The Big Three Automakers Have Failed. We Don't Owe Them Anything.
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The Big Three auto companies are suffering because of their own short-sightedness, corruption, and inefficiency. Just a few years back, they refused to adapt to the growing market for fuel-efficient vehicles. While foreign auto makers were testing the market with hybrid cars and smaller vehicles, the Big Three were still pushing the wasteful SUVs that had become their main cash cow. They tried to keep SUVs alive as long as they could, because SUVs have a high profit margin and are otherwise lucrative.
Big auto was still sacrificing our planet's future for some short-term profits, even when they could easily see the approach of higher gas prices and drastic changes in the market. That's not just poor corporate citizenship; it's incompetent leadership, too.
Many years before that, they lobbied their way out of California's zero-emission vehicle (ZEV) requirement, which compelled them to develop and sell electric cars. As many people know, they killed the ZEV mandate, and then worked hard to prevent existing customers from hanging onto their EVs. They crushed most of them, simultaneously crushing the emerging ZEV market. Ironically, they could have survived if they hadn't struggled so hard against the mandate--you can bet that EVs, hybrids, and just smaller cars would have become popular by the time our economy started to tank.
Now that the public has less to spend on vehicles and fuel, and a renewed interest in the environment, the market for gas-guzzling luxury vehicles has finally dried up. In fact, it would have dried up much earlier if not for all of the zero-interest financing offers they made in a desperate attempt to balance their books. Those promotions kept people buying vehicles that they couldn't afford (and didn't need) for many years. They kept the appearance of solvency, higher stock prices, and huge salaries for their CEOs, while their real profitability was plunging.
The Big Three's business models are, predictably, no longer viable. All of the losses they've been postponing and concealing have finally caught up with them. Now they want to postpone their downfall a little longer by coming to the government for a handout. In a free market such as the one their supporters used to praise so fervently, these corporate behemoths would have been gone long ago.
It's time to let the market take its course. Smaller companies go out of business all the time; they just get replaced by others who know how to give people what they want at a price they can afford. The U.S. auto makers can't compete anymore, and we'll be better off with vehicles made by companies that play by the rules. Keeping the Big Three alive on the backs of taxpayers will only make things worse in the long run. Let's be smart–this is not the time to throw good money after bad.
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Comments
Jaramillo,
That is a reasonable response, but it's not one I can get very enthusiastic about. For one thing, they'll have to make more environmentally friendly vehicles anyway, because that's the only way they can keep selling cars. I think they are starting to understand that, at least. If they are, then they may well take the baillout money, start producing the same cars they would have anyway, and claim to be sacrificing some of their profits for the benefit of all humankind. They get good publicity, regulations get relaxed, and they can resume their old business style. If this happens, we'll get bitten again, sooner or later.
Another problem is their powerful lobby. They've used it to get inconvenient rules changed before, and I'm sure they'll do it again, given half a chance. I would predict a short period of cooperation, followed by a quiet but unyielding effort to free themselves of regulations they don't like, both old and new. Congress could try to clip their wings and hold them accountable, but I think it'll be harder than it looks.
I think we'd probably be better off if they left and made some room for clearer-thinking businesspeople. Remember, they have real assets that other companies could use to make cars. If the Big Three go out of business, their assets are likely to be sold at a steep discount. We could end up with a lot of smaller, smarter companies. We could have real competition, which would probably lead to better products and lower prices.
It's hard to know what the best approach really is, of course. Time will tell. It'll sure be interesting to watch the hearings on Thursday and Friday. Stay tuned...
I just worry about the impact on the workforce if the big 3 are allowed to fail. A lot of people depend on their pensions and insurance. What will happen to them?
Sean,
I worry about that too. A lot of people could be hurt. I still don't think the companies should be bailed out, though. Two reasons come to mind:
1. I'm not convinced that the bailout money will do more than delay their collapse. I really don't think they can make it in this market. As I understand it, they make very little selling their smaller cars. They've become accustomed to making lots and lots of money from their SUV, van and truck sales. I think it's possible they couldn't turn a profit without those sales. They also are in the habit of lobbying to get laws passed that will increase their profits, like tax breaks for SUV owners. I think they're also dependent on the use of political influence to shore up their bottom line. Now that the public is suddenly thrifty, the automakers' business model seems to be collapsing under its own weight.
Since they came to the legislature for help during a panic over the economy, their executives are being publicly interrogated, and the whole issue is in the spotlight. For the time being, people are wary of having their money wasted. That has to weaken their political influence.
2. If they do go under and people get laid off, it may be better for the auto workers anyway, in the end. Other companies will jump at the chance to strike it rich selling the newly-preferred vehicles without having to take on the big three. The existence of many employers where there only used to be a few should make the economy more resilient.
Some lives are sure to be ruined by the changes, but that would likely happen anyway, to some extent. Despite any promises the auto companies might make, I don't think a bailout will solve the companies' structural problems permanently. Starting from scratch may be the only way to really change the way American automakers do business. In my opinion, such a change would be a big step forward for our country.
I agree with Sterling Sage, the big three are the dinosaurs of our economy. The Japanese auto makers have developed vehicles that are more reliable, more efficient and, arguably more appealing to the American public. The argument that we need to prop up the dinosaurs in order to avoid the impact on the employees of the Big 3 and their suppliers and dealers should be tempered by the realizaion that the displaced workers would eventually be absorbed by the better, viable foreign auto manufacturers that have set up factories here in the USA. An intersting example is found in my home town where the local Lincoln dealership became a Mazda dealership last year. They did not suffer from mural dyslexia (they could see the handwriting on the wall).
Mel Sterling, a convert from Lincolns to Toyota products.
LOL--Thanks for your comment, Mel.
Let's hope we come out of this soon, and with a more dynamic economy.
*crosses fingers*
I agree with you Sterling Sage, but have ongoing concern re the auto employees and retirees, especially in our current economy. Your article is a well written description of the problem and how the "Big Three" arrived at the place that they currently find themselves.
Thanks for the feedback, Pat.
It's definitely a mess, any way you slice it.
Its time for automakers of other countries to take over the posistion that Big three might vacate soon. Automakers in Asia and Europe have come up with new ideas and inventions over the past, but never got the limelight they deserved. Its time for them to prove their mettle now.
Well, Honda, Kia, Saturn, and Hyundai have all have increased sales in comparision to the "big 3" due mostly inpart of fuel prices and affordablity. The other automakers that are posed to take over as the big 3 are Toyota, Honda, and Nissan. Aren't these automakers over 60% built on US soil anyway? I would say Volkswagon is another company that is doing above mediocrity, but over 70% of their sales are relied upon US sales, so they are struggling as well.
Bottemline is every auto maker is going to continue to struggle due to the credit crunch. Because the other automakers equally sell in other countries and not just the US, they aren't affected as much, but they still aren't immune to the world financial crisis.
As long as the US is in the financial hardship that its in, everyone is going to be affected as a trickle down affect. Companies will have to continue to downsize until the econemy rivives itself.
In other words, a government bail out isnt the answer. The bailout is a temporary "band aid on a failing organ". Until creditors have faith in the people who apply for credit, we aren't going to get out of this mess. The "big 3" along with other competitor operations will continue to shut down.
Jaramillo says:
12 months ago
Now would be a great time for our democratic government to send the big three some money, BUT mandate an emissions act on all new produced vehicles moving forward. With government bailout funds coming in to save the companies, it will force environmental friendly vehicles to be produced by the three manufactures.
What have we to lose? We have them where we want them. We should take full advantage of it, before they are back on their feet.
Thats my two cents worth