an opinion
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by Is there any point to bailing out the American automotive industry? Who is to blame for the failure of the industry anyway? Consumers? Unions? Executives?
So right now, people are complaining that Detroit does not produce economical cars. Until the price of gas spiked, however, there wasn’t widespread American demand for fuel efficiency. We were still riding the gravy train of cheap gasoline and Americans wanted either big giant SUV’s or heavy, luxury cars. Meanwhile, in markets that suffered from high fuel prices (Japan and Europe), research and development produced hybrids and efficient diesels. Today, Japan pretty much leads the globe in hybrid vehicle technology. Diesels in Europe enjoy more than 30% market share. This was driven by mass consumer demand. Now there may have been pocket demand in the United States for more fuel efficient vehicles, but the vast majority of purchases reflected that our interest lied with either heavy luxury or the cheapest sticker price possible.
Now, it’s clear that the nature of America has very legitimate use for pick-up trucks from light to heavy duty. That need really has not come into question. However, it is extraordinarily obvious the American consumer drove the remainder of production towards P.O.S. compacts and incapable SUVs. It wasn’t until gas prices hit $4 a gallon that dealers actually reported an inability to sell such staple vehicles like the Ford Explorer. Regardless of what the ecological pundits proclaimed about the vehicles like the EV-1, the quiet consumer wasn’t buying them. And an already struggling automotive industry had to produce what people bought in order to barely stay in business.
Let’s take a sampling of some vehicles that are produced. What’s the point of a Chevy Cobalt? I had a chance to drive one of these pieces of junk in 2006 as a rental. The vehicle could barely break 20mpg (unloaded mind you), was terribly uncomfortable, had little cargo space, an underpowered engine and last but not least … it’s horrendously "uncool." Yet they, and other vehicles like them, sell. For practically the same price, a consumer could have bought a base model Jeep Wrangler SE. The 2.4L version of this Jeep is known to exceed 20mpg, is just as uncomfortable (though larger inside) and given the choice, is far cooler and more utilitarian than a Cobalt. It certainly can’t be argued that the consumer purchases crappy vehicles like a Cobalt for efficiency or economy as equivalent performance can be found for the same price in a better vehicle.
So the blame cannot lie entirely with industry executives. They produced vehicles that their consumer base wanted. Of course, they could be blamed for having not truly created an effective market for new technologies. Toyota has already proven with its Titan, Tundra and Tacoma pick-up trucks that a well-built vehicle can be constructed that has hauling strength, fuel efficiency (for a truck) and creature comfort amenities. What do Ford, Chevrolet and Dodge rely upon? "Buy American" is their mantra and they’ve stuck to it for decades. I’m all for buying American products … if the product is worth buying. Just as I won’t buy low quality crap from China just because the price is low, I also won’t buy poor quality crap just because an American put it together. And for that, I blame the unions. In completely ideal conditions, a union is good check and balance to ensure companies are not taking advantage of their employees and trampling the little guy. But over the decades, unions have evolved into such a worker protection entity that it has pervaded everything from marketing, R&D to even the consumer’s buying decision. When it comes to quality and craftsmanship – for an equal price would you really buy American over German? When it comes to reliability and longevity – for an equal price would you really buy American over Japanese? The "Buy American" motif is a great slogan but it’s simply smoke and mirrors over an inferior product line. Travel around the world and take a look at the automobiles. In impoverished countries, the vehicles of choice are either something produced locally or some equivalent P.O.S. When a little more money is available, look at the imports – European and Japanese. Why? They’re better products for the price. There is no reason for these consumers to pay the overhead induced by union labor fees for a car that is likely to break down on them where parts are scarce.
Back to a bailout. Is there a need for a Detroit bailout? Yes. The loss of those auto companies will put an extraordinary number of Americans into unemployment which will only further strain the economy by loading the social protection mechanisms, eroding GDP and further slowing money velocity. But a bailout for Detroit will only go so far. They will continue to produce shoddy, overpriced vehicles that nobody else in the world cares to import and that domestic Americans are ever yet less inclined to purchase themselves. A bailout this year simply means the Big Three will be back before the American people again next year asking for yet another bailout. Do they deserve a bailout? Absolutely not.
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Volkswagon TDI by VnutZ :: NR10 :: Show
Almost as if to prove my point … take a look at the Volkswagon Jetta TDI. There is not a vehicle in the American inventory that compares to it – especially at that price. Like I said – what’s the point of a Chevy Cobat? Dodge Neon? Ford Focus? It’s a waste of labor and resources stamped that are unfortunately proudly stamped with "Made in the USA".
Let Detroit Burn, or at least sizzle for a bit by Anonymous :: NR0 :: Show
Detroit’s issues appear to be largely unrelated to the current financial situation. The current financial meltdown has simply accelerated Detroit’s doom. Detroit still has a very impressive market share, it is just that it is slipping away. Three companies (GM, Ford, and Chrysler) have 50% of the market and they are collapsing? Their issues are poor management, not that no one is buying vehicles from Detroit. The pensions, health benefits, salaries, and the like are bleeding the companies dry. I’m not certain about all the specifics, but didn’t Detroit have issues being unable to innovate back in the ’70s when gas spiked – at that point foreign automakers really started to take a stronger hold in the market.
Anyways, other than that incoherent babble – one interesting thing I read in The Economist was that if people perceive that an auto manufacturer will fail, then that person simply will not buy from that manufacturer, since they fear that the warranty, support, service, and resale value are all in jeopardy. With this, I think we need to at least set up a bailout to back the car warranties (an FDIC for car warranties, if you will).
Oh, and if we do bail the big3 out – let’s take this opportunity to restructure the union contracts as well as enforce environmental guidelines.
Market Failure by Occams :: NR8 :: Show
I see this as yet another example of market failure. For decades now it has been heresy to criticize the wonderful automatic mechanism of free markets. In the last few months we have seen how the most able financial minds in the country had so overvalued the stock market that it all, quite inevitably, came crashing down. There has been no loss of value, only a correction from wrong valuations to real valuations.
The trouble with markets is that usually they just aren’t free (to adjust price so as to match supply and demand). They usually stick on something such as industrial relations, oligopolies, insider trading or cartels. Very strong and smart regulation is needed to force markets to be free – "lubrication" if you prefer to see it that way.
Well the market for cars is reasonably free, but the management of the old American brands is apparently simply not up to competing in a free market – so they cry for government assistance.
Sure, to let them fail will hurt a lot of good folk who did not cause this and don’t deserve to suffer. But if we bail out the management we are only applying a temporary unstable distortion on the free market. It will bounce back to its original shape soon and the same innocent workers will be in danger again.
The only hope would be to impose radical management reforms and use the bail-out funding to re-tool into sustainable production for the free market – quality, cheap, economical and environment-friendly vehicles. I don’t believe that the US Federal government could make this work. An all new coordinated industry management would be required and it would have to be not only highly talented, but also willing to follow the spirit of government directives while still applying excellent commercial judgement. Who ya gonna call?
American cars and trucks have come a long ways! by smcbride :: NR5 :: Show
VnutZ you said "Toyota has already proven with its Titan, Tundra and Tacoma pick-up trucks that a well-built vehicle can be constructed that has hauling strength, fuel efficiency (for a truck) and creature comfort amenities." Sorry but, Toyota does not built the Titan, Nissan does. Car lots across this county are full of Toyota Tundra because of the actual mpg of 13 to 14, to heavy and to much horsepower. Basic weight to horsepower, sure all the manufacturers have small under powered trucks with little torque that get good fuel efficiency. Mazda’s been building Ford Ranger for years. Worst truck I even owned was a Tacoma, pulled my boat out of lake and broke the drive shaft, just not enough truck.
Just for the record my wife drives a Lexus ES 350, I drive a Honda Accord both with V6 engines that run great and have been very dependable, and achieve great fuel mileage. I am currently on my forth Ford F-150 pickup, I drove all of them over 100,000 miles with no mechanical repairs other than oil, brakes and tires. Wish I could say the same about the Lexus and Honda that have fewer miles.
Unions and labour laws by NomadSoul :: NR5 :: Show
…I blame the unions. In completely ideal conditions, a union is good check and balance to ensure companies are not taking advantage of their employees and trampling the little guy. But over the decades, unions have evolved into such a worker protection entity that it has pervaded everything from marketing, R&D to even the consumer’s buying decision.
Indeed. It’s an interesting problem; there certainly needs to be some mechanism to ensure that management treats the employees fairly… but there’s fair and then there’s greedy. In an ideal world, good labour laws should negate the need for unions, and I guess they do to a limited extent. Sadly, such laws don’t go nearly far enough—at least not in Canada (I’m assuming it’s similar in the States).
So the unions get their thumbs in the pie and become preoccupied with their own self-aggrandizement, so that management starts hiring people on contract… and those poor suckers are left out in the cold. The union won’t protect them if they’re not considered "full time" employees—and thus sidesteps it’s whole original reason for existing. So what’s it there for?
Can’t anybody be trusted in this world?
Top Gear Destroys a Toyota (YouTube - Three Parts) by VnutZ :: NR10 :: Show
I don’t know if "Built Ford Tough" can even compare to this. Top Gear, the popular car show presented on by the BBC, decided to see how tough a Toyota Hi-Lux Diesel was. They bought an old one (already beaten up) and dropped it, set it on fire, submerged it in the English Channel, dropped a camper on top of it, drove it through a small building, hit it with a wrecking ball, crashed it into a tree and them imploded it during a building demolition. Not only did the engine still start but the truck continued to drive.
Snow in the Northeast and American Vehicles by VnutZ :: NR10 :: Show
So I just drove down the hill (and back up) to drop my wife off for EMT duty during the snowstorm. She figured putting an extra crew out there would serve more people though finding available members was difficult.
Not for nothing … but the only American vehicles that were successfully getting anywhere on the hill (vertical elevation roughly 400 feet from bottom) were 4×4 pick-ups and my Jeep. All the P.O.S. sedans and SUV’s were stuck at the bottom or slipping to the sides. And my upstairs neighbor just told me about how people were driving on the NY Thruway and NJ Turnpike from his commute back from NYC – crazy fast with accidents and sliding everywhere as if their vehicles were going to take care of it for them. Other than the 4×4′s, only the German sedans and their AWD with traction control were having no problems.
If it’s not a truck, Detroit produces useless, crappy passenger cars.