GM is teetering on the brink of insolvency. Ford and Chrysler are not far behind. Congress will soon have to decide whether to pump tens of billions in emergency loans into the automakers’ coffers. If they don’t, they’ll be sealing the fate of one of America’s industrial giants. If they do, what strings should they
GM - Mark of Insolvency
attach? Some have argued that the only reasonable conditions are to fire all the senior management and board and cut up the UAW contract.
Given the state of affairs today and the role each of these components have played in the decay of our automakers, It would be hard to argue otherwise. GM CEO Rick Wagoneer has been running things since the heady days of the SUV boom. While GM was busy building 2,000,000 pickups and full-size SUVs a year, and launching Hummer (!!!), Honda and Toyota were developing hybrid vehicles. But don’t worry, the fuel-efficient Chevy Cruze will be ready for sale in 2010. Good job, team. Fire him, fire them all. No wait, we have an electric car coming, too!! VOLT! VOLT VOLT VOLT. … Volt.
With GM’s impending demise on the media’s mind, I’ve caught NYT columnist/notorious gasbag Thomas Friedman (aka “The Mustache of Understanding”) on all the news/talk shows this week - pimping his latest book - and of course chiming in on the Detroit bailout. He, like many others, offers shallow platitudes (”Steve Jobs will develop the iCar!”) that don’t address the real problems and are based mainly in fantasy.
1994 Mercury Topaz. The bad seed.
The basis of fact missing from his brilliant analysis - and all of the other discussions that I’ve had the misfortune of hearing - is that the seeds of failure now bearing fruit were sewn 15-20 years ago, during the hellish 80’s and early 90’s. In that era, the Big 3 were building cars of 3rd-world quality: uncompetitive designs, and shoddy construction. Car buyers who were taken for fools by Detroit, were soon lured into the ranks of Toyota, Honda, and Nissan , who, by and large, did not mistreat their customers this way.
The early 90s was also the time when Detroit chose to spend all of their development money on pickups and body-on-frame SUVs. Remember, in the late 80s, the Ford Taurus was the #1 selling car in the US (fleet-assisted, of course). But Detroit saw the big profits and low investments of SUVs as a gold mine and proceeded as such. This”strategy” worked for short-term profits. But by neglecting to invest in a) unibody SUVs and b) flexible manufacturing plants, they set themselves up for a nasty fall. Meanwhile, every 4 years Toyota and Honda were updating and improving their compact and mid-size sedans, tirelessly battling to build quality products for a loyal customer base.
1994 Toyota Rav4. The beginning of the end.
Next, Toyota led the charge into unibody SUVs (crossovers, CUVs, whatever). I distinctly remember reading a quote from a Nissan or Toyota executive back in 2000, when the first Highlander came out. He said “the only reason people have been buying SUVs is because CUVs didn’t exist.” Meaning, the fake off-road image used to hype and sell “4X4 OFF ROAD” Grand Cherokees, Yukons, Explorers and such was a bubble that would soon burst. In truth, these cars served mainly as tall station wagons. Please note that the Ford Edge first arrived in 2007; meanwhile Explorer sales have gone from 450,000/year to about 75,000 this year. That’s gotta hurt.
This 20 year legacy has of unreliable cars, short-sighted product planning, and archaic manufacturing system is all built upon a foundation of UAW contracts that place an extra burden on shareholders - not employees - if and when sales drop. Big 3 brass long ago set the brittle foundation for their companies on the premise that their sales would never decrease. But if they did - and production is halted to match demand - the union workers would still get paid. This moronic equation fostered the unsustainable cost structure that sapped money from vehicle content and R&D.
Most stupidly of all, the Detroit Three have systematically raped their brands of equity through decades of rental car fleet sales and consumer rebates, predicated on the idea that their products were all interchangeable commodities, and that the most important feature was the monthly payment. This practice of cash-on-the-hood, 0% interest, and slash-and-burn dealer behavior has driven brands like Chrysler, Pontiac, and even Ford into a ditch where few car buyers dare venture. Meanwhile, import brands from BMW to Scion have built loyal followings and lots of equity. People want to own their cars.
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Even given this decades-in-the-making debacle, Rick Wagoner has been in charge of GM for over 10 years, is still the #1 culprit of GM’s current state, and must be kicked out of the RenCen now along with Bob Lutz and a host of other top-level execs who have overseen the final phase of the self-immolation of General Motors. As for Ford, their position is less tenuous at this point, and CEO Alan Mulally seems to have a decent head on his shoulders, though I cannot let Bill Ford off the hook for his horrific turn at the helm. But, he owns the company. Chrysler is in a class of it’s own, although I happen to blame Dieter Zeitsche and the clowns from Daimler-Benz for the current product garbage heap on offer at your local MoPar deal (Challenger & 300C excepted!).
Do we bail them out? I say ‘yes’, but only if the top execs at GM, Cerebrus, and some at Ford are drawn & quartered first. There is just too much at risk if we lose them. On the other hand, I wonder if it is already too late.
