Market Regulations Foster Profitability

GM back in black | | Guardian Unlimited Business

I have spent considerable time blasting American car makers, General Motors especially, for being such lousy stewards of one of the nation’s most important industries. Specifically, I wrote this post, and this one and this one in the aftermath of Big Three’s spectacular decline over the past five years.

When I saw this headline from The Guardian, I thought that I would have to eat my words, but then I started reading the article, and I happened upon this golden nugget.

GM, which made a loss of $3.4bn during the same period a year ago and came close to bankruptcy in 2005, is shedding more than 30,000 jobs in the US where it made an operating loss of $39m compared with one of $3.95bn a year earlier.

The company, which owns brands including Vauxhall, Chevrolet, Cadillac and Saab, is struggling to cope with fierce competition from Asian rivals in its core US market. But Carl-Peter Forster, GM Europe president, said it had made record sales and net profits ($236m) in Europe – the highest earnings since 1996.

And, there’s the rub. Just like Ford, General Motors is still losing money in the US, but making record profits in Europe. This begs the question as to whether capitalism is working in the United States. After all, the general consensus is that nearly all of the profitable companies on Wall Street make all of their profits from their offshore operations, not from their domestic operations.

And, this further begs the question regarding regulations. If General Motors and Ford are making record profits–indeed, the companies’ salvation comes from their European profits–in the most highly regulated marketplace on the planet, yet still recording losses in the least regulated marketplace in the industrial world, how can anyone argue that regulations are inherently bad for the marketplace?

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