2008 in Review - Detroit Produces Another Lemon (Nov)

The images are still fresh enough to need no elaboration.

Everything that is wrong with the Big Three automakers was on display this week.  GM, Ford and Chrysler came to Washington to make their case for being handed a pile of cash.  They had a largely sympathetic audience in the Democratic Congress.  And yet at the end of the day, they came away with no money, and yet another bad p.r. rap.

Apparently, the American auto companies are losing money so fast that they won’t be able to survive past Christmas without a massive federal bailout.  The argument against letting any of the three sink into bankruptcy is a compelling one - it’s not just the auto factories that will close, and not just the well-compensated executives and heavily-pensioned autoworkers who would join the ranks of the unemployed.  Parts manufacturers, transporters, and auto dealers are the easiest-to-identify three additional businesses that would be hard hit.  

But there are still plenty of reasons why the government should not be monkeying with the gears of capitalism.  This isn’t government assistance to re-build after a natural disaster.  The automakers brought this debacle upon themselves.  The reason that Detroit’s flagship industry is flat on its back, pulse thin and weak, is that they made a bet when they were making money, and they lost.  They bet that gas was going to remain (relatively) inexpensive and Americans would remain hooked on horsepower.  

Technical innovation over the past couple decades has not gone to making fuel-efficient cars or the next generation of alternative fuel vehicles.  It has instead been spent on squeezing more horsepower out of the same amount of gasoline.  Trucks and SUVs got bigger and more powerful; four-door cars rolled off the line with zero to sixty times that would have been the envy of the Indy 500 a generation ago; and apparently no one gave any thought to what happens when the oil well ran dry.

Detroit squandered its profitable years fighting to keep CAFÉ standards low.  Over and over, auto industry executives and their lobbyists fought to keep Congress from revising mileage standards and tailpipe emissions requirements.  Those same happy capitalists are begging for government aid now.

Virtually every choice made by Detroit has contributed to the long slide downward.  The legacy costs - pension obligations, health care benefits, and the rest of the UAW goody-bag - made it virtually impossible for the automakers to develop and sell cars at a profit.  Only the lucrative truck and SUV markets kept them from bankruptcy years ago.  And so they cut down on car and mini-van production, focused more and more on the truck and SUV markets - and watched as Honda and Toyota and other imports seized the market for cars.

As the automakers idled car plants and laid off workers, they could have chosen to invest - to re-tool those factories and re-train those workers to develop the cars of the future.  Instead, they bet exclusively on big engines and wide frames.  Then 4 dollar-a-gallon of gas slapped Detroit, but good.  Trucks, SUVs and powerful cars getting 16 mpg began to crowd the dealerships’ parking lots like rotting fruit around the tree.  And none of the Big Three could roll out a car that might address the problem.

So there are plenty of skeptical members of Congress who needed to be persuaded.  The automakers, though, simply showed up and expected to be granted the largesse they sought. 

They did not have a single answer to the question:  what do you plan to do with the money?  They were utterly unprepared to explain how an infusion of $25 billion would bridge the gap between today’s borderline bankruptcy and tomorrow’s robust return to profitability.

It was also not lost upon the audience - by which I mean the Congressional committees - that the automakers flew their corporate jets to Washington to make their case.  It is hard to win the case that you are running low on cash with a fleet of LearJets idling on the tarmac at Reagan National.

Unnecessary spending, no plan for the future, intense lobbying for a result that a significant number of people think is foolish.  Sounds like the American auto industry for the past several decades.

But this Congress is in such a giving and forgiving mood that they have given the auto industry a second chance.  “Go do your homework and you can take this test again,” said Nancy Pelosi.  The unknown now is whether the boys from Detroit will learn the easy lessons.  Merely claiming that your companies are too big to fail is the surest way for Congress to decide to test your thesis.

First, make some apologies.  Take responsibility for the decisions that have the industry on the verge of collapse.  Second, have a plan.  It doesn’t have to be specific down to the date of sale of the first alternative-fuel vehicle, but it does need to tie the funding being sought to the improvements which will improve your ability to sell cars.  

Third, make an offer than can’t be refused.  Tell Congress to set whatever CAFÉ standards they want and that you’ll meet them.  Show yourselves as an American industry that is eager to innovate and that in trade for the government’s help today, you’ll give us the cars of tomorrow.

Finally, drive from Detroit.  Have your fleet of cars - every make and model -  motorcade from Detroit to Washington.  It shows that you believe in your products.  It will eliminate the image of corporate fat-cats flying to Washington to load up their jets with the taxpayer’s money.  And make a point to stop a few times along the way, at car dealerships and truck depots and parts companies.  Showcase the businesses all along the road from Detroit to Washington that will suffer if you can’t convince Congress that you are sincere.  You may be too big to fail; now prove that you’re not too stupid to succeed.