Monday, December 08, 2008

Reflections on the US Auto Bailout....

Ok, this is a car blog and I do have some thoughts on the impending bailout of the US Auto industry.

I guess I should start by saying I am against the current format of the bailout. I know you cannot let the US auto industry just collapse but I don't think throwing money at them is really a good idea. The government didn't bailout the airline industry when it was hit hard by skyrocketing fuel prices and decreased passenger loads after 9/11. Most of the struggling companies worked their way through filing Chapter 11 bankruptcy and have emerged in better shape. Why not force the Auto companies to go this same route before tossing billions of dollars at them? If they make it out of Chapter 11 and still need some help then maybe give them a loan.

Right now does it make any sense that any of them will some how completely turn around their declining sales trend? Each has been losing market share since the early 90's. They all staked their futures on the booming SUV market while letting their small car segments get destroyed by foreign competitors. Can anyone honestly name an American sedan that they would buy over it's foreign competitor? The US automakers have allowed themselves to be pushed out of every segment but Large SUVs and Trucks. This was fine when the fastest selling cars where SUVs but they had to know that sales wave would not last.

At this same time, several scrappy Korean car companies continued to improve their product using Honda as the benchmark. Base your business on small, extremely well built cars and then expand from there. You know that the Americans are in trouble when Kia's and Hyundias are looked at as being higher quality that Chevy or Ford.

The problem with the current domestic designs is they aren't the best in their segments. In economy cars the Japanese and Koreans make them better, cheaper, with more options and better looking than anything Ford, GM or Chrysler can offer. If someone gave you 15k to spend on an economy car would you buy a Chevy Aevo or a Honda Fit? Case closed. In cars a little larger it again comes down to quality and design. People buy Toyotas and Hondas because they are going to be bullet proof transportation. Start counting how many 15+ year old Honda Accords and Toyota Camry's you see driving around and compare that to how many Ford Escorts and Chevy Cavaliers you see.....

The Domestics again get killed in the luxury segment. The Euros all make cars that drive extremely well and always have great looking designs and the latest gadgets. The Japanese again rest there sales on build quality. The Americans? Do they even make a car that can compete with a Lexus or a BMW? Only Cadillac can come close and surprisingly it is about the only place that GM makes a profit.

I just think the Domestics lost there way in the late 70's. Way too many models, crazy contacts to the unions, lackadaisical designs are just a few of the many nails in the coffin. Does GM really need 4 versions of the same car? Every other car maker makes 1 (2 at the most if you count the Luxury brands) car for each segment. Does GM really need to keep pouring money into GMC, Pontiac and Buick? Why not downsize you line up and try to make some really good cars. Have Chevy and Cadillac, Ford and Lincoln, Chrysler...well they may need to just go away.

One really good stat kind of sums up the mess that is the US auto industry: Toyota has one supplier and one design for their cruise control system. Get in any Toyota or Lexus and it is the same controls. 1 part for every single model. They found a high quality part they like and stuck it in every car. Thus you get the same quality controller in your Toyota Corolla as you would find in a Lexus LS600. What does GM us for their cruise control? They have 20+ versions. 20+! Do you need more than 2?

Anyway, I can only see the current handling of the bailout ending badly. Throwing good money after bad never ends up well. Having government get involved in the auto industry usually ends badly. Anyone remember what happened to the British Auto Industry? Healey, MG, Aston Martin, Lotus, Triumph, Jaguar, Morris, Austin, Rover, Jenson, Land Rover, Mini, and others all used to build great cars. For a time in the 50's and 60's they built some of the worlds best sports cars. What happened? Shoddy build quality, terrible labor issues and labor contracts and a lack of updated designs all lead to big problems. Companies merged and consolidated products lines in a effort to save themselves but just couldn't. The British government Nationalized the industry in the 80's and ended up losing even more jobs and money. Most of the above companies are out of Business. The ones that have survived as independents (Aston Martin, Lotus, Morgan) have all done so by finding a niche that they can sell into and then making the best car for that niche. The others have all gone by the wayside or had their names gobbled up by other companies.

That is my rant.

1 comment:

Jeremy said...

Good post.