deficit rose 9.6% in January, 2017, to the highest level since 2012. The gap of $48.5 billion of exports exceeding imports looks daunting, yet the story is more complex at the sector level.[1] According to Neil Irwin of The New York Times, “What really matters is not whether the trade deficit is rising or falling. What matters is why?”[2] Distinguishing macro factors such as a strengthening dollar from sectoral strengths and weaknesses is thus necessary.

The full essay is at "Disentangling a Worsening Trade Deficit."

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1. Neil Irwin, “The Huge January Trade Deficit Shows Trump’s Hard Job Ahead,” The New York Times, March 7, 2017.

2. Ibid.

The Port of Oakland (Source: Jim Wilson/NYT)