Opinion – Detroit Automakers Deserve To Fail
Roger Nasser | Nov 14, 2008 | Comments 11
This piece is the opinion of Roger Nasser and does not reflect the opinion of TundraHeadquarters.com (not affiliated with Toyota).
The latest solution to the American auto industry’s woes (while waiting for a government bailout), apparently, is to sell – either in toto or in pieces. That “strategy” is favored because it’s much less bloody than actually trying to figure out what’s gone wrong over the last 40 years.
Of course, none of the principals have accepted any responsibility in the sales slumps or financial losses. At Ford, GM, and Chrysler (the Detroit three), the management has been blaming the unions and the EPA. Dwindling numbers of overpaid autoworkers point their fingers at the salary packages doled out to management. Consumers lambaste the Detroit three for making nothing but gas guzzlers, but who was buying all those SUVs in the 90’s?
Of course, all of these excuses ignore the fact that Asian and European car companies selling products in the U.S. have many of the same issues to overcome, not to mention currency fluctuations and ever increasing international transportation costs. For the Detroit Three , blaming somebody else is more satisfying.
Selling off assets follows the “law of the sea” – when you’re sinking, you off-load dead weight. Or, in the case of Ford and GM, you off-load valuable cargo so you can keep the dead weight. In an effort to bolster cash reserves, Ford sold off Jaguar and Land Rover to Tata Motors of India, despite encouraging signs that both brands were on track to return to profitability. Volvo, which has been horribly mis-managed by Ford, is rumored to be the next major Ford asset available for sale. Jeep, the jewel of Chrysler, is said to be on the open market. Why sell the only brand that makes money, Chrysler?
GM is now shopping Hummer, with Tata Motors rumored to be a potential buyer. In China, where GM enjoys decent sales (probably because there’s no EPA), uber-successful Chinese car companies Chery and Great Wall may also be in the mix. Chinese-built Hummers conjure up an unfortunate picture – Hummers, instead of tanks, running over protesters in Tiananmen Square.
Then, there’s Chrysler. Daimler bought Chrysler in 1998 for $36 billion, to much fanfare and exultations of becoming the world’s biggest car company. Less than 10 years later, Daimler sold 80-percent of Chrysler to Cerberus Capital Management for $7.4 billion. Now Cerberus, encumbered by a car company whose profits are almost entirely dependent on trucks and SUV’s “can’t give [Chrysler] away on Seventh Avenue,” (to borrow an apt lyric from the Rolling Stones).
Watching giant companies fall is scary, especially given the potential for their falling on top of us. As an American, thinking about just how far Ford, GM, and Chrysler have fallen is just a little bit sad too – yet any sympathy for the Detroit three is quelled by the sure knowledge that:
- Highly paid and criminally negligent auto executives should have seen it coming a long time ago.
- Frightfully overpaid autoworkers should have known the ride would have to end eventually.
- Irrational Wall Street investors refused to look at the big picture, emphasizing short-term profits at the expense of long-term viability.
The truth is, the collapse of the Detroit three has been a long time coming. Little econo-boxes from Europe and Asia were being gobbled up by young baby-boomers in the late 60s, breaking the tenuous thread of family brand loyalty. Concern over smog and scarcity of oil supplies aren’t the children of the 21st century. Born in the ‘70s, they’re now fully blown adults. The expectation that you’re going to get value for your automotive buck started with Ford, Olds and Leland, but now looks offshore. Toyota and Honda didn’t emerge yesterday as dominant forces – they’ve been creeping up on the number one spot for the last three decades. Little sputterings of innovation on the part of the Detroit three have fallen short of their goals (Saturn) or have taken so long from concept to introduction, we forgot they were coming (Dodge Challenger).
It’s difficult to generate much sympathy for the not-so-Big Three. Sympathy for the communities they once supported? Yes. For the convention-bound dinosaurs headed for extinction? No. Maybe from the ashes of the Detroit three, something that resembles a 21st century auto manufacturer will struggle free.
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For the last 20 years the American Big 3 have slowly given over sales to Toyota, Honda, Nissan and a handful of other automakers. Every sale by “foreign” automakers should be hard fought against a product that is every bit as good and as relevant. Instead we find that the Domestics want to keep selling the same thing to the same people. I already have one, why do I need two? If I had to blame one group for this mess, it would be the labor unions. American companies should be able to make a better product for cheaper. If this wasn’t true the OTHER automakers wouldn’t be putting plants here. Labor unions artificially raise the overhead causing price cutting measures to be implemented in the area of quality. Quality should NEVER be cut.
Jeremy, the notion that the labor unions are to blame for this is simply miss leading. I work for UPS (a union company) and we make on par what the big three eployees make on wages, retirement and health benefits and UPS is no where near the point of bankruptcy like the big three. In fact they are still very profitable right now. The difference is in the way the ceo’s run the companies. The labor unions dont ask for something unless the company can afford it (no company = no employees and no employees = no union so it is in there best intrest as well to keep the big three profitable) plus the UAW just passed an agreement a few months ago that garnish’s the wages of the employees for a limited time to held the big three get back on there feet and become profitable again. “Labor unions artificially raise the overhead causing price cutting measures to be implemented in the area of quality. Quality should NEVER be cut.” your right quality should never be cut and that was the companies decision not the UAW. The big three made their bad, idiotic financial decisions to fattin their pockets and not listen to their customer and now they are struggling because of it. Now everyone wants to point the finger at the UAW even after they they have taken measures to try and help mend this huge problem because yes, their employees compensation is high, now that they are having financial problems, but when they where profiting billions and ceo’s making millions it wasnt a problem (they still put out the same inferior product when they where profitable as they do now that they are tanking). It is their own fault for not looking into the future and realize that $1.00 a gallon gas may not always be here, that brand loyalty want always be there when someone elses product is more reliable, that maybe higher fuel mileage might be something worth looking into, that maybe they need to advance their technology to stay a few steps ahead of the Japanese instead of a few steps behind year after year. Just my 2 cents.
I think Roger’s opinion is pretty level-headed, but I wonder just how much the UAW *workers* are to blame. UAW leadership seems pretty inept – nearly as much as the execs at the car companies. Still, it goes without saying that there’s lots of blame to go around. Most importantly, I disagree that any one of the domestic auto manufacturers should fail. Too many jobs would be lost (some experts estimate GM could un-employ 100k workers if they close their doors), and I don’t think our economy is in a good position to absorb such a significant economic hit. I’m not a big fan of handouts, but I don’t see any light at the end of the tunnel by making GM pay for the mistakes of the past. Still, I think a wholesale audit of GM and legislation limiting executive compensation (and UAW contract negotiation power) would be wholly appropriate. If the U.S. taxpayer bails out GM, the least we deserve is an opportunity to fix what’s wrong.
UAW is not to completely blame. They are one of several reasons the big three are failing. Complacency is another. The notion of good enough is unacceptable. Unions and “Big” auto both are guilty of this ignorant philosophy. CI is the reason Toyota is such a power house, not unions. Increased overhead resulting in increased productivity is smart. Increased overhead due to someone holding your multi billiondollar company hostage resulting in no increased productivity is …well…….look around. I don’t think Unions are the cause of the worlds ills but they are not helping. It is time for the “BIG 3″ to cut the fat and the union’s, suppliers, and whomever else throws a fit can do that. In todays economy there will be lines of nonunion people waiting for those jobs and will do a better job. Excellence would be rewarded and poor performace would be removed.
The Unions are just one part, I don’t know why I am running on like this.
I have to weigh in on this one. A free society is best served by competition. Saying that, the best thing that could happen to detroit is to not be the ” big three” and be forced to compete for market share. I’m 40 years old and have owned 2…..TWO american made cars out of 20+ over the years. One was ‘67 Mustang and the other was old Scout. When I bought my Tundra, I first went to Ford intending to buy a F-150, but decided to check out the Tundra before committing to the Ford. When I told the salesman my intentions I could see the despire in his eyes. I love this country, and I hope that if we bail out these economic pillars of our society , which we have to. We will treat these businesses like an individual filing bankruptcy. Fire the CEO’s ( no bonuses ) and create a trustee’s panel of the sharpest business minds to revip the companies from top to bottom. The CEO’s,congress, and court systems are responsible. Let’s us learn from this. We all must be held accountable for our actions.
They should file chapter 11 no if’s and’s or but’s. The nerve to fly private jets to DC at a cost of $20,000 when they could have flown first class round trip for under $1,000. Why would I want to help that. Also the union workers overpriced themselves to extinction. Look at the difference Honda, Nissan, and Toyota make their’s compared to the Big 3. Corporate greed and the union workers caused there own demise. They file chapter 11 reorganize and go over all contracts and get rid of the fat and the contracts that don’t help. Fed people will watch over them to make them do it right. They will become stronger in the process. Maybe smaller but stronger. Of cours management will be one side of the fat trimming they need to do. Drop down the salary and the hourly wage to reasonable levels then they can make a profit. Above all make them plan ahead. If we bail them out they will be out of money in 6 months again asking for another bailout.
Mickey – I think that your point about the big 3 being back at the table in 6 months is a good one. If the $20 billion or so that GM has in the bank now isn’t enough to carry them through the first quarter, how can another $8 billion or so (or whatever GM’s share is of the $25 billion that congress might approve) help? They’re going to be back at the table very soon. OR, more likely, they’ll use the money from Congress to finance a merger with Chrysler, fire 50k workers, close 1000’s of dealerships, and shoot the economy in the foot just as badly as if Congress had done nothing. Maybe I’m a cynic, but the more I read about this potential bailout, the more I think it’s a bad idea.
I agree Jason. It doesn’t look good.The one worry I would have is for the people whose vehicles are suppose to be under warranty and the company decides to fold then they are stuck out there by themselves.
In Minnesota you had 6 dealerships close up also.
Not happy about the entire “bail out” at all. No one is there to bail the individual out and to top it off the latest I heard is some folks weren’t willing to take paycuts to keep the company afloat. I say screw em…..
TXTee – You are correct. UAW leaders initially stated that their members had sacrificed enough, despite the fact that UAW workers earn 30% more than non-UAW workers performing similar tasks. Ford President Mullally (spelling) also declined to take a pay cut (initially), as well as GM and Chrysler execs. They’ve all since revised their statements.