Monday, December 08, 2008

Comment on the Automotive "Bail out"

First, I hate the term "Bail-Out" here. The automakers have been asking for a government loan from day one, not free money. My issue is that it is misleading and makes people think that the automakers are asking for free money.

I've heard good arguments on both sides of this debate from car pundits (Carolla, Leno, Clarkson)who have a bit to loose but not as much as the automakers (I mean the men and women on the line) and the many businesses that support the automakers by manufacturing parts or providing services for the businesses and workers.

Do I think Ford, GM and Chrysler are all going to get their acts together and become new and great manufacturers? No, I don't. I honestly believe that there will be some terrible failures to readjust and one will fail or have to strip down so much that it will be a shadow of it's current state.

The 'Big 3' have dropped the ball and ignored the changes in the world economy. I've heard some suggest that the auto industry take some queues from the computer industry. So you have a few companies that make great engines. Some that make great transmissions. And then Ford just designs a nice shell for all those parts to go into. The past trend was to own or control as many steps in the chain as possible. Maybe that needs to change. The whole automotive world could be forever changed by what happens to the Big 3 in the next couple of years.

The problem isn't all the automakers. We had very fuel efficient cars in the 80's and into the 90s, but then everyone wanted giant SUVs with terrible mileage. The GEO Metro got nearly the same mileage as the Prius.* Sure it's a crap car but most people only need to commute from Point A to Point B. The Metro was considerable more affordable to produce with a simple and small 3 cylinder engine.**

However, you can't keep up with (in terms of image) the other Soccer moms driving giant SUVs or keep up with your sales rival driving the new BMW in your little fuel efficient GEO Metro. The only reason the Prius is acceptable in that regard is because "Green" is hip and cool right now. Even with it's greenness, maybe people still frown on it's looks.

The auto makers have plenty to be held accountable for, but us drivers are just as much to blame. We demand, they supply. Simple as that.

Two things need to happen. No necessarily both, but at least one or the other. 1) Oil burning vehicles need to become cost prohibitive to the mass majority. 2) Alternative fuel vehicles need to be affordable and exciting. Exciting is important. Top selling cars and trucks aren't top selling because they are boring. (I'm talking to you Prius.)

* - My research on the GEO Metro MPG varied greatly, but was in, on average, the 40-50 MPG range. The Prius is right on par with that MPG.
** - It should be noted that while the Metro was cheaper to make it also was lacking most of the safety features of today. It's unlikely that GM could make a Metro now at the same price and mileage due to those requirements.

1 comment:

mattg said...

Well Marc, the wall street "bailout" constisted of a good portion of loans as well (AIG, fannie/freddie). There is "capital injection" there (buying stock), but that's an ownership stake in the company (insert debate about merits and pitfalls of capital injection here). But either way - the money is designed to come back eventually.

Long live the geo metro! haha... But seriously, I've heard the stories of people pushing about 40mpg in their manual transmission 2-door civics for years, without any kind of problem. Gas mileage isn't really the root issue here, though... It's management. American auto manufacturers aren't making cars people want (gas mileage is a part of that, also a perception of low quality and relying too much on the "big truck" product), and have committed themselves to large liabilities in the retirement/health care benefits for their workers. The last point is sure going to make it hard for them to be profitable, even if the cars sell like hotcakes.

Just like the McMansion and consumer debt trends that have at least temporarily stalled, the "big/new car" trend is stalling too (also fueled by debt - shoulda been a clue you can't sustain that for long). So a good question is... are we seeing a permanent reversal in how consumers work here, or is this just gonna blow over when things seem to rebound? Are people going to start living within their means again, or just until they feel safer in their jobs and banks are willing to lend them more than they can afford again?