Apparently, It's the Government's Fault Detroit Is Bankrupt
Sometimes I think the Wall Street Journal editors are phoning it in. In a piece titled, "The Environmental Motor Company: Making Detroit a subsidiary of the Sierra Club," the Journal complained about those horrible Democrats in Congress that want to tie the $25 billion in loans to Detroit to "green retooling." I guess pushing U.S. automakers to make cars that get much higher gas mileage, and thus will sell better, is a bad idea.
The Journal also makes the ludicrous statement that the real problem for Detroit has been those awful fleet fuel-efficiency standards (the CAFE rules) "that force the companies to make cars domestically that are unprofitable." To add to the absurdity... the same day, in the same op-ed section, GM's CEO Rick Wagoner explains "why GM deserves support" and talks about the super-fuel-efficient cars GM will make with the loan. So even GM is saying it needs to make different cars.
We're seeing an amazing act of willful ignorance here. The knee-jerk response in some circles seems to be that these poor companies were just burdened by bad regulations (not to mention big bad labor). This crazy idea comes on top of the general fiction -- which Wagoner is pitching -- that Detroit is reeling because of the credit crunch and the economic downturn. But the proof on this one is in the data.
The U.S. automakers were having very serious problems months before the financial meltdown.
Let's look at May '08 sales in the United States, when high energy prices forced Detroit's hand. While the Fall has been the real Armageddon for U.S. auto sales, the spring year-over-year comparisons told a scary story. The overall car market was down 11%. But Ford was down 16%, Chrysler down 25% and GM down 28% (which in retrospect looks pretty good compared to GM's nauseating 45% drop year-over-year in October). But how did the other guys do in May? Toyota was also down after making some mistakes and trying to sell some big vehicles also, but only dropped 4%. Nissan was up 8% and Honda sales were up an astonishing 16%. Let's repeat that: Honda sold more cars this spring than the year before. If you look at total sales through October, the difference between U.S. and Japanese performance isn't quite as bad (only Suburu is up for the year). But the companies that sell smaller, more energy-efficient cars are doing ok.
My favorite media moment on this topic came on one of the 24-hour news stations yesterday. While covering the Congressional hearings with auto CEOs, one story explained that U.S. automakers spend an extra $1500 on each car (vs. competitors) to pay for pension and health care obligations. To be sure, these costs don't help Detroit. But the news anchor went on to say something like, "so Detroit is struggling because of that $1500...and the fact that it's known for making low-quality cars." Oh, just that little problem of making bad products.
The business guru Jim Collins, in his fantastic book Good to Great, focused on the importance of "Facing the Brutal Facts." Pretending that evil regulations are the primary cause of Detroit's fall does not help our automakers. Acknowledging that they were making the wrong cars at the wrong time is at least admitting we have a problem (in whatever 12 or 200 steps Detroit needs to heal).
The predicament that Detroit has found itself in is an American business tragedy. Let's not make it worse by lying to ourselves.
Andrew Winston helps companies use environmental thinking to grow and prosper. He is co-author of the best-seller Green to Gold, writes a monthly e-letter Eco-Advantage Strategies, and regularly blogs on green business.
Follow Andrew Winston on Twitter: www.twitter.com/GreenAdvantage
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When seat belts were mandated it was going to be the death of Detroit. When Airbags were mandated it was going to be the death of Detroit. When we required them to use unleaded gas it was goint to be the death of Detroit They said this was going to add too much cost to a car and people wouldn't buy them.
At the same time they were adding Sun Roofs, and CD Players and Power Seats and Power Windows without these being mandated. So much for keeping costs down.
These people always have to be dragged kicking and screaming into the future and even then they ask the tax payers for the money to move forward.
Ford and GM make and sell fuel efficient cars in Europe. Sporty cars. Cars that people here would buy.
What's with the "we need to reinvent the wheel" excuse?
The US is the big sap of the world.
Mercedes and BMW also make and sell fuel efficient vehicles, but we only get the big guzzler engines.
50% of European cars are diesels, which are much more fuel efficient. The European nations have written tax laws and emissions standards to favor diesels. In the U.S., thanks to Big Oil's influence, tax laws and emissions standards make diesel fuel more expensive and make it harder for diesel-powered vehicles to pass emissions standards.
European emission standards for diesel engines are stricter than U.S. standards.
European diesels already run cleaner than U.S. diesels, and could easily meet the U.S.'s almost non-existent emission standards for diesel powered vehicles.
But diesel isn't necessarily that much more efficient. Individual vehicles get more mpg using diesel fuel, but you get fewer gallons of diesel from each barrel of crude. One barrel of crude = 5.6 million BTU/barrel giving roughly 44 gallons of regular gas or 40 gallons of diesel fuel.
The reason so many European vehicles are diesel is because European governments subsidized their trucking industry (to reduce transportation costs for goods) and taxed diesel fuel at lower rates than they taxed gasoline. European drivers bought diesel automobiles to beat the tax man.
In order to get the same fuel cost per mile my 98 Mazda now gets, I'd need a diesel powered vehicle that gets 60 - 70 mpg. My old diesel VW Rabbit got between 40 - 50 mpg.
That was great when diesel cost less than gasoline, but is not good enough now that diesel costs more.
Also keep in mind that all those high European mpg figures for diesel autos are based on IMPERIAL gallons. 1 Imperial gallon = 1.20095042 U.S. gallons
When you measure their mpg in U.S. gallons, they fall back into the 40 - 50 mpg range.
Basically, SUV's generated much higher per unit margins for the big three, despite the demand for sensible vehicles like the Taurus which were scrapped. These folks, under the protection Dingle and an oil-friendly white house kept mortgaging the future of the industry for short term profits and high stock dividends. I think I remember reading how the unions were voicing these concerns in light of strong overseas competition, yet the big three chose a different path. Now taxpayers are to throw good money after bad? They have the nerve to hold the workers up as the reason for their concern about the industry now. This sounds a lot like Bush holding the servicemen up as his justification for continuing a pointless war. Same old same old.
Right on!!!
This problem is not labor's making.
This has been the rich getting richer fiscal quarter-by-quarter.
People will be hurt, but the public deserves some guarantees and direction for its loans.
How often everyone repeats the idea that a great "quality gap" exists between American cars and, in particular, the cars from Japan. Doesn't anyone look at the annual quality reports from independent sources? This is no longer the 1980s.
As stated - Let's not make it worse by lying to ourselves.
I agree. I had an American car that was built in 1990 that wen tfor 250,000 miles without needing a thing.
Why are we so focused on this 25 Billion for the auto companies? Is this just a media-government ploy to divert the public eye from the other 700 Billion they just "borrowed" from the taxpayers? I think we better keep our eyes on all the biggest giveaway balls.
Also, of course the government is partly at fault for the auto companies failures! The government has been subsidizing oil and doing everything BUT making it easy and necessary for our auto companies (or any other companies) to go green.
I, a Chrysler retiree, used to build Durango SUVs. We were always cautioned to call them trucks, even though they were passenger vehicles, built on a Dokota truck bed, but otherwise little different from a van. The CAFE standards for were less restrictive for trucks, based on the idea that pick-up trucks were for small businesses, not for passengers. A lot of attention and collaboration went into building the best vehicle possible, but that little truck fiction points to the biggest flaw in the industry, the failure overcome group think while the profits rolled in and and to think about the future.
Let's not repeat the mistake of comfortable fictions and neglecting the future. One fiction is that fat UAW contracts caused the problem. Actually, UAW concessions beginning in 1979 reversed the trend toward higher incomes across the working class and contributed to a Walmatization of our economy.
We need a vision of the material and human assets of the automakers as the means for re-engineering a green 21st century America . Rail lines, trolleys, and wind generators will be part the future we hope to build. U. S. autoworkers and steelworkers will be at the heart of that growth, just as they staffed the "arsenal of democracy" during WWII.
To learn something of the life on the assembly line, see www.autoplant.info.
You know, this nation has been in a delusion for quite awhile now. Even as the big CEO's went to Washington, none were willing to admit to the disastrous decisions from their $30m salaries from failing companies, to the fact that they came in their own private jets! The nerve, that's as bad as standing in a welfare line with a mink coat on, and then being incensed because they ask you to sell your coat and come back later! The nerve of Congress (finally) to demand strings!
Frankly, I'd like to mooring lines attached! These yahoo's (sorry) still don't get it! American made cars are no longer the pride and joy of the American populace. They do not last long, needs expensive repairs sooner than their Japanese counterparts, have lower fuel efficiency, and don't hold their own in trade-in value! If that isn't enough of a list here is another let us use a few acronyms: FORD - Fix Or Repair Daily! GM- General Maintenance!
Fortunately none of the qulaity problems you speak of or even the mileage you speak of our based on facts.. just a myth left over form the 1980s and ealry 1990s.
Thats great Toyopta sells for twice as much in japan where they have a protected market and here, well they almost never show a profit sone how.
Europe long long but a quot on Asian cars becuase of such product dumping and protected home markets. Would yopu pay twice as much for a celica as you do now and have the same feelings about it?
They get interest free loans in Japan, their research and development is paid for.
Its amazing how many here are suddenly free traders and dont underrstand no one else is play the game. In China you must buy what thye make there.. same for Brazil and Korean... They protect their industrial base.
Over half the cars sold in the U.S. are Detroit... some one must like them. They are the only mFGs in the world not having a protected home base.
Regards
Your assertion about car purchase price in Japan is pure fiction.
The problem with the Big Three is not that they were making gas guzzlers, but that they treated them like their bread and butter. SUVs became an increasingly large part of their product line, making them far more vulnerable to economic downturn than the Asian automakers. Toyota, Honda, and Hyundai all make SUVs, but their core products are still the small cars and sedans. The Big Three bet too much of their money on gas guzzlers and lost big.
YOU ARE FIRED!!! Those three idiots should have been fired long ago....I agree with several people that think big oil should bail them out! We (those of us that drive the big POS that gets 15 mpg) have been paying huge amounts in gas prices so it's only fair that the oil companies use some of the highway robbery money to bail out their buddies.....Some day when I grow up and am infamous I will get a mule.
All three are new to those companies.
Regards
Doesn't mean they shouldn't be fried or fired.
I could agree with firing Wagoner, who has headed up GM for 12 years. But the leaders at Ford and Chrysler are relatively new. Ford went to Boeing, a very successful company, to hire Mulally to bring in a fresh perspective. Chrysler, remember, was owned by Germany's Daimler 15 months ago. Now that they are independent, they brought in as chairman a guy who worked at GE and Home Depot, and as president they brought in the top American exec from Toyota. Yes, Toyota. 15 months is not enough time to turn around an auto company as no one can bring a product to market that fast.
There is no mystery here.
The competition makes better products, so the competition is selling more products.
The "Detroit Three" have consistently, deliberately ignored their customers.
What other business can stay afloat doing that? None.
So - If American car manufacturers produce products that are as good or better then overseas manufacturers, at competitive prices, their businesses will again be healthy.
If they continue to manufacture crap, their businesses will continue to evaporate, then dissappear.
It's up to them. NO BAILOUT. And ALL of the upper management at each of the Detroit Three ought to be terminated immediately with no severance. Their performance has been terrible.
Check the data. GM is the undisputed sales leader in the US.
Check the data. GM has lost more money than any other automobile company in history.
:-)
Just one problem.. that great bargain car you buy here sells for twice as much in Japan than here. They dont show profits here.
There they have a protected market. They get interest free loans and their research and healthcare our government paid for.
And by the way the quality gap is closed now.
They dont play free trade and neither does Chna or Korea or Brazil... Outside MFG is not welcome or allowed. Europe restricted Asian imports in the 1980s to save their car industry from dumpiong and predatory practices.
I guess we could not build electronics or appliances or texctile or computers or high end Medical eqp MFG... because its all gone!
Regards
From http://www.japan-guide.com/e/e2022.html
New and used cars are relatively inexpensive in the home country of Toyota, Nissan, Honda and Mazda. Brand new kei-class cars, the smallest car type, sell for less than a million yen. (currently $10,370)
Owning and operating a car, however, involves numerous expenses. These include compulsory inspections (shaken) every two to three years, various taxes, mandatory and optional insurance, high parking costs in cities, and expensive toll expressways. A liter of gasoline costs roughly 160 yen (May 2008).
Shaken is a compulsory safety inspection, which cars in Japan have to undergo every two years, except new cars, for which the first inspection is not due until three years after purchase. The shaken typically costs between 100,000 and 200,000 yen, and besides the actual inspection includes a weight tax (typically 8,000 to 50,000 yen) and a mandatory insurance (about 30,000 yen).
Since the mandatory insurance does not provide full coverage, it is recommended to purchase additional, optional car insurance. Furthermore, there is an annual automobile tax, which depends on the engine size and is typically between 10,000 and 50,000 Yen, and an acquisition tax to be paid when you buy the car.
When acquiring a car, numerous documents have to be filled out, including forms to register your car and to verify ownership of a parking space. If you buy a used car, the process is further complicated by forms regulating the transfer of ownership.
There is no free trade except here. Korea is a protected market as is Brazil And in China you can only sell a car made there. They charge 22.5% tarriiff on what we export, we charge them a 2.5% tarriff on what we import guranteeing if yu want to sell in China, you make it there. Of course the government is given a 50% interest in such business for the right to make it there. .
That logic of cheap prices here at any cost has destroyed us long term. Their policy is to make everything they need there and like Europe after Boeing built plants in China there in order to sell China planes... China then started after the training of its workers by Boeing its own 100% owned government Airplane MFG just as Europe did.
We bought their large models until gas went suddenly up 300%, not due to any shortge YET, but speculation caused by government deregulation. They sold big hhigh profit cars here to cover the 2K of health insurance cost that their competitors dont have. And thats what we were buying. Have you seen the large cars that Toyota and Nissan sell.. even v8s... They wanted in on that same high end action also.
Every MFG in the world is feeling the problem and crying out for assistance.
Regards
I agree with you that we have ridiculous trade policies, but the idea that we engage in "free trade" is hilarious. The domestic market has never been free.
Remember folks WSJ is now owned by Rupert Murdoch so that lazy biased lame reporting is now infecting the WSJ, so no surprise here.
Lazy, biased lame reporting at the WSJ didn't start with Murdoch's takeover. It's been that way for years. That's what made it such a natural fit for Murdoch's media empire.
I think that the auto companies are at fault. Of course, the union cost structure ect will all take its toll. But let's remember why these companies were making huge truck, gas guzzlers and SUVs......becuase that is what the American people wanted. Now everyone thinks that SUVs are so bad and wrong, but even a year ago, there were more and more of them on the streets, so it is the American people who did this.
Again - there are many problems with the companies that cannot make quick changes to their lines and that has just amplified the problem.
The bridge loan will merely keep them in business for a few months. They will be back in March wanting more money (that is essentially what GM's CEO said at the hearing). Think of the $25 billion as a payday loan--it will not change the business plan or the kind of cars they produce, it will only keep them going for a few months. They cannot be turned around in this short time, they need a complete restructuring. Yes, this is the best time to put more pressure on the car makers for better fuel standards, but that will not happen with this loan, which only covers present operating expenses--just keeping the doors open.
The bailout will cost 100 Billion. less than a year in iraq. it wil likely save over one to two trillion.
Regards
So because you made one mistake you have to make another?
Only in Viper's world.
Cheers.
The three automakers SHOULD fail. Bankruptcy will NOT kill the companies, it is likely all that will save them. If they were fiscally solvent, currently I STILL would not buy a car from them because they currently produce nothing I am interested in.
Bankruptcy would likely force these companies to take a different direction if they are to survive, and any bailout money should be tied to changes and guarantees to the public.
The ignorance of those that advocate handing them a blank check is staggering. In addition anyone that would blame labor for the current plight of the American car manufacturer is disturbingly pliable to corporate media. Like ALL of America's industries, Labor is NOT the problem. Before people snap, check out the discrepancy of wealth in this country. Labor is CLEARLY not gobbling up money or profits.
Your ignorance of the cost if they go under which ranges from 200 billion to several trillion is amazing!
Bankruptcy protects you from creditors trying to collect.. It does not force them to continue to sell to you when you cant pay them. Their suppliers are in even worse shape. They dont qualify for a Reorg without addtional cash. There is no loan money out there. But then again Japan automakers get interest free loans from the Government and their development is paid for as is the healthcare.
Did you know that great toyota in Japan sells for twice as much as here in their protected market. heck we cant even export rice there. They never show a profit here! Would you pay twice as much for a Toyota and think it a great deal?
Regards
Viper.
Actually I find your outrage humorous.
Just to make sure I was not mistaken, I just checked the international version of the NY Times and found an article detailing a recent 3% increase in the domestic (in Japan) cost of a Toyota Prius S. This article was written August 25 of this year and stated that the increased cost of a Prius in Japan was $24,808 American. Before you snap, I actually took the figure given in Yen and ran it through a currency converter.
In short, you position about domestic Japanese costs is completely incorrect. Their cost is very similar to ours.
Also, I really think your vitriol is odd. I didn't advocate providing no help, I said they shouldn't receive help until they provide a plan for how bailout money would be spent and how they might pay it back. The public has a right to expect a cogent business plan.
Right, like we wouldn't buy american made just because it was $1500 more expensive.
If you are comparing 2 modest, well built, efficient vehicles
one is a honda 19,000
and one is a GM at 20,500
do you really think that is enough to kill off american car companies? Snort!
Many of us buy american anyway, and many of us would have no trouble paying the extra if we knew it was going towards keeping a large chunk of our working class people with pensions, benefits, and health care.
The extra 1500 is nothing to us as car buyers. I agree that american unions have had their share of SOME guilt in all this...but what can you expect. Rich fat cats will always blame the rank&file, the blacks, the latinos. Their malfeasance grows staggeringly to monumental proportions (see economic meltdown), yet they always blame all the little folks.
Continues
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