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Big Three Bailout: TheCarConnection's Plan to Fix Detroit
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Enlarge PhotoAfter what was probably the least successful round of begging ever televised, the Big Three automakers are going back to Washington this week in a full-court press for a bailout--yes, a bailout, never mind how it's being couched or gladhanded. GM, Ford, and Chrysler want easy money and low-interest loan guarantees that you and I can't get, so they can hang on to their current business models until the economy turns a corner. That's a bailout by any measure.
The trouble is, no one thinks Detroit is worth saving--at least, no one outside of the Midwest. Bank of America says there's one too many automakers, and that's the most level-headed commentary to come from the talking heads in Congress and on television. Mortgage-industry shill and alleged Sen. Chris Dodd blames the car companies for everything--when CAFE is the real culprit. (Ask Dodd about his preferential treatment for an industry he's actually interested and has a stake in.) As a nation, we've lost respect for an industry that is part of the foundation of industrial America, and some of us are willing to write off what remains to the Japanese, German, and Korean car industry.
There are still ways to fix Detroit, though. Difficult, wrenching fixes but long-lasting changes that could give Detroit a new footing and a new way to compete. It's not quite a nuclear solution noncar guys want: uberblogger Seth Godin would have the dealers wiped out and promises an "orgy of innovation" as a result. It's going to take humbling in the boardroom, in the halls of the UAW, and in your driveways, but it's doable.
So as they caravan to Washington for tomorrow's epic round of fundraising, the leaders of the Big Three bailout mission--GM's Rick Wagoner, Ford's Alan Mulally, and Chrysler's Bob Nardelli--we give you these five ideas that can save the U.S. car industry for future legislators and executives and workers and Americans alike:
There's just no other way to get Detroit out from its crushing pension and health care burdens short of bankruptcy--something that may have worked for airlines but probably would kill all the progress the domestics have made on quality and reliability. Even Chrysler CEO Bob Nardelli says Chrysler won't survive a bankruptcy filing--and there's reason to think GM will not, either. The way to go? Cut costs in a prearranged deal that finances a massive right-sizing of all the domestic brands. The UAW has helped costs by cutting future labor costs, but new pay rates coming in 2010 are too far off. Detroit needs pension relief, health care relief, and pay relief. And it needs it today, not in two years. Sorry, Tesla, but vaporware doesn't qualify for this kind of federal funding.
Why was Detroit singled out with colossally bad CAFE legislation in the 1970s? Because they built shitty cars then. When Congress signed off on CAFE, though, they willingly gave away Detroit market share because they didn't have the stones to enact an overall energy tax that hit every oil-using sector of the economy, from airlines to makers of plastics. Detroit took one for the team--now it's time for every other energy user to take their turn in the barrel.
Any bailout plan that involves restructuring is going to cause massive pain--first in Detroit, then in the tsunami everywhere else. Suppliers will go out of business, and all domestic car plants could face shutdowns that could cripple production. While the industry works through the implications of the restructuring, Washington has to enact some auto sales cap that keeps import manufacturers from grabbing sales while Detroit's guard is down. It's anti-capitalist, for sure--but we don't need to make another CAFE-sized mistake and guarantee Detroit's demise.
There's almost no business case that predicts an independent Chrysler--so it's time to save the best pieces of the company, its people and its best products. GM gets Jeep; Ford gets the minivans and Viper. Caliber? Done. Avenger/Sebring? Finished. Charger, Challenger, and 300? Probably no place for them in a 35-mpg world anyway. Dodge Ram? Pretty wonderful, but shutting it down would give the F-Series and Silverado some breathing room. Chrysler jobs are spared here, something that can't be guaranteed otherwise.
GM is Chevrolet and Cadillac; Saturn/Opel bridges the gap between them and Buick is GM's future in Asia. GMC is profitable--and would get more products if it absorbed Jeep. Everything else is a business case waiting to be studied. Take the dramatic situation at hand and use it to prune brands that take too much money and brainpower, and use the moment to shut down the thousands of dealers and car lines GM needs to shut down to focus its business.
The trouble is, no one thinks Detroit is worth saving--at least, no one outside of the Midwest. Bank of America says there's one too many automakers, and that's the most level-headed commentary to come from the talking heads in Congress and on television. Mortgage-industry shill and alleged Sen. Chris Dodd blames the car companies for everything--when CAFE is the real culprit. (Ask Dodd about his preferential treatment for an industry he's actually interested and has a stake in.) As a nation, we've lost respect for an industry that is part of the foundation of industrial America, and some of us are willing to write off what remains to the Japanese, German, and Korean car industry.
There are still ways to fix Detroit, though. Difficult, wrenching fixes but long-lasting changes that could give Detroit a new footing and a new way to compete. It's not quite a nuclear solution noncar guys want: uberblogger Seth Godin would have the dealers wiped out and promises an "orgy of innovation" as a result. It's going to take humbling in the boardroom, in the halls of the UAW, and in your driveways, but it's doable.
So as they caravan to Washington for tomorrow's epic round of fundraising, the leaders of the Big Three bailout mission--GM's Rick Wagoner, Ford's Alan Mulally, and Chrysler's Bob Nardelli--we give you these five ideas that can save the U.S. car industry for future legislators and executives and workers and Americans alike:
Bailout Step One: Pre-Package Restructuring
There's just no other way to get Detroit out from its crushing pension and health care burdens short of bankruptcy--something that may have worked for airlines but probably would kill all the progress the domestics have made on quality and reliability. Even Chrysler CEO Bob Nardelli says Chrysler won't survive a bankruptcy filing--and there's reason to think GM will not, either. The way to go? Cut costs in a prearranged deal that finances a massive right-sizing of all the domestic brands. The UAW has helped costs by cutting future labor costs, but new pay rates coming in 2010 are too far off. Detroit needs pension relief, health care relief, and pay relief. And it needs it today, not in two years. Sorry, Tesla, but vaporware doesn't qualify for this kind of federal funding.
Bailout Step Two: Axe CAFE and Enact an Energy Tax
Why was Detroit singled out with colossally bad CAFE legislation in the 1970s? Because they built shitty cars then. When Congress signed off on CAFE, though, they willingly gave away Detroit market share because they didn't have the stones to enact an overall energy tax that hit every oil-using sector of the economy, from airlines to makers of plastics. Detroit took one for the team--now it's time for every other energy user to take their turn in the barrel.
Bailout Step Three: Don't Give Away More Market Share
Any bailout plan that involves restructuring is going to cause massive pain--first in Detroit, then in the tsunami everywhere else. Suppliers will go out of business, and all domestic car plants could face shutdowns that could cripple production. While the industry works through the implications of the restructuring, Washington has to enact some auto sales cap that keeps import manufacturers from grabbing sales while Detroit's guard is down. It's anti-capitalist, for sure--but we don't need to make another CAFE-sized mistake and guarantee Detroit's demise.
Bailout Step Four: Split Up Chrysler Between GM and Ford
There's almost no business case that predicts an independent Chrysler--so it's time to save the best pieces of the company, its people and its best products. GM gets Jeep; Ford gets the minivans and Viper. Caliber? Done. Avenger/Sebring? Finished. Charger, Challenger, and 300? Probably no place for them in a 35-mpg world anyway. Dodge Ram? Pretty wonderful, but shutting it down would give the F-Series and Silverado some breathing room. Chrysler jobs are spared here, something that can't be guaranteed otherwise.
Bailout Step Five: Streamline GM into Chevrolet, Buick, Saturn/Opel, GMC/Jeep, and Cadillac
GM is Chevrolet and Cadillac; Saturn/Opel bridges the gap between them and Buick is GM's future in Asia. GMC is profitable--and would get more products if it absorbed Jeep. Everything else is a business case waiting to be studied. Take the dramatic situation at hand and use it to prune brands that take too much money and brainpower, and use the moment to shut down the thousands of dealers and car lines GM needs to shut down to focus its business.
Responses (17 total)
By Susan Derrick | Posted: Dec 12th 2008, 10:06:07 AM
As a retiree of the airline industry and a union worker for 35 years, let me say this to the UAW. Unfortunately the number DON'T WORK. You can't have all these retiree collecting a sizable pension and have line workers making the wages and benefits they are and be competitive in todays world. I wish it could be a reality where the workers could maintain and secure for the future what the have now and the companies could be equally competitive and everyone could win, but it isn't going to happen in the current climate. Fellow union workers, the cold hard reality is you are going to have to make some very difficult sacrifices if you want a paycheck at all. This is what happened in the airline industry and it is what will happen in the car industry. Many of us had to get second jobs, so the airline could go on and we could pay our bills.
By Marty Padgett | Posted: Dec 4th 2008, 05:25:10 PM
Hey, I have much love for Chrysler - particularly some of the people we know who work there, and products like the minivan and the Viper and Jeep. It's just that capacity in the domestic market HAS to shrink if anyone's going to recover -- and that means taking the weaker players and saving the best parts and some of the jobs and putting it where it does the best for the American auto industry.
By bill burke | Posted: Dec 4th 2008, 04:42:47 PM
Marty, Some good ideas here, but one really lousy one,destroying Chrysler. As a Chrysler loyalist, I appreciate the history, achievements and "culture" of all that IS Chrysler. There is a viable busines case for Chrysler and it's apparent in it's product line. How can you dismiss so many great products and the skills that brought them to market? Winners like the PT Cruiser, Chrysler 300, Dodge Charger and Challenger and the Jeep line. Given the advantages of foreign competitors, they are remarkable. I can appreciate the lack of exposure you may have to Chrysler, but they are not to be casually written off and deserve to servive, intact, as much as G.M. and Ford and more so than the foreign transplants. How about folding Toyota into Ford, Nissan into Chrysler and Honda into G.M. or put limits on their production? Marty, try to stand up for a great American company, which deserves your respect and consideration in these tough times. ( Marty, FYI Chrysler built the Sherman tank in WWII, and put men on the moon with their Saturn booster rockets)Come on Marty, be a guy!
By Jack | Posted: Dec 2nd 2008, 10:49:20 PM
I think people will be angry when they see how 'health care reform' affects the middle class. They are going to tax the workers on the employer's contribution to their health coverage as income to pay for benefits for the lower class. I don't have a problem with mandating coverage for all employees and employer contributions, but low income people are going to get reduced or no cost insurance and it's going to come from the middle class. If they want to tax health insurance benefits, then they should allow you to deduct all your premium payments as well as any out of pocket costs that exceed those required by the neediest recipient of subsidized insurance.
By Reece | Posted: Dec 2nd 2008, 10:16:36 PM
Dis agree with parts of this so called plan.
I agree that you should scrap CAFE and implement an energy tax, highe ron petrol than diessel to encourage switch. CAFE is socialist way to deal withthe problem, Government telling manufacturers what they have to build and leaving the consumer out. Tax on petrol will cause the same, if not greater change towards more effecient vehicles but be at the buyers behest. hose that want to drive big old clunkers gulping gas can but they pay for it, those that want effecient cars will go for that. CAFE is dum, just look at pontiac G3, tell me that would be there without CAFE. Petrol tax will also ensure money to pay for ant bailout.
Point 3 is just dumb. Management is to blame for not making the right cars, you don't fix that by guaranteeing them a set market. They will continue to build crap as their market is capped, they are assured money and market share so why work for it, that is what happens when you do things like this. Only by being forced to listen to their clients will they start to make the right kind of cars, it is market pressure that works best. Problem for US auto industry is that it is run along socialist lines with US government and union making decisions that should be made by management. Management doesn't listen to or build for it's clients and has lost it's clients as a result. Government doesn't have a clue about running car companies.
Disagree with splitting Chrysler between Ford and GM. Ford doesn't want it doesn't need it, get over it. Chrysler does need to be split up but sold to overseas interestest, it is that or go the way of so many US brands to death. Sell Jeep to Huyandai, Chrysler/Dodge to Nissan-Renault or VW or Chinese interestest. You have to choose between staying in US hands and dieing or selling to foreign interests and staying alive. Live with it, the rest of us do with US companies buying foreign car companies. The world is changing America you do not rule alone, Asia is moving.
Disagree re GM. I have suggested elaswhere that GM form two divisions in the US Chevy for everyday cars and include in it brands of Chevy, Pontiac, GMC and maybe Saturn but I would turn Saturn into the green brand, Give the Volt to Saturn and make an all electric Solstice. Have one dealer network selling all 4 brands. Second US division would be Cadillac - premium cars (Cadillac, Buick and Hummer). Cadillac would be aimed at the german premiums (speed and style) while buick would aim at the asian premiums(Lexus, Acura etc) (comfort and lots of toys) It would have its own dealer network servicing all three brands. Think Hummer as a luxuary brand selling blinged up GMC fare could still work. Have seperate management running each division on day to day basis wih a joint head company dealing with broader issues together with GM's overseas divisions.
Having 2 dealer networks will save money and management time. It will also put an end to a lot fot he crap badge enginerring where you stick a pontiac or buick or saturn badge on every vehicle just to ensure your dealer has cars to cover each base. Instead each brand should cover its distinct areas.
ford I think is ok, depends if it can find anyone to buy Volvo, Mazda maybe, keep it in the wider family.
That would be my plan anyway
By Ron Stopfer | Posted: Dec 2nd 2008, 01:06:49 PM
BUST THE UNIONS! Listen to them...."Slow down over there", "Hey, I want more $$$$$$$$, and screw those who don't want me to make $78,000.00 to make one of the sorriest products on the face of the earth!", "I DEMAND BENEFITS THAT NO OTHER WORKER ON THE EARTH GETS!", and on, and on, and on. The UAW and Big Three needs to know that consumers think they are ALL overpaid, that their products suck, that the vehicles are boring in style and lousy in reliability. The $50,000.00 F-350 I bought two years ago should have went out the door at half that price, and the reasons why were because of greedy union workers and management.
By Wayne | Posted: Dec 2nd 2008, 11:53:08 AM
You know, I read the blogs and the reply's here on a daily basis. And I think for one of the first times ever I agree with Ed on the point that he's making. I think the key here is when Ed says:
"GM needs SUPERIOR PRODUCT, then it will sell itself, after a few years it will take for consumers to have confidence in it again."
How ture is this...it's all basic. GM is doing better with their newer product, like the CTS and the new Malibu, but there's still a hell of a lot of work to do. But lets not just pick on GM here, cause we all know that Chrysler really needs the SUPERIOR Product as well! I believe that Ford is in the better position of the "BIG 3", and that's kinda scary, cause they are in a world of hurt, but they have made huge strides in quality, and the upcoming products show they are paying attention to problem areas, interiors....
There are so many things that we can point our fingers at that brought the BIG 3 to the point they are at. Was CAFE a mistake, hell yeah. Is healthcare out of control, sure is!! Have raw materials gotten more expensive? Yep! Is the UAW past it's prime and holding a gun to the Big 3's head, I think so!!! But isn't it a combination of EVERYTHING, topped off by the fact that they were/are making INFERIOR products?
By Lok | Posted: Dec 2nd 2008, 07:09:50 AM
I agree with Ed. GM needs to come out with a superior product. They have just launched the 2009 Buick Regal in China, which is the Opel Insignia in Europe. I have not yet seen the real car but have seen the photos, the features lists, and the price. This Regal rocks. For the kind of price and features, it beats the Camry, the Accord, and even the Nissan New Teana. It is the only car in this category with 18 inch wheels. If I am looking to trade in my Camry, I would go for it. This Regal is really what you would call a superior product from GM.
By Jack | Posted: Dec 1st 2008, 08:50:18 PM
Detroit should show confidence in the quality and durability of their vehicles by providing a 10 Year/100,000 mile warranty.
By Jack | Posted: Dec 1st 2008, 08:48:44 PM
Detroit should show confidence in the quality of their vehicles by providing a 10 Year/100,000 mile warranty.
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