The big three automakers showed up in Washington last week in three different private jets with their hats in their hands asking the American people to bail them out of the financial mess they created for themselves over the last decade or so. Congress, in an unusual display of common sense thinking, sent all three packing with the directive not to come back until you have a plan.
All three American automakers chose to shift the majority of their production to SUV's and large trucks because that's where the money was. They failed to follow the rule that any good investment manager will tell you to live by: Diversify! Don't put all of your economic eggs in the same basket. In doing so, they set themselves up for this failure.
It would be easy to just let them fail in hopes that they'd learn a thing or two. The problem is that the failure of the automakers wouldn't just hurt the automakers and their employees, but it would have a far reaching ripple effect across the US and the world. Ford is in less bad shape than GM and Chrysler. However, because none of the three have a balanced line up of cars available and won't for at least another year, and they're burning up money just operating, all three will need to file for Chapter 11 protections in order to simply operate until the new lines of cars come out. The unions will need to come up with some significant concessions including huge cuts in retirement benefits. (If retired airline pilots and live on half their retirement, so can retired auto workers.) Lastly, the automakers need to make a reliable line of quality high-mileage cars.
All of this can be done without a single dollar of taxpayer money. The automakers are going to be hurting for a few years and, unfortunately, their suppliers and everyone in that food chain will be hurting for a few years. But, they'll be better better managed and be in a better position to be profitable in the future.
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2 comments:
Greed. Pure and Simple. Instead of doing what was right, they only did what was profitable. There is always a price to be paid, unfortunately - it looks like we will all share in the payback.
The automakers aren't going anywhere. They will file for bankruptcy protection and continue to make cars, they will continue to buy parts, and they will continue to pay their employees. The issue is not "will they go out of business or will they not," it's a more subtle question that can be outlined in two general options.
Option 1: We leave them to their fate. Cars out of Detroit have "Toyota/GM" and "Honda/Chrysler" on the trunk in a few years, the cars are far better made, more efficient, pollute less, and workers get paid for work just like the rest of us do. Executives are paid for performance at reasonable salaries with no golden parachutes. No tax money needed, and I might even be interested in buying the product.
Option 2: The government steals money from each of us (theft defined as taking something without option or consent) and gives it as a reward for incompetence, mis-management, and the creation of inferior products. Structural problems remain and we do all this again in 20 years and act all surprised. (Does ANYBODY remember Chrysler K Cars and Lee Iacoca?) Executives, union leaders, and congressmen win, the rest of us lose on a number of levels.
Toyota, Honda, and others are obsessed with the customer. Every action in those companies is compared against a CTQ (Critical to Quality) and both customers and workers benefit from that laser focus. GM is organized to please labor first, the customer to the minimal extent necessary to survive.
Let capitalism work. It's cheap in the long run and has brought every advance, convenience, and spin-off benefit that we take for granted. The Soviet Union was built around the concept of a "worker's paradise," the U.S. was built around the customer. One works if you leave it alone, the other is a hell hole.
Just my Two Cents
Tim
P.S. If you want to know more about how auto companies work well, read How Toyota Became #1 by David Magee. For a simple customer-focused production primer, read The Goal by Eliyahu M. Goldratt.
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