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US Car Industry – Throwing more good money after bad money?

December 3rd, 2008 | by Klaus Holzapfel |
WASHINGTON - MARCH 14:  (L to R) Rick Wagoner,...
Image by Getty Images via Daylife

Tomorrow we won’t see those private jets landing in Washington again. No guys in expensive suits wearing beggar hats will get off. Instead the car manufacturers are driving their Hybrids into Washington to set a signal.

Banks screwed up over the last 15-20 years. The structural problems of the car industry date back even further then that.

The manufacturers are with their back to the wall. This clears the path for some drastic measures that would be unthinkable otherwise:

1. Less Brands
Why do Ford, GM  & Chrysler need all these brands? The only reason to keep them alive are the expensive fees the manufacturers would have to pay to the dealerships who’d be affected. Well, they are going out of business right now anyway. I am sure that could be re-negotiated.

Auto makers also believe in the habits of their buyers. Time for a little re-education then.

Less brands would mean less models, cheaper production cost, more focus on technology and less on mostly ugly designs.

Toyota maintains three brands: Lexus, Toyota & Scion. There is some limited overlap in terms of models. 3 brands per manufacturer should be more than enough. You could also get by with one or two.

The whole multi-brand strategy of the old days doesn’t make sense in my eyes any longer.

How to get rid off some brands?
I hear still some talk about selling some brands. Let’s get real here: Selling really isn’t an option. Set a signal and let them die! Who needs Buick or Mercury any longer?

2. Targeting the biggest structural problem

Everyone talks about the dismal model policy of the auto makers right now. But there is a little white elephant in the room many are still afraid to target:

How do you even want to start to fix things with labor cost being at $72 per hour versus $47 at Toyota?

We need to put an end to the current pension plan policy. We also need a solution for the pre-existing pension plans that bleed the manufacturers to death.

That’s where the  government should step in: Take that liability over and have GM, Ford & Chrysler pay back some of this expense out of future profits.

Until then we only throw good money after bad money.

3. Model Policy
Old news: We haven’t made any high quality, innovative cars in over 40 years.

But there is a quick fix: GM and Ford have their own brands and technology centers in Europe. GM employs 6000 engineers in Germany. They produce high quality and technologically advanced cars over their. How could they otherwise compete with Volkswagen or many other European brands?

So as a short-term solution we should get the blue prints of these cars and build them here. We’d have something to sell again.

Jetta TDI green car of the year? Opel and Ford Europe can do the same thing.

GM made an half hearted attempt with introducing Opel cars via its Saturn brand. But the cost was too high and they just brought the more guzzling models over. We can do better: Put a GM sticker on it.

My outlook
I am afraid that Detroit is still not ready to think radical enough. Hard to believe but true. The current managers should be replaced. These are the guys that believed in building 5700lbs trucks and couldn’t see it coming. These are the guys that fought any legislation that tried to shift things around.

Congress will end up applying some restrictions in order to “save” GM, Ford and maybe even Chrysler. But the restructuring might not go far enough and it will not end the pain.

We don’t need one more mediocre car that won’t be able to compete. Making them 2k cheaper than their foreign competitors simply doesn’t work any longer.

We can beat around the bush a little longer (no punt intended). But without many extreme measures we’ll just continue to write more checks.

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  1. 3 Responses to “US Car Industry – Throwing more good money after bad money?”

  2. By mark on Jan 5, 2009 | Reply

    I cannot understand why the government would throw good money after bad unless they know that they will profit from it. When a company looses billions of dollars a year like GM, don’t you think something is wrong?

    I complain about government welfare programs but this is beyond welfare!

  3. By mark keeler on Jan 16, 2009 | Reply

    The first thought that comes to my mind is laizzes faire. Leave it alone. I searched on the web for the definition.

    Dictionary:
    laissez faire
    (lĕs'ā fâr', lā'zā) pronunciation

    1. An economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.
    2. Noninterference in the affairs of others.

    [French : laissez, second person pl. imperative of laisser, to let, allow + faire, to do.]

  4. By Klaus_Holzapfel on Jan 17, 2009 | Reply

    I dictionary has a lot of wisdom in it;-) No wonder the French came up wit that phrase. But then their government is very hands on.

    I think a lot is at stake right now and we might see quite a bit of intervention. But the Detroit Motor Show has just shown that the auto makers are still in their old mindset.

    I think a reality check was overdue 5 years or 10 years ago. No real person gets that many second chances – ever.

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