A New Idea for How to Save the US Auto Industry

The US auto industry seems to be in a real pickle. Like much of the financial sector, it is tanking and wants help. There is something remarkable about seeing advocates of orthodox free market economics who in the abstract surely believe that firms that can't make it for whatever reasons should die, pleading government aid for industries in deep trouble. Free market ideologists often wind up advocating, as it is said, socialism for the rich, even if for no one else.

Part of the problem surely is understandable and justifiable lack of trust in upper management of Ford, Chrysler, and GM. How can it be that for forty years, those extremely high paid executives could never figure out how to compete with Japanese, Korean, and European cars that were better made and more appealing to US customers? Why did they not buy a few cars from other companies and take them apart and see how they are put together? Why did they not emulate the quality control practices of companies more successful than they? Why did they not study carefully what American consumers wanted in cars and try to satisfy that, instead of, in effect, turning the whole shebang over to foreign manufacturers while smugly assuming that somehow Americans would buy whatever Detroit offered them, even as sales figures belied that pathetic conviction?

Let me guess that part of the problem is that extremely rich executives with rather little foresight or imagination were in charge of the Big Three for decades. Let me guess that it never crossed their highly paid minds that their companies could tank. Let me guess that smugness and self-satisfaction are packaged in the same envelope along with huge salaries and bonuses that come regardless of performance.

Let me guess too that all the Economics 101 assumptions about the resilience of companies under our economic system, about rationality in economic behavior, about incentives to innovate and create, about the long term benefits of competition, fade like a sun bleached painting before the realities of short-term planning and short-term thinking, avarice, fear, and panic that seem not to make it into those introductory economics courses.

Why don't boards of corporations more often fire CEOs who fail at their work tasks? What is the sociology of the buddy-buddying among the super rich and powerful that blinds them to realities outside the fragile islands of "success" where they build their outrageously posh abodes? It is fully understandable that in the culture of the rich and powerful, anything goes if it serves the purposes of making money and living extremely well.

It turns out there is more to life than profits and comfort. And it may be that the cultures that nourished the bankers and mortgage companies and auto companies sucked them away from the realities that would, if properly heeded, have had them acting more thoughtfully and cautiously during the many years leading to the current and growing economic catastrophe.

I want to suggest a daring idea that could save the auto companies. It proceeds in three parts.

1) Give up on highly experienced, highly paid executives. Some might be up to the task of the moment, but once they get their salaries and golden parachutes, most of these executives are unlikely to care about the companies they are hired to salvage.

2) Extend your imaginations beyond the conventional box of assuming you need people with business school degrees and lots of polish to make a success of companies.

3) Turn to the one resource that probably has the strength, imagination, daring, and commitment to pull off a complete turnaround of the auto companies. I am talking about the lower level staff and workers who can bring their ideas, their ignored wisdom, and their neglected talents to the executive suite and figure out how to solve transportation problems in ways that will benefit everyone. They will learn how to build better cars, they will learn how to use environmentally sound ways of moving those cars, and they might even have the energy, determination, and imagination to see cars and trucks as part of larger transportation systems that can be understood and addressed right now.

Workers have taken over some failing industries in this country and in Argentina. It would be wise to learn how they did that and then apply what is learned to our suffering auto industry.

It is time for a great new social experiment: letting the people who understand the product and the business from the inside apply their smarts and dedication to saving this most fragile, underperforming, once-great American industry.

Comments

[philosopherkingtomas]

Felix Salmon at Portfolio did perhaps the best job explaining the misinformation at play:
The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers. [emphasis in original]

[gerald4]

Where is Lee Iococca now that we need him. Let the Big 3 go bankrupt so that other parties can buy their assembly plants and re-start these plants as non-union automobile manufacturing operations. The people running these operations right now are probably financial wizzards (Master Enron type Criminals). They probably know very little about automobile manufacturing.
Let me get this straight. You want these same highly paid incompetent auto executives and the same overpaid union workers took so much money from the US Auto Industry that they bled the US Auto Industry to death want the lowly paid US citizens to pay more tax money for them to continue the arrogant, stupid, and selfish bad business policies? Are the Taxpayer Billions for the Auto Industry going to fund the golden parachute retirements of the Auto executives that caused the crisis? Should taxpayer money pay off the bank loans that occurred when these financial geniuses borrowed money to pay stock dividends, in order to artificially drive up the stock prices, which personally enriched themselves through their stock option plans? How can we get rid of these financial geniuses and the UAW feather beds that caused these problems without costing the taxpayer some of his/her hard earned tax money? The US Auto industry is going bankrupt, and this bailout just postpones the dates of the formal bankruptcies.

[KillTheMessenger]

"Where is Lee Iococca now that we need him."

He is re-re-writing his own biography so that everyone who cares nothing about fact checking will believe that he was always for efficiency standards and safer cars.

:-)

[tomas0808]

Not sure about getting rid of the experienced people. The problem is more like what we see in the parts of the publishing industry, the people at the top aren't people who know books, they are people who know numbers and have connections on Wall Street.

Detroit's major failure is their deal with the devil of big oil. They pressured Detroit into dressing up a truck, giving a media blitz and calling it an SUV for short term profits instead of planning for the future like the Japanese

[joebaggadonuts]

Good points, Gordon. Thanks.

[schatsie]

yes, I have to believe that they are only there to collect their checks, be chauffered around, eat their meals prepared by executive chefs, etc while they watch their own personal investments...

[Overtone]

Unconventional energy conversion systems are under development that may prove to be tapping a never previously commercialized, renewable, abundant source of energy. These revolutionary new energy conversion devices are inherently cost-competitive. They can make practical cars, trucks and buses that need no engines, banks of batteries, or any variety of conventional fuel or recharge.

Advanced designs are capable of producing electricity on a self-sustaining basis. Some devices without moving parts are comparable to an inexhaustible battery. One Proof-of-Concept prototype is analogous to the early work on the transistor, which eventually led to a Nobel Prize and the creation of Silicon Valley.

A generator we are developing is expected to generate sufficient power to demonstrate replacement of the plug needed by a plug-in hybrid car. This will be a harbinger of automobiles that need no conventional fuel. With normal progress, a prototype new energy conversion system is anticipated to replace an automobile engine within three years. That goal might be achieved more rapidly if development involves four teams of engineers and technicians working on a 24/7 basis. The prototype will open a path to mass production of an entirely new variety of automotive power plant. Electric vehicles powered by these technologies will never require conventional fuel or recharge.

See: http://www.renewableenergyworld.com/rea/partner/story?id=54361&cid=7763

You can bet this could revive the auto industry!

[letstakeawalk]

A very limited lesson in the Big three dealings with Japanese and European auto makers:

GM has had partnerships with Toyota and Suzuki and Isuzu. The Geo line was nothing but rebadged Suzuki Swift and Sidekick, Isuzu I-Mark and Impulse, and Toyota Corrollas. The line no longer exists because they were generally considered abysmal cars. Today, the Pontiac Vibe is built on the same line and is mechanically identical to the Toyota Matrix. GM also imported German Opels to be sold at Buick dealerships, and they also met with market failure in the '70's. The Pontiac LeMans (Opel variant) was also considered a miserable little car, even though the Opel twin was very popular in Europe.

Ford has worked with Mazda on many platforms, and the Festiva and Aspire were both Kias.

Chrysler bought 15% of Mitsubishi in the early '70's. Together with Renault, they produced some of the worst small and luxury cars of the late '70's and early '80's. Only the K-car platform managed to save Chrysler after that horrendous period. The Eagle Premier, the Talon, the Dodge Stealth, the Chrysler Conquest - all cars that nobody wanted. Never mind that Chrysler's been selling rebadged Mercedes for the past several years. Anyone want a Crossfire (Mercedes SLK) at half price? The 300 has been a great success, but I doubt a big powerful rear-drive V-8 is what the American public really want, right?

[KillTheMessenger]

What the American public wants is the road equivalent of the space shuttle: the coolest, most impressive vehicle ever built by man with the most powerful engine on Earth. But just like the space shuttle is not what the space program needed, the consumer's dream vehicle is not what the consumer and the country really needs. So at this point in history (with a $500 billion oil import bill for 2008 in the rear view mirror), we need to ask what we can use to satisfy the customer's appetites with that does not automatically bankrupt the country?

And sadly, it stands to reason that Japan will answer this question sooner and more efficiently than Detroit.

[letstakeawalk]

I think you've missed my poorly made point. GM, Ford, and Chrysler have worked with Japanese and European manufacturers for the past three decades trying to produce small economical cars - and they've always been failures. However, now that GM and Ford are actually trusting their in-house designers, their passenger cars are beginning to get serious recognition.

GM's Cobalt gets better fuel economy than the Corrolla or the Civic, and is faster than both around the Nurburgring. The upcoming Cruze will get around 45mpg with its groundbreaking direct-injection engine. The Chevy Malibu also gets better fuel mileage than the Accord or Camry, and has won several awards for quality and design. Ford of Europe will soon be delivering excellent small cars to our shores. Ford is also readying direct-injection engines for the US market.

I don't think GM and Ford are waiting for the Japanese to teach them anything - I think they're trying to forget what the Japanese collaborations did to them in the past...