So, having learned nothing from the British experience in the 1970s(or more likely being completely ignorant of it) President Bush has decided to give the automakers up to $17.4 billion from the $700 billion Wall Street bailout to stave off bankruptcy for the next three months. I wish I felt better about it.
First off, you read that correctly--the 17.4 super-sized large ones are only enough to get them through sometime in March. One can only imagine what they will come back and ask for when they burn through the first installment.
Second, I don't really think anything is going to change. Detroit has some structural issues that, for better or worse, are unlikely to go away anytime soon--contracts with the UAW and state laws regarding automobile dealerships, to name but two. Over the years, the UAW negotiated some sweetheart deals with the Big Three, including severance packages which in some cases mandate that workers receive 90% of their pay as a benefit, which they are unwilling to revisit at this point in time. And the dealers, many of whom are teetering themselves on the brink of bankruptcy, under many state laws can't be eliminated without lots of pain and buyouts from the automakers.
And all of this will be going to save an industry that has been breathtakingly short-sighted in recent years. Thirty years after the Arab oil embargo of the 1970s, the lesson that gasoline can become both scarce and expensive was forgotten, as Detroit spent millions of advertising dollars convincing ordinary American families that they needed a GMC Yukon or Ford Excursion to tote Mom, Dad, and two or three kids to soccer practice or to Grandma's for Christmas. Yes, even the Japanese automakers eventually jumped on the SUV bandwagon, but Toyota managed to develop both the hybrid Prius and the Sequoia at the same time, while GM was more interested in tarting up a Chevy Suburban with bling and calling it a Cadillac.
There's no crime in selling people what they want, but the smart businessman looks five, ten, or even fifteen years ahead and plans accordingly. Detroit sold fuel-efficient and well-designed vehicles overseas, but were spectacularly unprepared to bring them stateside when we started seeing $4-per-gallon gasoline this year. One would think that someone somewhere would have considered it as a contingency plan, but apparently they decided that the party would go on forever. Only now, ten years after the Prius first hit the market, are the American automakers beginning to put hybrids on the road in respectable numbers.
So, with Americans having decided that Ford, GM and Chrysler weren't worthy of their purchasing dollars, Detroit has done an end run around the American people and gone to the government to get our money anyway. That works out to about $58 for every man, woman and child in America, if I've done the math right. Maybe they'll throw in free floormats or something next time we all decide to buy a car to make up for that, but I doubt it. Here's an idea: make it a loan with 7.9% financing, and force them to pay back the interest before the principal, the way they so often do it when we buy a car. Hey, it can't hurt to try, right?
But the sad fact is that this isn't likely going to end up like Chrysler in the 1980s, who paid back every cent of the loan guarantees to the government, and did it ahead of schedule. No, it's more likely to end up looking like British Leyland: diminishing market share, stagnating technology, and eventual bankruptcy anyway with whatever pieces that ultimately survive ending up in foreign ownership.
My prediction: Chrysler goes first, and before 2009 is out. They've shut down production for 30 days at all 30 plants, and Chrysler Financial isn't doing so well either. My bet is that they end up like Studebaker, and go out with a whimper. The new cash will get them through for a time, but they're top-heavy with trucks and mediocre cars, and to the best of my knowledge they have no new products in the pipeline that are likely to change that. And with Chrysler Financial failing, their dealers are having trouble getting financing.
But hey, it's only $17.4 billion, right?
*Alan Mulally, President and CEO of Ford; Rick Wagoner, Chairman and CEO of GM; and Robert Nardelli, Chairman and CEO of Chrysler.