I think that is what they are trying to do. At least cut production and close factories to stay in line with market demand. The problem is market demand is falling so fast that it has become very difficult to keep up with it. Having said that, automakers still have an incredible amount of fixed costs that don't go away when you shut down production, not to mention the legacy costs of the retirees.
The bottom line is this: there is too much capacity. All the automakers — including the Big Three, the Japanese, and everyone else — currently have a capacity of roughly 20 million cars a year in North America. (That includes Mexico and Canada, but many of those cars end up in the U.S. anyway.)
But the estimated market demand this year in the U.S. is under 12 million and falling fast. At its peak in the late ‘90s the market demand was 17 million. So something has got to give — supply is outpacing demand and this keeps prices low but doesn't allow for profitable growth.
(At some point, somebody should have put some of the profits from trucks and SUV’s back into small cars. But the attitude was we cant compete with the Camry and make money, so we won’t even try. Huge failure.)
Every car company would love to be capacitized right now to run profitably for their market share of 12 million units. But nobody is and that is why you are seeing this huge outflow of cash. Everyone is spending money to support a 20 million capacity and the fixed costs kill you when the market only supports something less than 12 million.
The upside of bankruptcy is that the auto company could reopen all of its labor contracts. The downside is —and it is huge — who would want to buy a car with a warranty from a company in bankruptcy? Plus, all of these clowns are writing editorials claiming that revamping these labor contracts would result in huge savings. Not necessarily so. I've heard that it would not save us that much money over the near term, certainly not enough to warrant filing for bankruptcy.
So it is capacity, man, and the Americans were capacitized to build trucks and Honda was capacitized to build cars. They wanted to build SUV’s and trucks like the Ridgeline, but they weren't a hit — lucky them — so they didn't add to those factories. We wanted to build more small cars, but the Fusion and Focus didn't beat out the Camry and Accord — unlucky us. Now with gas at $2-$3/gallon, that seems like a good mix. Some people will want cars, some will want trucks, some will want SUV’s. And if we close enough factories in this country and capacitize to around 12 million units, we could all start to grow profitably again — everyone. That is why the bailout money is so important.
All these companies want to do is get to the other side of the river with their company still intact. If the American car companies don't get there, when — and not if — the American economy picks up and we start buying cars and trucks again, we can look forward to shipping all of our money to Japan in the form of Toyota profits and get in return some mediocre paying factory jobs in the south. Sounds like a good investment to me to help out the American auto industry.
Oakparkmark also has a strong take on the question of a bailout:
Let's lay out a few facts we can all agree on. First, the auto industry is not responsible for global warming. Consumers are. GM and others are simply responding to the marketplace. Today, you can buy a Ford or Malibu hybrid sedan, and theAnd Sarah Swart weighs in on quality control:
Chevy Volt will be revolutionary, but of course, GM will take a loss on each car. That won't help them out of their mess. (People who blame cars for our environmental mess should be reminded that bovine flatulence, caused by a corn-based diet that is unnatural and harmful to the animals, contributes as much methane as all cars. This, of course, is driven by the demand for beef. So the anti-car environazis can get off their high horses unless they're vegetarian.)
Second, most people in this debate are truly clueless about the real issues. Unfortunately that includes almost all of our politicians. With the exception of Michigan's congress-people, who simply do what they're told by the auto industry. If they have any real insight, we'll never know.
Third, the products are fine. A U.S.-built GM vehicle is way better than a Mexican-built VW. The difference in quality between a Buick and a Mercedes in negligible, especially since Mercedes and BMW are in a war to outdo each other with unproducible technologies that nobody wants.
So, what's the real problem? The real problem is, as has been copiously documented over the last several decades, is the corrupt and cloistered executive managements of the respective companies. Also, the fundamental reason for each company's existence leads each to its own destruction.
For example, the purpose of the Ford Motor Company is to keep the Ford family from having to get real jobs. (Again, don't take my word for it. Read the literature.) Their incessant inbreeding with the Firestone family has not led to an imaginative solution to Ford's problems. They simply appoint the least genetically abused family member to work himself to death to keep the family fortune at least somewhat intact.
The purpose of the GM is for the executives to maintain their little club. Anyone who's gotten close to the 14th floor (or whatever it's called these days) knows that the executive culture thrives on being worshiped. I'm not making this up. Micheline Maynard of the New York Times called this out a few years ago, and she's on the money.
Not on the money is the idea that a government bailout will solve something. It won't. It will only prolong the agony. GM and Chrysler are going out of business because they don't make money. A bailout will not change that. GM's been going out of business since 1985, so no one should be surprised that what's happening now. The economic crisis has accelerated the process, but probably not by much.
For those of you who support Obama, I would suggest that you don't want him to get in over his head on an issue he'll never prevail on. I read somewhere that he's interested in appointing a "car czar." A government appointee, subject to all of the political stupidity currently manifesting itself in the press coverage, will never be able to deal with the industry's complexities and nuances. In short, it will be total failure and a total waste of money.
Let GM and Chrysler go bankrupt. Bankruptcy is a process. It allows the companies to stay in business and forces them to make changes. Or die. Death is not a bad thing.
But, savvy investors can see that there's a lot of value in the car companies. They make great (if unimaginative) products. They have outstanding workers in engineering and production (the marketing, however, is awful, and contributes to the problem). There's a market for the cars. There factories to make the cars and dealers to sell them.
The problem is the executives. The auto industry labor movement is a reaction to the executives' culture of corruption and abuse. Today, they can't get the National Guard to shoot at auto workers because it's illegal, not because they don't think it's a good idea. Auto execs will blithely lie, cheat, steal, or even do something unethical so they can continue to squeeze the goose and shoot the golden eggs in their own narcissistically general direction. (These tactics, which are rationalized as being good business practice, always backfire. GM executives are finally in the path of their own collective backfires - the emotional flatulence of all of their customers, past and present, who see through the childish games. Far from controlling their message, they have created a mess that they can't control.) And when the goose is dead, they can walk away rich, fat and drunk on GM executives' wine of choice, Blue Nun. Realistically, you can't deal successfully with a cabal of pathological liars. They've consistently ruined it for everyone else. With the executives out of the picture, all of the other problems can be solved by the intelligent and decent people who are already in place.
But alas, even the New York Times can't get it right, saying, "This goes beyond firing top management, forbidding the payment of dividends to stockholders and putting limits on executive pay — all necessary steps. The government should insist on a complete restructuring of any company it pours billions of public funds into." In the real world, restructuring is handled by top management. Obviously, the company needs a radical restructure. A massive loss of jobs will result whether they go bankrupt or are bailed out. So let's not waste taxpayer money to prolong the inevitable. The war in Iraq already shows that politicians of both parties are eager to initiate destructive and unproductive initiatives using our hard earned dollars. And then point fingers later.
First, Michigan's congresspeople don’t just do what they’re told by the auto industry; they also do what they’re told by Big Labor. They are worse (much worse) than useless—-they are a large part of the problem. And Big Labor priced itself out of work-—is this really a controversy? I remember line workers (or was it tool-and-die folks?) making $48 an hour. Today, BA in hand, I make $19.50 an hour.
Big Labor also contributed Big Money to Obama’s campaign. So I have Big Questions about what comes next-—tho’ I voted for him, and I think it is justifiable to expect great things from him.
Second, GM product is not just fine. My husband has a GM fleet vehicle (Chevy Uplander), and I have a Toyota Echo. We both prefer to drive the Echo.
The van, which he’s had since April 06 and got as a brand-new vehicle, has appalling ergonomics and no storage for anything-—but that’s the least of it. My husband has had repeated problems with the fuel gauge and front end noise. The bearings needed replacement and the CD player has stopped working. His transmission burned out!
A co-worker’s van’s engine (same age) had to be completely replaced, and another went through three sets of bearings in less than six months. All the brakes in the company fleet pulse.
Before the Uplander, my husband had a company Trailblazer (also a brand-new vehicle). Its transmission failed the first time he tried to put it into 4WD, with less than 500 miles on it. His first GM van had headlights that regularly filled with water, which of course shorted out the bulbs.
My husband compares GM products to Microsoft’s: It’s not that they suck, it’s that they’re vacuums.
My Echo, which I bought privately and =used= in 2007—-it’s a 2001-—has had not one single thing go wrong in the time I’ve owned it. Not one. Its interior is beautifully designed (astonishing room for such a small car—-my tall husband appreciates that). It gets 40mpg; it’s a manual. My tiny little auto has literally three times the storage options from the front seat that the Uplander has, and-—little things matter—-the Echo is the one that has a grab handle, above the passenger door.
Third, the argument over global warming isn’t over corporate vs. consumer contributions. It is that humans, in general, are contributing to warming, via demand and behavior and waste and all the rest of it. And if I extend your argument, it would be that we should hold drug dealers blameless because, despite the nature of their product (read great-big gas-guzzling vehicles, or illegal, often dangerous drugs), it is the demand that is the problem, leaving responsible stewardship behind. This is the problem, IMHO, with laissez-faire capitalism!
Have you ever heard Chris Rock doing his response to "Guns don’t kill people, people kill people"? The routine is all about the cost of a bullet.
And last, I have been in favor of a complete restructuring or collapse of the auto industry since I was a kid. So can we take my "demand for beef" (since I truly wasn't buying any) off the table? Using the consumer guilt card, for all that I completely understand (and support) the anger behind it, is not a productive way to wage this argument.
