There has been much discussion, controversy, and worry surrounding the Big Three recently. Chrysler, General Motors, and Ford have been lobbying to get a bailout amounting to $15 billion from the government. Should we give it to them? I’m very much torn on my opinion of this.
On one hand, I have a lot of family and friends who work for these companies, and even more who have in the past. There’s an American legacy there–a history of what made the automobile what it is today, and I don’t want that to be lost, tainted, or diluted.
On the other hand, gross mismanagement, an overpowered union, soaring retirement costs, and a lack of vision have been largely responsible for the industry we see today being a shadow of its former self. The foreign manufacturers (many of whom, I should add, have plants in the U.S., making them in many ways a domestic auto maker as well), have made some great strides in quality and met the market with the right product at the right time. The American auto makers, I feel, neglected some segments that very quickly became integral parts of the market. They focused on huge, gas-guzzling SUVs for so long that they were still producing them years past when the market said they want something smaller.
Capitalism should dictate that a company that fails to perform adequately is doomed to bankruptcy. But we’re a lot closer to socialism than we may want to admit.
But how could we fix the Big Three to make them profitable again? Here’s my take on the matter.
Chrysler’s parent company, Cerberus, had loads of cash right now. But why would they want to use it when they can just borrow from the government and not impact their overall bottom line? This seems a bit shady to me, but I’ll overlook that for now. I think Chrysler has some solid products and capabilities in Dodge and Jeep. But most of the Chrysler-branded products are simply rebadgings of other offerings. I would do away with the Chrysler vehicles, but keep the company as the financial and administrative arm of the Chrysler/Dodge/Jeep company. Dodge makes great cars and trucks, Jeep is awesome for SUVs and off-roading. Everything fits well that way and the overlap is minimal.
Secondly, they need to focus more on their small engines. They should have something in the 4-cylinder 1.6-2.0L range, offered with and without a turbo. But they shouldn’t have multiple offerings in that range, either. One engine. With a turbo if you need more horsepower. One or two platforms should be built with this engine, like the Caliber platform works for the Compass and Patriot, utilizing as many shared parts as possible. Reduce complexity and limit the offerings to the best models you can offer, and use the extra energy to ensure that they’re the best that they can be.
GM is probably in the most peril right now, yet at the same time they have some amazing prospects and I would hate to see that lost. The Corvette ZR1 is a fantastic car and truly makes an important statement about the engineering capability of the Americans. A car that can run the N?rburgring faster than a Porsche Carrera GT or Nissan GT-R is stunning.
They also have the Chevy Volt entering production soon, but not soon enough. I always wondered what the point of a hybrid like the Prius/Insight was. A parallel hybrid system is ridiculously complex. The series hybrid approach that the Volt is bringing to the table, with the added capability of up to 40 miles of pure electric, zero-emissions driving, is a revolution. Series hybrids are a time-tested technology; locomotives and heavy construction equipment have used them for decades.
But GM has a lot of unnecessary duplication within its product lines. Functionally, for instance, the Silverado and the Sierra are the same vehicles. Why incur the overhead of designing a new body, re-testing it for safety, re-certifying it for sale, additional advertising costs, etc? Ironically, GM could benefit from some duplication that it’s not taking advantage of. They have a very substantial business outside of the United States, which has had the efficient small cars that we should have been getting here, too. Why haven’t they imported them so that consumers could benefit from having that option and GM could benefit from reduced R&D costs?
GM would benefit from eliminating several of their sub-brands, including Hummer, Pontiac, and Buick. They could be sold off to bring in some quick cash, or put into hibernation in case they want to revive models later on (the Pontiac GTO, for instance, has a legacy all its own). And by importing the best European or Australian cars they own, without altered badging or re-engineering, they could give Americans some great options that have been so far unavailable to us.
Ford is probably in the least worst position of the three. I believe this is partly due to the fact that they’ve been making cuts for some time already to streamline their operations. They also have pretty significant overseas operations, lending some diversification to their structure.
Similar to GM, though, they have many models offered across the pond that U.S. customers could benefit greatly from. They also suffer from some sub-branding and redundant model lines. The Ford Group consists of Ford, Lincoln, Mercury, and Volvo. Most of what Mercury is are simple rebadges, so it could be done away with. Lincoln represents the luxury line, so it’s probably worth keeping, although they should try to maximize the use of common platforms. Volvo is kind of a wildcard.
ALL
Options. One good technique that’s proving successful both in the past and the present are options. Consumers love the ability to differentiate their vehicle and tailor it to their wants and needs. Ford did this with the Mustangs back in the 60′s and was wildly successful. MINI does this today, with enough options to allow over ten million unique configurations. Scion has proven popular with this customizable approach as well. The domestics do offer a fair amount of options, but not to the same extent. Whereas you can get racing stripes, numbering, driving lights, and other cool accessories on your MINI, the wildest option I can think of from the Big Three is the Jeep Liberty’s canvas top. (I do think it’s a very retro-cool option, though.)
The added benefit to the companies is that they can offer a low-priced base model, but consumers will tend to option it up higher, leaving the company and dealers with a bit better profit margin. I know when I bought my MINI, as carefully planned as it was, I had a few options I just couldn’t turn down, even though I may not have needed them.
Benefits. Pensions are another heavy weight around the automotive industry’s neck. Way back when competition wasn’t the same and they were making money hand over fist, they offered generous pensions to their employees, promising to continue paying them after they’ve retired and providing health benefits for them and their spouse. As it turns out, that stuff’s expensive. Especially when someone works until they’re 65, lives until they’re 80, and their spouse continues collecting for another decade beyond that. The pension system was not sustainable, but they locked themselves into so much obligation to pay it that they had no other choice. They should stop providing pensions (I don’t know if they’ve actually done this or not), but still have to honor the promises they’ve already made to past and current employees, so they’re pretty much stuck with this cost.
Concepts. Every year, these companies show off some awesome concept vehicles. Sure, some of them are completely off the wall, but they should actually produce something off-the-wall now and then to keep people interested. Sure, not many people need a dual-HEMI-engined, 4-wheel-steer Jeep Hurricane, but the Jeep Rescue concept was awesome…and almost practical. To be fair, I think that segment was later filled by the Jeep Wrangler Unlimited Rubicon. But concepts evoke emotion and interest, like the Chrysler ME-Four-Twelve supercar, and every once in a while, we want to have the chance to get your hands on one.
Outdated Business Models. It’s not working anymore. Come up with something new.
Unions. Finally, I save potentially the biggest problem for last: The Union. The UAW is a parasite leeching everything it can off of the Big Three, and it’s about to kill its host. According to a 2006 DaimlerChrysler report, the average (union) labor costs for the Big Three were $73.21/hr. The average (non-union) labor costs for Honda, Nissan, and Toyoda were $44.17. That means the Big Three are paying 65% more for their labor!
The amount of power the union has over the automotive companies is amazing, and the amount of pressure they exert is ridiculous. Should someone be getting paid $30/hr to put a bolt through a hole on an assembly line? I don’t think so. What about the guys who get paid for 8 hours, but only work for two? And do you need three supervisors and two engineers to change a light bulb? If they continue on this path, they’ll very soon be taking a 100% pay cut.
CONCLUSIONS
I know this has been an extremely long-winded analysis of the state of the automotive industry, but I felt it was important to write down my thoughts. This is a make-or-break moment for the Michigan auto industry, and losing these companies would have a huge impact on Detroit especially. But at the same time, they dug the hole they find themselves in now, so my compassion is limited and I question whether it’s the right decision to allocate so much money to trying to save them. I don’t want to see them go, but I don’t know if they can stay, either.