No, it’s not welfare. It’s a little bit insurance mixed with an old-fashioned helping hand that ought to be extended with a little discipline to Detroit’s rump. Bailouts, subsidies, tax breaks and other sundry government instruments to influence the economy are recurrent and mainstream in American history. Less here than most countries, but nevertheless persistent. So let’s not pretend the program to assist Detroit, or the banks, or brokerages, etc., are new. We have an economy with gross annual activity valued over $14 trillion dollars. The absolute numbers bandied about today are big; the proportional representation is more modest. $25B, $50B, $75B are barely a bump.
Still, in a free market country, new initiatives are controversial. On the one hand, purists root for creative destruction, but those minded like economists persistently miss the politics of the situation and the reality of keeping a vast nation functioning. Others, eager for socio-economic activism want to put a floor under the common man, but they often miss the inter-generational consequences of temporally-restricted decisions made today. They also usually lose sight of the bureaucratic permanence of temporary measures.
It takes both caution and daring to overcome both blind spots. Otherwise, the free marketers are like cranks in the neighborhood, who oppose anti-foreclosure measures and then lament the decay instigated by the boarded-up houses, brown lawns and squatters suddenly surrounding them. Detroit’s problem is your problem and mine, too.
I haven’t a shadow of doubt that the total labor pool in the American automotive manufacturing industry feels more than a little abandoned by the coasts. The vocal coastal intelligentsia isn’t sympathetic and Michigan, being in flyover country, gets little love. From management to the plant floor, the coasts are heaping disdain, but the “coasts” represent a psycho-graphic, not a geographic. “The Coast” is sometimes located in a landlocked place. People have to begin caring outside their immediate radius of relevance.
Buying American wherever possible isn’t a patriotic act; it’s born of self-interest. It’s also communitarian and improves an economy’s balance. The United States has gotten the world it wanted and worked very hard to get. After two World Wars and during a long ideological struggle, we willfully engineered both a subsidy and mindshare grab to put the world back on its feet. Direct contribution such as the Marshall Plan and far disproportionate funding & manning of the free world’s security requirements were central. But we also consciously funded rising opportunity throughout the globe by opening our markets more widely than any other major nation.
We recognized that poverty breeds gigantic trouble, particularly in countries with developed populations and modern technical and industrial capability. We wanted a wealthier world and we got it. Others seized the opportunity, not least Japan and China, and generated wealth for themselves far beyond what we anticipated we were inciting. Now here we are, competing in a world we instigated, and properly so. We *intended* to reduce our proportional presence in the global economy relative to 1945, by ensuring others would quickly grow.
In 1980, the US was still the world’s largest creditor nation. In less than three years we gave that up in a dramatic reversal that put us instead in the top debtor position. Only a portion of this was the government’s doing. Everyone today complaining about bailouts has helped to fuel this through insatiable appetite for imported goods exceeding our exports. This is not permanently sustainable, though the US has far exceeded most ideologues’ view of how long we could carry the load.
We gave up consumer electronics, including the valuable TV industry. Yes, domestic brands seeded their demise through their insularity and intransigence. The origins of the Sony Trinitron picture tube were American, but RCA, GE, Sylvania, Westinghouse, et al, did not see the value. However, in just over a decade, RCA for one was making domestic production TVs with tubes that were a product of US R&D, that had superior visual fidelity to Sony’s. But alas, it became uncool to buy domestic and no amount of product improvement could save them.
Sure, as the TV industry in the US was dying, minicomputers were in full swing and the ubiquitous personal computing was being born. But they could have co-existed, and with an American display industry in tandem with its computing industry, sector value could have been much greater, especially since both led to consumer HD.
This is where consumer responsibility for the economy we have kicks in, and it is what frustrates Americans in the domestic industry. There remain uncompetitive cars from the D3. But there are many competitive models that evaluated objectively ought to be selling much better. If you worked on the Malibu, how could you not feel like your fellow Americans aren’t with you when Camry’s still far outsell it. The Camry is a mashed potato of a car, devoid of differentiating appeal and by standards of touch, driveability, handling, appearance, space utilization, general quality of execution is inferior to the current Malibu. The Accord has gotten fat and soft. People scream for reliability and yet VW still sells Passats and Audis. Old Malibu? Sure. But this one’s *good*.
We all banter here about the anecdotal reasons to hold a grudge against any or all of the D3. But that is just an excuse. The reality is that Americans can save their own auto industry, right now, next year, in 2010 and beyond. All they have to do is to buy Detroit’s good, reject the bad, and let the government fund the “bridge loan” to restored confidence. Not doing so ensures one thing: YOU WILL PAY anyway. You will pay in social erosion and corrosion, higher social program and “safety net” costs, reduced confidence, reduced common interest, increased polarity between haves and have-nots and the opportunity costs of careers not moving forward.
Meanwhile, the Feds should wise up and link governance and management changes to availability of aid. Ford is a public company that must be untied from Ford family defacto control. GM’s executive team had their chance. They came into the millenium with a fat pile of cash and a plurality of the domestic market’s customers. As finance professionals often do when miscast as CEOs, they managed to the stock price until the price of the stock completely slipped from their grasp. Chrysler has been taken private and by comparison the team is relatively new. They have less claim to aid, but also less to answer for, for now.
We *can* let Detroit die. It’s just that we *shouldn’t*. It is true that Detroit will recover faster than pundits think, if the industry is allowed to fail. I saw Pittsburgh lose its place in the industrial realm in a dramatic five year crash between 1975 – 1980. Pundits, including many serious economists, warned that Pittsburgh wouldn’t “come back” for 50 years. By 1985, Pittsburgh was in resurgence and much cleaner, though smaller, and began showing up on lists of America’s best cities to live in due to the combination of low prices, economic diversification, cleaner air and water, and family orientation.
However, there’s no doubt that our national economy would be stronger if we had held onto much more of the steel industry, and it would be environmentally better to be making and shipping steel in and around North America rather than shipping it in from other continents on high-pollution cargo ships. With a stronger hand on the part of the Fed, the domestic steel industry could have retained a more robust position in the global market.
We need the Feds to be thinking bigger. Not nationalization, no. But the states cannot bail out Detroit, so as the holder of the funds, the Federal government should override state laws to provide shore-to-shore market consistency. And hit the reset button on labor/employer relations. It should place observers on boards, require election of new directors, with no incumbents, and force competitive search for new CEOs, with any CEO incumbents required to re-apply for their jobs if they still want them.
There should be agreed milestones for both further aid and lifting of Federal oversight. But all of this will be moot if large numbers of Americans stand back with folded arms, chanting need to see how current competitive cars fare in five years before they’ll try and buy. No marketing campaign should try to persuade us to buy domestically. Certainly, no legal structure should be erected to coerce us to do so. No appeal to patriotism is warranted.
Instead, the balance between the dynamism of individual freedom and considering social context is communitarian action. No one should have to tell you or convince you that there is intrinsic virtue and self-interest to buying American if your needs and even wants can be met by a competitive domestic product. It is, or should be, self-evident. We used to have this in greater measure in the United States, and certainly the Japanese understand this. No, transplants are not 1:1 replacements for domestics, in economic value. Americans are self-interested in the viability of the D3. They represent a huge economic presence, the demise of which will ripple into the furthest economic corners of the country.
Communitarian economic action relies on individual initiative to consider and use his or her buying power to help shape their world. People who use their buying power to advance Green practices without the zeal of enforcement are acting in a communitarian fashion, as are people who choose to shop locally rather than at Wal-Mart, or get their coffee from a local cafe rather than Starbucks. An economic communitarian will put aside small differences and prioritize social leverage, but retain the right to punish serious shortfalls in quality, execution and appeal.
A communitarian realizes that individual responsibility does not negate me in Los Angeles, for example, seeing Michigan’s problems as also my own. In the past 25 years, I have been continuously able to buy and drive engaging, entertaining, reliable, affordable American cars made by the D3. I avoided plenty that could not have performed. There’s nothing special about me. Anyone can do it. Starting right now.
Pfew! What didn’t you cover…
One thing I wish people would talk about is how the failure, inefficiency and incompetence of the domestic automakers should not be rewarded, and yes I use the word rewarded, because this would be the perfect opportunity for NEW domestic car manufacturers to emerge. Instead of this bailout to keep the big 3 or 2.8 or 2.5 or whatever going, these efforts and money could be used to make it easier for NEW car makers to come to market, leaner, better, with better products, things we want.
But no, we gotta keep these icons going just because they’re too big to fail.
Any republican that points fingers at democrats and says “socialist” is forgetting about the socialism that is already taking place, has been taking place, and sigh, will continue to take place for large corporations.
Sorry to veer on political here.. I’ll stop now.
Phil,
You present a compelling case for “assisting” Detroit at a time of crisis. If Detroit gets assistance, if Detroit merges with itself, if Detroit promises to change. Will Detroit change?
Detroit is embedded in its own “Detroit think” which has led them to the brink. The consumer has understood the “Detroit think” and prefers to stay away, even if some of the product is spectacular.
Everyone in North America would like to see Detroit endure in a meaningful fashion making a contribution to society and building great product. At the same time everyone is fed up with the “Detroit think” and fearful that “assistance” will merely reinforce the “Detroit think”.
Sadly Detroit has been its won worst enemy for several decades, and all indications are that Detroit will continue and persist in being its own worst enemy. If running out of money and being on the cusp of imminent disaster creates a “Detroit think merges with Detroit think give us a hand out to continue down the path…lets cancel new product launches, lets cancel R&D”
Perhaps Detroit is trying to tell us that it prefers to “shut down” and then “reboot” before sending in the cavalry.
All that matters is whether or not GM/Ford/Chrysler has the ability to build vehicles that exceed expectations. I think GM gets it and I think that Ford might be starting to get it.
As has been pointed out in other threads, Detroit bears just as much responsibility for the cratering of America’s manufacturing base as the consumer does. How many new plants have the D3 built in the US in the past 25 years? How many of the D3 products are now assembled in Mexico, or imported from Korea compared to 25 years ago?
Exactly whose jobs are we really saving if we bail out the D3? Mexican and Korean? How many American jobs are going to be lost in the Chrysler-GM merger?
“Naw, Baby, it’s cool! I’ve changed! I promise I’ll treat you better this time! Just loan some money to help me get back on my feet and things will be better. I promise!”
My family has owned a Ford, a Chrysis, and a GM at one point or another for over the course of 20 years. Always like clockwork the damn things blew up in our faces in one fashion or another within 3-4 years time with the latest being an ’04 model. We performed the proper maintenance. We kept the faith (as our D3 products fell apart) as we watched my uncle’s Gallant soldier on without fail for 10 years. Currently his 2001 Acura is as constant as the Northern Star.
It’s no fun paying for bi-monthly repairs on top of a car note, maintenance and insurance and it leaves a bitter and long memory. This time we follow my uncle’s lead.
I truly don’t mind supporting American jobs.
But I refuse to give one more penny (outside of the money I have to by way of extortion with menaces via the IRS) for one more trouble prone, poorly engineered piece of absolute drek from General Messup, Dorf or Crapsler.
With AMC gone (and trust me, they were no better), that leaves me with several other choices, luckily.
But I can tell you that after giving up on Detroit Inc, I have leased a new car manufactured in the United States. Or rather, my wife and I did. A nice (and I mean very nice), reliable, quiet, economical, smooth, roomy, well constructed 2007 Hyundai Sonata.
On our shopping list for next May, when the lease runs out?
A 2009 Hyundai Sonata (manufactured in Montgomery, Alabama), and on the secondary list, certainly a Mazda 6 (manufactured in Flat Rock, Michigan – thanks to the TTAC comparo) and Kia Optima (soon to be manufactured in West Point, Mississippi). We may also consider a Kia Rondo (manufactured in South Korea) since I’m not adverse to cars built in friendly trade nations.
Like Canada (where many Detroit Inc cars come from) or South Korea (where some Detroit Inc cars come from) or even Mexico (where many Detroit Inc cars come from).
As far as replacing my 2008 Toyota Prius (manufactured in Japan – see above), on my potential short list (for several years down the line) are a Hyundai Sonata Hybrid (larger/smoother than Prius, should be less expensive, same MPG as current Prius) which is apparently scheduled to be manufactured in Montgomery; a new Prius (scheduled to be manufactured in the USA); and “well see what happens in the market over the next 3-4 years” being the 3rd “choice”.
Phil,
Even if you start sewing the American Flag into every D3 vehicle, they will not sell.I agree, it`s a shame to see what is(has been)going on in Detroit.That did not start yesterday.The inevitable is near as the final payday is around the corner.
So many other no-good car manufactures went down the drain and were replaced with other (better) companies.Don`worry there will be enough US based vehicle manufactures left respectively new ones will arise, just not from GM, Chrysler.
And Detroit? Well, it probably will end up as a huge industrial ruin, where once a year the people will gather on Woodward to show of their old iron and reminisce about the days long gone.
This valiant effort to tame the snakes could really have used some classic RF editing touch. It’s long and unfocused on the core issues. For someone who presumably believes strongly in capitalism and distains any type social or communal ownership of resources, its surprising your support of the destruction of a free market by waiving the “buy American” flag.
And what exactly does the “coasts\'” desire to save GM mean for GM’s market share? GM can’t make cars people want at a price that makes them a profit. The “coasts” having nothing to do with that. Pumping money into GM will not fix that. Cutting brand a dealers by 60% will give GM a *chance* at survival.
Phil,
too many bad assumptions (change of management, accountability, etc.) to be credible.
Tex
Absolutely the best piece of writing I have seen on this subject. And I’m just gonna say it: I am sick to death of fair-weather libertarians jumping on the backwagon as concerns Detroit and hyperventilating over “tax-payers” coming to the rescue of an industry that “deserves” to die–many of whom, BTW, hang around in these parts. Thank you, Mr. Ressler, for a balanced reminder of the true nature of our economic system.
there is still a significant problem with all US cars, good and bad. Personally, I would buy a Chevy Malibu over a Toyota Camry, because it drives better, looks better, is more American, etc. The majority of my peers do not share this view. They care about making the “smart” financial choice…meaning buying the car that will last the longest and have the best resale value. I cannot argue with them, the Camry wins on both of those fronts.
My friend is on his 2nd Maxima, both have gone over 225k miles and he never has had problems with either one of them. My Blazer, with 140k miles on it, has multiple warning lights on the dashboard lit up and I will be changing the thermostat this weekend. A good example of how & why the inferiority of US products is ingrained in our minds.
Gosh. I support the principals expounded by Mr. Ressler. This is rather eloquent. And I like the idea of more competition, not less. But I see GM as a sclerotic company which is unlikely ever to get its act together beyond the Corvette. I’ll believe the Volt when I see it. And my American made Accord is a great car.
@Menno given what I’ve heard and read about Prius reliability, I don’t understand why you are planning on replacing yours several years from now. It should be going strong ten years from now.
1,684 words? These are crazy times, indeed.
The “self interest” argument is false and it increasingly rings hollow for the average consumer.
It is not in the self-interest of average people to buy products that (a) they dislike, (b) are poorly serviced, (c) depreciate like rocks and (d) have sub-optimal durability and reliability. If anything, the consumer’s self-interest calls for the exact opposite behavior. That’s particularly true when you compare the average price of a car with the average income of the person buying it.
Everything on the above list burns time, money and patience, all of which can be spared simply by purchasing a different product.
I have to disagree, Phil.
Supporting domestic jobs by buying their product is of course a noble thing, but it only works if that product actually makes sense. Why do you think the Detroit 3 are in this mess right now? Because Americans were for a long time buying their cars, no matter how crappy they were, so the bean-counters thought they could make them cheaper and cheaper and nothing would happen. The Detroit boys felt too secure and wasted the heaps of money they made instead of developing better cars.
Those people have to take responsibility, or it’s going to be an endless downward spiral. You say that the economy is stronger when those big companies are saved…is it really? I mean they’re losing billions of Dollars every year. How is that helping anyone? Bailing them out means that a lot of money, that could have been useful to the economy will be used to prolong the suffering of those automakers instead in the hopeless effort to stuff a groundless pit.
Also, trying to link a demise of the economy to the fact that America imports lots of goods is just wrong. The current crisis has one main reason:American consumers have been spending more money than they could afford for years, if not decades. Of course the Banks are at fault as well for letting it happen and trying to cash in on it, knowing fully well that this was not sustainable. But all of that has hardly anything to do with imports.
As a matter of fact, if others can produce TVs, computers or cars cheaper, then it makes sense to let them produce that stuff. Think about it: Let’s say you want to build a house. You can either try to do it yourself, or you can hire someone else. In most cases, hiring someone else will cost you less, because you’d lose more money by not doing your regular job while trying to build a house than it costs to simply pay someone else to do it…in a similar fashion, America actually profits from cheap Chinese imports as people have more money left to buy other stuff while at the same time most jobs are better paid than producing plastic toys or something like that.
If we should feed Detroit to the wolves, then let’s have a little ideolgical purity, shall we? One case in point: the airline industry. Space constraints forbid an exhaustive listing of Gov’t privelege these guys enjoy, so I’ll provide only one example:
“Airlines based in the USA are protected by Federal law from all foreign competition: No airline based anywhere else in the world is allowed to carry passengers between points in the USA, and no foreign entity is allowed to own more than 25% of the voting stock in any airline based in the USA.”
http://www.hasbrouck.org/blog/archives/001001.html
Phil Ressler chanted the mantra of the Detroit Faithful when he wrote, “In the past 25 years, I have been continuously able to buy and drive engaging, entertaining, reliable, affordable American cars made by the D3. I avoided plenty that could not have performed.”
I hear that a lot. I had a strong domestic bias for a long time. Nobody went to Toyota because they hate America or had some sort of Japanese bias; everybody went to Toyota (or Honda or whatever) because they were fed up with Detroit. Many people cycled through several Detroit manufacturers before giving up.
Ressler, you have been here before, encouraging us to forget past unpleasant experience, trust Detroit, trust your experience… whatever… I don’t care if you double up the ante, again, to 3200 words next time: that dog won’t hunt.
As for the idea of a bailout, I like collective action. But this is the wrong way to go about improving the health of the country. Detroit follows the money… if I buy a car for some other reason than “lasting value,” Detroit will build cars optimized for something other than “lasting value.”
If you want to improve the health of the economy, there are better ways to do that. Build up the infrastructure (take action to decrease our balance of trade deficit and other fundamental improvements) and the successful startups of tomorrow will benefit and they will make exportable products.
The vocal coastal intelligentsia isn’t sympathetic and Michigan, being in flyover country, gets little love.
I’m tired of this argument cropping up (Sweet Pete D is fond of it too). Time to stop this bulls**t and move on. I was born and raised on the coast in the great state of Rhode Island (same place our fearless leader now resides) and have a college education — Ivy League even. So I guess this whole US domestic auto industry collapse is my fault. I’m as coastal (though I’m in the West not) intelligentsia as they come. Liberal, too.
The only way that educated Americans can be blamed for this is that they realized early on that the US makers were producing crap and bought something else.
I’ll also add that my family all happily drive Fords (first Escorts, then Focuses, for the last 25 years) and love them. If they still sold the hatch version of the Focus here, I might as well. I want the US auto makers to pull their heads out and succeed, but I won’t buy products I don’t want, or that don’t fit my need.
…the Feds should wise up…
We need the Feds to be thinking bigger.
Sorry, Phil, but with statements like that me thinks your verging into dreamland.
Bottom line, I think the biggest problem is that as a whole Americans do not and will not look beyond their next paycheck. That’s what makes us great, and that’s what makes us fall. We invent great and innovative products, but due to shortsightedness fail to bring them to full fruition or fail to move on to the next great thing because we’re too busy cashing in on the current big thing before it plays out.
In the meantime someone else takes our ball, runs with it, embraces and extended it, and pushes us out of the market. The corporations are forced to focus on how they can improve the bottom line right now because their shareholders want to get paid right now, and heaven forbid if you do anything that threatens the current cash cow regardless of how much you stand to gain down the road.
Building in quality is seen as counterproductive because the consumer might decide to hang on to old and busted instead of buying the new hotness. Nevermind that the lack of quality results in increased warranty costs and pissed off consumers. Big box stores take business away from local shops because the customer is mainly concerned about price and much less about establishing a relationship with a local shop.
Consequently, the local shops often never bothered trying to foster good relationships with their customers because they were too interested in taking in as much money as they possibly could and giving back as little as possible in return. Usually just enough to keep the customer from heading off to the next town, with the level of abuse often being directly proportional to the distance between towns.
A democratic government is often little more than a reflection of the people it governs. Expecting said government to look beyond the here and now when its constituents won’t is a pipe dream.
The “call to communitarian action” as a solution to the D3’s woes actually strikes me as less effective than a bailout. I’m wondering where Phil sees this kind of “enlightened self-interest” in any other consumer choice. Let’s face it, if your solution assumes that consumers will make a significant purchase ($10k+) based on anything other than self-interest, it’s pretty much doomed to fail.
Also, let’s consider the historical trajectory of our auto industry before we go spending tons of money on “reviving” it. ICars and the car industry developed rapidly for the last century, and though they are still improving, the product is basically mature at this point. Just as consumer PCs are not seeing the regular breakthroughs of a few years ago. Also, the environmental arguments against cars are gaining strength, using a very similar line of argumentation to Phil’s (enlightened self-interest). If the government is going to spend money stimulating the economy (a concept I am not wholly against) shouldn’t it be doing so in the sectors that we can expect strong, sustainable growth from in the years to come?
Nothing greases free enterprise’s wheels better than other people’s money.
Long with some thoughtful points.
However IMO the money being bandied about in the current GM-Cerberus-GMAC proposal will not “save” Detroit. It may save privately held Cerberus and some of their Hedge fund investors. After the first round of cash is gone GM-Chrysler will still be where it is today. Sclerotic management and non-competitive products. GMAC will be privately held and positioned to receive banking bailout money.
Also your allusion to the TV industry is something I lived through. I don’t agree with your analysis.
You said
RCA for one was making domestic production TVs with tubes that were a product of US R&D, that had superior visual fidelity to Sony’s. But alas, it became uncool to buy domestic and no amount of product improvement could save them.
I don’t know about the “tubes” but every other aspect of domestic TV’s at the time were right out of the 1950s. There was absolutely no comparison between Sony products and US ones. The Japanese TVs were smaller (for same size viewing area), less expensive, more stable and utterly reliable. There takeover of the market was rapid and complete in a very short period on time. There was good reason for that.
Previously I have been aligned with the “uninformed” who do not appreciate the real quality of the D 2.3 products and foolishly followed the crowd purchasing and keeping non domestics for long periods of time.
Now, I guess I am the “crank in the neighborhood.”
Phil Ressler: If you worked on the Malibu, how could you not feel like your fellow Americans aren’t with you when Camry’s still far outsell it. The Camry is a mashed potato of a car, devoid of differentiating appeal and by standards of touch, driveability, handling, appearance, space utilization, general quality of execution is inferior to the current Malibu.
Well, my mother-in-law’s 1999 Malibu was basically shot at 98,000 miles because of the chronic intake manifold gasket failure that plagued virtually all of GM’s V-6 engines for several years. The heater-air conditioner fan didn’t work at the first setting, another common GM problem.
Her 2005 Malibu with about 40,000 miles is already clunking and groaning when the steering wheel is turned, because of the faulty intermediate shafts that GM has been installing on vehicles since the late 1990s. It also rattles more than my 2003 Accord with 103,000 miles on the odometer, or my wife’s 2005 Focus with 75,000 miles on the odometer.
I’m sorry, but these experiences do not encourage me to risk my hard-earned money on a brand-new Malibu, even though I agree that it is much more handsome than either the Camry or Accord. The sloppy workmanship I’ve seen on Malibus at the auto show and on dealer lots isn’t too encouraing, either.
Phil Ressler: The Accord has gotten fat and soft.
Fat? Yes. Soft? Not so sure about that one. And Honda has still done a better job of crossing the “i” and dotting the “t” than GM has done.
Phil Ressler: People scream for reliability and yet VW still sells Passats and Audis.
VWs and Audis sell in very limited numbers to people who are willing to put up with the problems and lousy dealer service, and please note that VW still loses money in the U.S.
Phil Ressler: We all banter here about the anecdotal reasons to hold a grudge against any or all of the D3. But that is just an excuse.
Given my experiences with the previous two generations of the Malibu, I don’t consider my refusal to seriously consider buying one to be the result of an irrational grudge.
Phil Ressler: All they have to do is to buy Detroit’s good, reject the bad, and let the government fund the “bridge loan” to restored confidence.
The amounts disbursed so far are barely enough to keep GM running. They will not restore confidence, and they certainly aren’t enough to fund the new vehicle programs that GM needs, or pay for the elimination of dealers and divisions, to allow it to better focus.
Phil Ressler: Meanwhile, the Feds should wise up and link governance and management changes to availability of aid. Ford is a public company that must be untied from Ford family defacto control.
I’m going to be the contrarian here and say that, at this juncture, the Ford family’s control of Ford has been a good thing. William Clay Ford, Jr., brought in desperately needed new blood, and the family’s backing will give Mullaly the time and support he needs to turn the ship away from the iceberg.
Right now, Ford needs the steadying influence of the Ford family.
Phil Ressler: GM’s executive team had their chance. They came into the millenium with a fat pile of cash and a plurality of the domestic market’s customers. As finance professionals often do when miscast as CEOs, they managed to the stock price until the price of the stock completely slipped from their grasp.
I see no evidence that any government aid package comes with those conditions. At this point, if the government really wants to save GM and make it viable, it would take over the company, fire present leadership, give it to Toyota to run, and maybe give Toyota some money to get tide it over until GM gets back on its feet.
Well done.
Detroit is worth saving, but I agree, there must be drastic leadership changes.
Also, one shouldn’t be worried about the negative anecdotes about a troublesome Malibu. For every one negative anecdote there are 100 positive.
http://www.autoextremist.com/current/
Gotta love Pete DeLorenzo…
What prevents people from separating a self-interest argument from draping the flag over a buying decision? I am a free marketer but reality tempers a purist’s view. I plainly state that I reject patriotic appeals for buying American. And yet the patriotic charge is cited as rebuttal. THERE IS NO patriotic appeal in my case here, so that’s the last I have to say about that.
I was surprised to see this posted as an editorial this morning. I wrote this in one pass as a comment in the Bailout 132 thread at 2am, where there are no restrictions to length. Robert apparently chose to elevate my text to an editorial overnight and I thank him for doing so. However, reading it again this morning, I would not choose to delete anything. Put another way, the same case cannot be fleshed out in the same scope in 800 words, though if I had started out to write an editorial I might have written somewhat differently.
Fingerpointing back to Detroit’s automakers is an irrelevant rejoinder. I’ve already accepted their culpability. We all are aware of the sins of the D3 going back arguably to 1950. Your rusted land barge story, blown motor, grenaded transmission, etc. are not persuasive to me, because I accept some of you have experienced such failures. The management missteps, product quality problems, design boners and financial grabs are all “priced” into the argument. It’s all water under the bridge. We have bigger worries now.
Nothing about a communitarian outlook to your economic leverage precludes buying for quality. If the D3 made *nothing* competitive I’d be as prepared as anyone to let them wither after all these decades of dissipation. But absence of competitive product isn’t a fact. Most people have completely viable alternatives among Detroit’s catalog. The relevant point is that American consumers can reflate the D3 without Federal intervention through the collective impact of their own buying power, even in a downturn.
I reject the narrow view that individual self-interest is defined only by the product merits driviing a buying decision. There is more to buyng a car than buying the car, if you see the social and economic leverage of your purchase. What you do with your money has as much and sometimes more consequence to the nature of the country you live in than voting, though the infuence is on a different plane.
All said and done, American consumers will decide whether we must weather an industrial socio-economic calamity concentrated in the mid-west but bleaching the general economy, or not. Bailouts, changes of management, new products and any other changes will not matter if people refuse to reconsider the past and buy. I’ll say it another way: Detroit’s existential threat is the ossified perceptions of consumers just as much as it is the ossified methods and practices Detroit’s management are accused of. If you’re buying an automobile this year or within the next few years, like if or not you are, like swing voters in a handful of states, shaping the nature of the country for the rest of us. Your concerns may not be national, but your consequences inevitably are.
Phil
Your Camry/Malibu analogy is interesting. GM benefited from prior sales of its vehicles the same way Toyota and Honda do today. At some point, though, the frustration of mechanical, structural and electrical problems drove away those ‘inherited’ customers to foreign brands who delivered on the promise of reliability.
If D3 were indeed serious about earning business back, they’d do what Hyundai has done successfully: warrant their product for a period of time to make the customer feel protected should something go wrong, and don’t let the dealer screw it up. But then, this would require building a MUCH better product across the board than what is built today.
The only way that will happen is if the culture of mediocrity (or worse) is changed at D3. This is a problem money can’t solve. Like bringing a baseball bat to a football game. Tough decisions about staff and a focus on engineering and build excellence could turn this around. Bad dealers need to be shuttered due to the damage it causes to the brand, and customer service needs to be the corporate mantra.
Do you honestly believe this is possible with D3? Ford maybe, but the others? Nyet.
Phil Ressler’s vision of the ideal government intervention (can the management, renegotiate the labor contracts) is much better than any of the actual plans that have been floated.
But that is the problem. If the government gets involved then every politician and special interest is going to want to have a say in what the best way to bailout Detroit is.
In any realistic scenario those with the most political clout, the venture capitalists and executives, will get bailed out, while in the long term the auto industry falls apart.
Yes it is true that America has had very open markets, while the many foreign countries, especially in Asia, do not, but the kind of crap that will be produced by American automakers propped up by government intervention will not have appeal in any markets, open or closed.
The term American Leyland is so popular because “Those Who Ignore History are Destined to Repeat It.”
Despite our open markets how successful were British Leyland products in America?
If the history of the British Auto industry is any guide, under a government bailout, most of the GM, Ford, and Chrysler brands will fail, Buick will be sold to the Chinese, and Tata will pick up Lincoln and Cadillac. Chapter 11 might be creative destruction, but a bailout is simply slow destruction.
And I am not a libertarian or the kind of ultra-capitalist that would label Adam Smith a socialist, I tend to think that libertarians are best described as “intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school.” http://www.slate.com/id/2202489/
I am quick to point out that the best cars in the world are produced by the nationalist, and much more socialist than the US, countries of Germany and Japan. But while those countries do a lot to help automakers, and other companies, succeed (like funding education, R&D and taking on legacy cost burdens), they do not stand in the way of them failing (see Renault’s bargain basement takeover of Nissan).
The way for the US to have a strong economic future is to fund education (with preferential treatment given to natural science and engineering), basic research and development, and finally take care of basic national healthcare (the communist thing that Teddy Roosevelt supported and everyone over 65 in this country receives). Swiss/Israeli style universal conscription might not hurt either.
The way for the US to not have a strong economic future is to selectively save the ass of failed companies in politically sensitive industries.
And stop with this flyover hype, neither presidential candidate comes from a state on either coast, and no presidents have since Regan. Honestly as a swing state Michigan gets way more attention from politicians than it should.
I generally don’t believe in Chapter 11 re-organization, it’s usually an excuse for bad managers to continue their bad management. If a company fails it should be liquidated under Chapter 7 and its creditors paid off.
However, for the big three, Chapter 11 is an amazing opportunity to free themselves of bad management, labor contracts and dealers. They should be thankful for that opportunity and take advantage of it before it is too late.
It is welfare!
I’m afraid I find no compelling argument whatsoever in your article for sinking our tax dollars into the Big Three.
1) “buying American”: this amounts to voluntarily donating money to incapable economic players. The Red Cross will be a lot better destination for your money, as that would allow economic efficiency to prevail.
2) “Self interest”/ “communitarian” arguments: Michiganders will not be helped at all by sinking a billions of government money in an inefficient industry, and massive subsidies will get the state into a worse mess by not allowing it the Pittsburgh style renaissance that you mention. Please, let’s not turn Michigan into a state of useless socialist labor.
3) “you will pay anyway”: since bankruptcy is inevitable, sinking a billions into the Big Three will only postpone, and not avoid the need for social cost. The trillion in taxpayer money would be completely lost and destroyed, not used for a good purpose.
Hmmm…fat Accord? I think in most tests it has been lighter than the ‘Bu.
It just has more interior room.
Wonder why we keep buying…
Bunter
Phil,
“Buying American” is not a right, it’s a privilege earned by excellent companies who care for their customers. This, regrettably, does not apply to Detroit, says this ex-GM customer.
Fingerpointing back to Detroit’s automakers is an irrelevant rejoinder.
Of course it matters. Their track records provide an indication of their likelihood of future success.
I’m going back to my suggestion elsewhere: the feds should broker a sale of the company to others who know how to run an automotive manufacturing business. That means that someone outside of the US would most likely become the proud owners of GM and Chrysler. It would absolutely mean that the existing shareholders get wiped out.
The US government can handle the banking system with reasonable aplomb, but they know nothing about making cars and shouldn’t get into bed with people who have already proven that they don’t know, either, even though they are supposed to.
The qualified people will already be in the industry, which means that it is likely an existing auto or parts maker who would make for the suitable new operator. They’ll have funny accents and foreign addresses, but that’s just how it goes.
David wrote “@Menno given what I’ve heard and read about Prius reliability, I don’t understand why you are planning on replacing yours several years from now. It should be going strong ten years from now.”
Well, I hit the reset button and replaced my 2005 Prius with a 2008 and gained a few items, including an odometer which read 5 miles instead of 48,000 (over a bit over 2 1/2 years). Yeah, I do drive 18,000 miles a year…. hence my need for a Prius!
I do believe the Prius will last trouble-free for 250,000 to 300,000 miles, in fact. I hit the reset button out of concerns that IF I chose to run a Prius until my scheduled retirement date, the 2005 would have had 324,000 miles on it.
The other factor is that the Prius is phenomenal (and just how phenomenal it was became very clear to all of my detractors about 6 months ago), it does not have one thing that I desire as I get “unyounger” every day.
My wife’s Sonata has all independent suspension and just simply has equal handling prowess, but the benefit of a nicer ride.
Unless you are on the upper side of 40 (I’m 51) and perhaps live in a state with 3rd world roads (I live in Michigan and we all know with the financial crisis, the road’s ain’t gonna be getting any better…) you won’t “get it”.
But the reports are that the upcoming 2011 Sonata hybrid will have a 6 speed automatic (therefore will not be a Honda or a Toyota hybrid system clone), LiIon batteries, will be able to run for short distances on electric only and will obtain about 70% better MPG than a conventional Sonata. On winter fuel (less energy) I just filled my wife’s Sonata this morning and it obtained 23.5 mpg (+70% would be 41.65 mpg). During the summer, the expectations would be 44 mpg. So within about 2.5 mpg of my current Prius.
For 2.5 mpg, I’d be very tempted to take the extra room, the extra zoom and the extra comfort. And Hyundai reliability is getting close to Honda/Toyota territory, with Kia coming up fast, too (about 5 years behind Hyundai).
Phil, it may help to take a marketing class or two. Customers rarely do what you think they “should” do nor do they respond well to unfocused attempts to get them to ignore reality.
Here’s the thing: GM makes a lot of bad cars. Today. Right now. If I buy one of these cars then I take the full brunt of the risk that I will have it break down on me. This puts me, my family, and my job at risk. In an economic downturn this level of risk is not acceptable because our exposure to crime and job loss is real.
There’s a reason they keep losing market share and you said it best: look at the Malibu. One vehicle out of 80 that they sell. With all the hype, push, and effort by GM it still isn’t leading the charge towards reliability, value retention, and quality in it’s own sales group. If it really was that great, wouldn’t it be better than average?
And +1 to PCH101’s comments. Spot on.
I buy American made products whenever possible. I buy from companies with a track record of building a quality car I can run for at least ten years without being eaten alive by repair costs in years 5-10. I buy from companies which more often than not treat their customers with appreciation and respect instead of disdain. I buy from companies which have shown a commitment to investing in America and treating their employees well. I buy from companies which pay their management well, but don’t pay them like rock stars. I buy from companies which treat their suppliers as strategic partners instead of as boy toys. I bought a Honda Accord built in Ohio with higher domestic content than many “American” cars.
“We gave up consumer electronics, including the valuable TV industry.” Thank the MBAs for that one. American electronic companies consigned consumer electronics to the “mature industry” category which conventional Business School thinking says should be consigned to the Cash Cow category, which category is explicitly to be milked until time comes for the slaughter. US companies with their “hurdle rates”, “ROI improvement programs” and endless other buzz phrases intentionally killed off the US based consumer electronics business. Japan, on the other hand, played for the long term and became the innovation driver in consumer electronics. US government funded efforts to get in on the HDTV and flat panel booms were milked by companies taking government contracts, spending the money, then shutting it down.
In automobiles the “Partnership for Next Generation Automobiles” was another taxpayer funded money grab by the US based auto industry which resulted in exactly ZERO production products. Government may be part of the problem, but wrong headed management ideas and ideals are much closer to the root cause than many people will admit.
Uncle Sam should get rid of the stupid CAFE. This is hurting Detroit and those of us who like gas guzzlers. As Americans it is our right to use gas guzzlers if we want and for Detroit to make what the people want.
that was way more than 800 words
Mr Ressler
Excellent article and I agree with most of your arguements.
However, I still don’t see how buying a D3 vehicle differs any from buying a vehicle made in America (or Canada) by a foreign company. In both cases you are supporting domestic workers and their communities and in some cases these vehicles are built using more domestic parts than the D3’s.
Is someone who buys an Ohio Honda fulling their social contract any less than a Mexican Fusion?
In the old expression, “The exception that proves the rule,” the word “proves” means tests.
More pragmatically, in the interests of speed, I chose to lift Mr. Ressler’s work from his comment and post it as an editorial. If he wishes further editing, he is, of course, invited to provide. If you wish it, uh, well…
Why should the coastal elites (and the masses who follow their lead) care about the domestic auto manufacturing industry? They didn’t care when large fractions, 20%, 30% of the American machine tool industry evaporated every year. The decline of the machine tool industry, the folks who make milling machines and lathes and CNC machining centers, accelerated when Chinese vendors started not charging for molds. Until then, while the parts were molded in China, the high value molds were machined in the US. To get more business, Chinese vendors offered to make the molds for free.
Some industries are strategically important. We need a domestic shoe industry because we can’t strategically afford to import army boots. We need a domestic machine tool industry because some day we may not have access to the German companies who machine the main gun on the M1A1 tank.
I see the abandonment of manufacturing to be of a piece with the general class bias of our elites. Look at how the MSM has treated Sarah Palin. They look down on people who work with their hands for a living. They’d rather make money on investments than making money the old fashioned way, by producing goods and services. They think that a Harvard law school graduate must have better problem solving skills than a car mechanic.
Also, it’s not just the domestic car companies that the elites despise. Their homes are filled with the latest European appliances and they’d much rather wear Italian clothes than something out of NY’s garment district. They look to Europe for political models. Michigan was the canary in the coal mine. The elites didn’t care about the decline in US manufacturing because it was happening to people in flyover country, but as soon as their own ox was gored and the financial/investment industry turned shaky along with their own investments, and suddenly it’s a crisis that needs intervention from Washington.
@Bozoer Rebbe:
If you believe what Sarah Palin says, she doesn’t care about the auto industry closing up shop and going overseas either. She claims to be very free trade.
We won’t know if that’s true until she assumes the presidency in 2012, because governors are not involved in trade. But it stands to reason that when she says “bailouts make me ill” that she’s not interested in defending the American auto worker.
I don’t like Detroit’s cars and the resale sucks. It’s as simple as that. To top it off the dealers are a bunch of a-holes not worthy of my time. And then they take the profits and invest in everything but building cars in America.
If they moved production to foreign soil and sold well over there (like the transplants have done here) maybe it would be a different situation. But except for a few standouts like Buick in China for the most part they are not doing any better over there.
BTW we already subsidize them with tax dollars by buying fleet cars for government agencies. Instead of buying better foreign brands that last longer we fit out police and other TLA’s with domestic cars. Patriotic maybe but not economically sound/
However, I still don’t see how buying a D3 vehicle differs any from buying a vehicle made in America (or Canada) by a foreign company.
The difference is that when GM is profitable, those profits stay here. When you buy a Toyota, while some of those dollars stay here to pay workers at TMNA plants and Toyota dealers, the profits flow back to Japan.
If Toyota Motors of North America has ever turned a paper profit I’d be shocked. Most of the captive subsidiaries are set up to break even so that profits are shifted back to the home countries. Of course the fact that business taxes in the US are higher than in most other developed countries encourages this action, but I suspect that Japanese cultural values would have Toyota move profits to Japan even if they were taxed higher because the “communitarian” impulse is much reinforced in Japanese culture. Group loyalty is important in Japan and the ultimate group is Japan.
Right now, the US has a huge labor force that could be ready to build competitive products with very little training. And a large part of them are involved in building cars whose economic value to the US is diminished every time taxpayer funds are directed to their employers.
Cars themselves are no longer a pioneering feat of engineering. As soon as China touches something, it’s well on its way to commoditization.
The choice is simple: continue to paralyze the labor base or free them up to be used to create new, dynamic products that make the US a manufacturing leader again. It’s that simple. One of them hurts more in the short-run though, as people don’t want to move, or take pay cuts, or learn the nuances of welding a different product… but in the end, it is better for America to get competitive production out of its labor force than to tie them up in non-profitable enterprise.
So what’s more patriotic? The case of Detroit, right now, is where the needs of the few are made by politicians to outweigh the needs of the many (the rest of the country).
“The difference is that when GM is profitable, those profits stay here. When you buy a Toyota, while some of those dollars stay here to pay workers at TMNA plants and Toyota dealers, the profits flow back to Japan.”
Don’t you mean the profits flow back to the owners? GM stock can be owned by anyone, aren’t Toyota and Honda et al also traded publicly?
Justin,
Bailouts make me ill too. Sometimes the right thing to do is painful. Bulimia is an illness, but doctors still sometimes have to use emetics and force vomiting to save the patient.
As for governors not being involved in trade, Michigan’s own Gov. Granholm (like Palin a former beauty pageant contestant, btw) was just in Japan on a trade mission. Governors routinely go on trade missions and facilitate foreign investment in their states.
If Granholm was eligible and running for VP (her Canadian birth disqualifies her from being CIC), Democrats and the mainstream media (but I repeat myself) would be trumpeting deals negotiated with Ontario as proof of her foreign policy experience.
The difference is that when GM is profitable, those profits stay here. When you buy a Toyota, while some of those dollars stay here to pay workers at TMNA plants and Toyota dealers, the profits flow back to Japan.
Do they? Really? When GM bought Saab where did that money go? When Ford bought the PAG where did that money go? When you buy a D3 vehicle how much of that money goes to pay foreign suppliers as well as Mexican and Canadian employees?
Yes, when you buy a transplant car built in the US the profits go out of the country. However, I suspect that if you really break it all down I doubt you will see much difference between the transplants and the D3 with regard to how much money stays in the US.
The difference is that when GM is profitable, those profits stay here. When you buy a Toyota, while some of those dollars stay here to pay workers at TMNA plants and Toyota dealers, the profits flow back to Japan.
No.
No, no, no.
Most of the dollars in a vehicle’s sticker pay workers and dealers. Profit is a razor-thin slice of MSRP. And make no bones about it, you never see the profit: only executives and, more often than not at domestic companies, loan-holders. What you see, as a normal citizen, are the costs involved in the vehicle’s production and distribution, costs like workers’ wages, local taxes, utility usage, parts made at local suppliers, logistics firms and so forth. And then there’s where all those people spend their money, and so forth.
What you want is a car with maximum local content, regardless of the head office’s location. The more dollars that stay in your community, the better for you.
The “Profits go to Japan” has been one of the most successful hoodwinkings ever pulled on the North American public by the automakers’ marketing departments and the UAW.
Don’t you mean the profits flow back to the owners? GM stock can be owned by anyone, aren’t Toyota and Honda et al also traded publicly?
Corporate profits are taxed before distributing any dividends or other profits to the shareholders.
That’s one reason why it’s not fair to tax stock dividends. Those profits have already been taxed at least once. Under Obama’s plans, money will be taxed at least three times: when corporate profits are taxed, when dividends are taxed, and when those assets are passed on to heirs.
Add the fact that under Obama’s plans a majority of Americans will pay no income tax and we have a recipe for social disaster. When the majority can tax the minority without having to pay taxes themselves, it will start a death spiral with higher income earners taxes going up and up and benefits to those not paying a cent will go up accordingly.
I wonder if Obama ever read the story about killing the goose that laid golden eggs.
No.
No, no, no.
Most of those dollars pay workers and dealers.
Nothing in your response denies that profits flow back to the home country. The “razor thin” profits of Toyota represent billions of dollars.
There are those who argue that we don’t have a trade deficit because profits for, let’s say, Coca Cola, and other US based international companies flow back to the United States and more than offset what we spend on imports.
Wow, what a good thorough pot-stirring this article is!
Robert, thank you for elevating it to an article. This knock-down/drag-out is the most fun I’ve had all day!
Phil, I take your points.
However, as I was reading your initial post, it very quickly occurred to me that I simply don’t care. Decades of the D3 have brought me to a point where I am beyond caring. And it appears that many others here also seem to be beyond caring (about the “case for” arguments).
I have been burned by shoddy design and incomplete/faulty manufacturing, and worst of all, by shoddy service departments.
Even though I don’t care, I most certainly do care. I love my country, and I love cars!
But a bailout/giveaway? That’s how I see it; corporate welfare. There are other, more worthwile things where our money could go and ACTUALLY make a difference. Give-aways grate like fingernails on a chalkboard to THIS red-blooded American.
If the government is involved, that’s exactly what they will be; giveaways with little or no oversight or reimbursement. This is the way of government.
I’ve already been through the “it’s working as designed” arguments. I’ve already been through the “there are extra parts still on the floor in my car” phase. I decided to divorce my car manufacturer. I’ve been happy, yet…. here it comes again, this time asking for money with no car in exchange!
I just can’t take it anymore, and I really don’t care. Even though I care. Yeah, confusing…I know.
In addition, many of the Japanese transplants will only buy from kereitsu members or other Japanese suppliers. To sell paint to Japanese operated assembly plants in the US, DuPont had to set up a joint venture with Kansai paint. DuPont had the technology, but without a Japanese face working with them, they’d never get a foot in the door.
Japan is arguably the most racist country on the planet.
Well, it seems clear that the Debt 3 are good at destroying American dollars and are going to get more to burn.
I doubt this is a plus for our economy.
Bunter
Bozoer Rebbe: “Look at how the MSM has treated Sarah Palin. They look down on people who work with their hands for a living.”
You can not extrapolate from: “The MSM discovered that Sarah Palin would like to run the country but doesn’t know much about it.”
To: “They look down on people who work with their hands for a living.”
And, they’ve certainly not delved too far into the First Dude’s Separatist Ambitions. If the First Dude can be said to have any ambitions at all.
“It is not in the self-interest of average people to buy products that (a) they dislike, (b) are poorly serviced, (c) depreciate like rocks and (d) have sub-optimal durability and reliability.”
That perfectly describes my Honda Odyssey. I have it serviced more often than severe service. Still, transmission failure, evap failure, doors stick, road noise. Dealer too busy admiring their profits to properly change oil, rotate tires, wash a car, align wheels. Yes, all these service items were done wrong. And that is only what I know about. Resale lowered much from high gas costs.
My old Detroit 3 cars did much better. My Honda Odyssey = waste of time and money.
Bozoer Rebbe :
Lets never forget that the Big2.8 used to have manufacturing plants in upstate NY and Pen IIRC as well as many other places along the coasts of the USA.
What you are negeleting to deal with is that GM, Ford, and Chysler said F*&K you to the N.E. USA a long time ago.
Yes when those plants closed folks in those parts of the country felt some real pain, but I guess the folks in Michigan did not really take too much notice of NY and PA in the 1970s.
There is a reason why folks are NOT loyal to the Big 3 and really could careless about their fortunes today.
It is not helpful if people are still wiling to frame this arguement/ debate in terms of US v.them. THE BEST SELLING CARS IN THE USA ARE BEING BUILT RIGHT HERE AT HOME BY AMERICANS FOR AMERICANS. America still has a big auto indudtry and will continue to do so, the difference is yes the profits are not all going to the big3 anymore.
Lets be honest and admit that Americans are still buying AFFORDABLE Hondas, Toyota, and Hyundais, but they can no longer afford to buy those $50,000 Tahoes and $40,000 Explorers that GM and Ford where banking on to produce big fat profits.
Witness that it was the DOMESTICS that started pushing Americans towards more car than they needed as a fashion statement. Only a stupid company expect to continously make money selling folks that make $45,000 a year a $40,000 car.
NOW notice that Honda and Toyota keeped their core products in the “everyman” affordable $20,000 to $30,000 range.
GM, Ford, and Chysler simply SUCK at being businesses!
Defending the Big3 is defending the indefensible.
Nothing in your response denies that profits flow back to the home country. The “razor thin” profits of Toyota represent billions of dollars.
No, and I don’t intend to. My point isn’t that the profits don’t go back to Japan, it’s that we ought not to give a damn that they do.
Let’s crunch numbers: Assume a Camry costs $20,000 and that Toyota makes $2000 per vehicle (which is a high estimate, by the way). That means that Toyota sinks $18,000 in costs into every Camry. Let’s use Toyota’s figure of 80% domestic content and make another assumption, that cost per content is linear. Even if I round down, that’s $14,000 per car invested in the US, $4000 in costs to Japan and $2000 in profits, again to Japan.**
That’s not a trade deficit figure. Toyota is still spending more in the US then they take home. Now, flip that for Korean-built Chevy Aveo, or Belgian-built Astra. Now we have a trade deficit.
That’s why it doesn’t matter where profits go. The Camry’s being built here, of 80% content, are a net positive flow of cash into the American economy. If economic health is what matters to you, your selection sequence should be:
Domestic or Foreign make, Local plant, whichever employs more
Domestic make, In-country plant
Foreign make, In-country plant
Domestic make, International plant
Foreign make, International plant
** Not all the profits go to Japan. I’d bet there’s some executive compensation within the American plants and management. But again, who cares, as those profits aren’t redistributed much, anyway?
@Bozoer Rebbe : The notion that Democratic “elites” don’t care about those who work hard with their hands and that the “Conservative Republicans” have nothing but the best interest of hard working salt of the earth types is the con job of the century.
I counter all that verbage with two words: British Leyland.
Phil, it may help to take a marketing class or two. Customers rarely do what you think they “should” do nor do they respond well to unfocused attempts to get them to ignore reality.
I have a 30 year marketing career behind me, with a recurring track record of driving dramatic results through marketing alone, and often in turn-arounds. I’ve joined stalled companies where the marketing degree-holders were stymied, quadrupling revenues in private and public companies in under two years, with no expansion of distribution. I’m a demand-creating marketer. I’ve also done this in situations where products had fallen behind and I had to drive immediate growth selling what I had, while driving revamps. People don’t always do what you think they should but in every case in my career I’ve been able to catalyze changes in customer behavior, reposition understanding of competitiveness and both buy time for product correction and finance the engineering through boosted revenue. I’ve said here before that the greatest current failure in the D3 is uniformly inadequate marketing. Marketing is a lost expertise in these companies and it’s killing them faster than product problems at this point.
Here’s the thing: GM makes a lot of bad cars. Today. Right now. If I buy one of these cars then I take the full brunt of the risk that I will have it break down on me. This puts me, my family, and my job at risk. In an economic downturn this level of risk is not acceptable because our exposure to crime and job loss is real.
The proportion of bad cars in GM’s catalog is dramatically reduced, and you shouldn’t buy them. I’m living testament that you can selectively buy D3 cars, drive the hell out of them, and reap anvil reliability. But so what if you have risk to assume? The financial differential of that risk is easily consumed by other forms of payment if these companies catastropically collapse.
There’s a reason they keep losing market share and you said it best: look at the Malibu. One vehicle out of 80 that they sell. With all the hype, push, and effort by GM it still isn’t leading the charge towards reliability, value retention, and quality in it’s own sales group. If it really was that great, wouldn’t it be better than average?
Retained value is what Americans say it is. We have a choice. We can discard the brand perceptions that subtract value from a 60,000 miles used 2008 Malibu compared to a same-level Accord or Camry. I reject the idea that we can’t take responsibility for our own collective psychology. As with anyting else in a free market, we are responsible for whatever we choose to accept responsibility for. As for Malibu quality, reliability and desirability, I see no evidence that it isn’t market-leading. If I were buying in that class of vehicle, I’d want a Malibu over its competitors on the merits, even if brands were concealed.
…General issue of transplants and where the profits go….
When Toyota, for example, builds an automaking plant in the U.S., they are reinvesting profits in our domestic market, but not all of them, and it is still done to create more efficient capital extraction rom our market. Toyota still ships in high-value components for assembly. The production capacity and resulting sales here supports a thick layer of high-value headquarters jobs and it results in accumulating cash reserves at Toyota in Japan — cash reserves that Toyota alone makes decisions about how to deploy. Sure, you can buy Toyota stock and benefit from a bet that their performance drives shareholder value or not. But that’s not the same thing as building infrastructure value in our economy. Absolutely, transplants are much better than losing the auto industry domestically altogether, but their economic leverage is smaller than US headquartered companies fielding the same poduction capacity and controlling same market share. The US company, under equivalent circumstances, will drive more money and wealth into our economy. It’s not just the profits, but where the value accumulates, and who wields the cash reserves.
Phil
There is a saying that “God helps those who help themselves”. I would paraphrase this to “Government should help those who want to help themselves”. Has Detroit ever helped itself or just shown a faint ability to do so? In short no, whatever they do it’s always the exact opposite, they always screw themselves up. To give them another penny is throwing good money after bad nothing more. And it’s the money the Fed doesn’t have.
Detroit’s profits don’t go anywhere, because they don’t exist. As we all have figured out, Detroit makes no profits.
In any case, the “profits go to Japan/ The Great Satan/ the Planet of the Apes” argument is frankly offensive to anyone who understands finance.
For one, revenues are not the same thing as profit. Even successful car companies have low profits as a percentage of their revenue.
Most of what a company spends comes from revenues, which cover the expenses, not the profits, which are relatively low. Most of the money tossed by car companies into the economy are for parts and labor.
Accordingly, the auto industry provides the most benefit to the countries in which it assembles its cars and buys its parts. A Honda plant in Ohio is roughly as good for the US as is a GM plant in Lansing, and certainly much better than a Ford plant in Mexico or a GM-Daewoo plant in South Korea.
The little bit left that is considered “profit” is just a fraction of the revenue — for Detroit, that figure is currently zero, while for a company such as Toyota, that amounts to just pennies of every dollar taken in.
Those profits don’t just sit in a great big picture frame in a Tokyo office, but get reinvested elsewhere in the business. When Honda takes its profits and uses them to build a new factory in the US, as it just did, this is far better for the American worker and taxpayer than it is when GM using its profits to buy Saab and Daewoo, and to get outfoxed by Fiat.
The world would be a better place if people would stop parroting this bogus “profits” argument and actually bothered to understand what a profit is and how it plays into the scheme of things. If they did, they wouldn’t say it in the first place.
“Communitarian”… Used six times in the article. Just curious how far “Communitarian” is from “Communistian”?
“To each according to their need. From each according to their ability”??? “All for one, One for all”?
How ’bout we let these monopolistic dinasours die and eliminate all the laws that eliminated their domestic competitors. Let’s go back to a truly free enterprise system (non union, no political interference, no business taxes) and see how long it takes before good ole American ingenuity and enthusiasm rebuild a brand NEW domestic auto industry.
I’m bettin it wouldn’t take long, and it would cost a HELL of a lot less than what is going to be STOLEN from us to support these incompetent assholes.
Yes when those plants closed folks in those parts of the country felt some real pain, but I guess the folks in Michigan did not really take too much notice of NY and PA in the 1970s.
Actually, folks in Michigan are more familiar with places like Tonawanda, Wilmington, Lordstown, Fremont, and Bowling Green than folks who live in other parts of the country because of Big 3 facilities in those places. While the domestic companies have recognized local political realities and tried to avoid closing facilities in Michigan and Ohio, the fact is that plenty of Big 3 factories in Michigan have been shuttered over the past 3 decades. Say what you will about the executives at the Big 3, but you can’t say an average Detroiter or Michigander cares less about the folks working at the GM plant in Wilmington or the Ford plant in St. Louis than do folks in NYC, Washington, Boston or LA.
Nobody in Michigan was getting rich in the 1970s, a low point in auto industry history. The oil embargo of 1973, high unemployment, high inflation and high interest rates killed the Michigan economy. As I recall, folks in oil rich places like Texas, Oklahoma and Louisiana weren’t too concerned about Michigan.
The Malibu/Aura and Fusion may be decent cars but they are Detroit’s only relevant (bread and butter) entries in this segment. They’re simply lost among all the foreign choices (at least 8 of them). Same story with minivans, smaller people carriers, and compact cars/hatchbacks. With so many brands, how can Detroit have so few interesting choices?
Apart from perceived reliability or resale value, the crappy selection is what’s turning many buyers away.
There is more to buyng a car than buying the car, if you see the social and economic leverage of your purchase.
Really? When I was young my family was strictly a Ford family. I vaguely remember a couple of Mercurys, a blimpish Gran Torino, a ’68 Mustang that I wanted to “inherit” (alas, Dad totaled it) and then, finally, a ’80 Mustang that was an incredible POS.
All it took was that one Mustang to destroy any and all confidence in Ford. Dad said “Never again” and we went Japanese, specifically Mazda than later Lexus.
Dad actually went back to Ford a decade later to buy Taurus wagons for his company –and he liked the cars enough to buy one of the company cars for himself.
But Dad wouldn’t qualify as one of TTAC’s “best and brightest” for while the Taurus wagons were reliable and all that, to my sensibilities these were horrendous cars. The Vulcan V6 groaned, the fit-and-finish was lousy, the handling was sloppy. It wasn’t a quiet car. Anything and everything that can be ‘wrong’ with a car… I present to you the 1996 Taurus. (Funny, as I recall, the ’92 Taurus that it replaced was better in every way, but…)
I think more than a few other domestic loyalists would also have been turned off by just how poorly designed and assembled the last-gen Taurus was. It didn’t help anything that Ford virtually abandoned the car to pour money into the Explorer and Expedition. (At this point in time, Ford was very profitable and could have further developed the Taurus but for the executives’ ADD.)
Here in Hawaii, well before the rest of the USA followed suit, Toyota was always the best-selling brand (due to the strong Japanese demographic of the islands’ population?). Even now, despite Toyota’s increasing levels of UNreliability and chronic epic design failure, people still buy Toyotas. It’s like going with IBM, you can’t go wrong…
Phil, you really think all of these people even think about ‘communitarian’/national consequences of their purchases? No. Of course not. Like my dad, they buy what has worked for them now and in the past. They won’t buy/stop buying what has epicly failed them in the past. Pretty simple stuff. You ask far too much of ordinary citizens.
Detroit’s failure is another example of the failed US management system. Note that Bill Gates was a college dropout. Ross Perot did things his way. Therefore they were successful. The GE Jack Welch mentality infected America circa 1980, and has killed company after company. The basic premise: Engineering does not matter. The solution to all problems is to close the factories, layoff the workers and increase management bonuses. Welch also gave us six sigma, so we have green belts and black belts infesting our offices, gumming everything up with bureaucracy. What the late Ron Kohl editor of Machine Design called the Quality Mafia.
Ford has never recovered from CEO Nasser. The dumbass stated if an older employee was not a manager, it proved he was not a leader, and therefore should be let go. (Where I worked at the time circulated this quote as an example of genius). So Ford layed off all the engineers who knew how to build cars, creating quality problems which drove away loyal customers. Then Nasser went on a buying spree including junk yards while neglecting the Ford brand, and yes the Taurus rentals I had were miserable cars compared to all domestic and foreign competition.
Sounds like if I give 10 bucks to Toyota or Honda thay may take a buck (or less) out of the country.
Problem is, it looks like if I give it to G. Richard Wagner Motors they will burn 3-5 bucks and another 5-10 they have lying around.
One of the problems with the “don’t let it out of the country” argument is that it assumes that that money will continue to exist.
But wealth is continuously being created and destroyed, it is not fixed.
Gm is a wealth destruction machine (admittedly not in the class of the beloved government) and I have grave doubts that putting my money there is better for the USA than in other furrin’ hands.
Some thoughts,
Bunter
Does anyone have a link to a reliable source where I can find out the percentage of domestic parts in any given brand/model of car?
Communitarianism is a two-way street. For my money a supplier must provide a suitable, quality, reasonably risk-free product.
Decades of terrible cars and reprehensible business practices killed the Detroit-3. I will consider a domestic product only if the very considerable risk entailed is lessened with a 10-year comprehensive warranty and a weasel-proof guarantee it will be honored.
It’s called putting your money where your mouth is.
In exchange for their support of the bailout, taxpayers need some assurance that the money will be spent wisely. Otherwise, giving money to the D3 is no different than giving change to a drunk on a street corner. And with the exception of Ford, Detroit is showing no signs of sobering up.
“Communitarian”… Used six times in the article. Just curious how far “Communitarian” is from “Communistian”?
“To each according to their need. From each according to their ability”??? “All for one, One for all”?
Communitarian conduct is unrelated to communism.
From Wikipedia: “….communitarianism emphasizes the need to balance individual rights and interests with that of the community as a whole, and that autonomous selves are shaped by the culture and values of the community….”
An important aspect to note is that communitarian behavior is the individual’s choice. There is no notion of state control, nor authority to coerce behavior in favor of community interests. If you include communitarian considerations in wielding your economic power, you do it on your own initiative.
Phil
An important aspect to note is that communitarian behavior is the individual’s choice. There is no notion of state control, nor authority to coerce behavior in favor of community interests. If you include communitarian considerations in wielding your economic power, you do it on your own initiative.
sounds like this place
Phil, you really think all of these people even think about ‘communitarian’/national consequences of their purchases? No. Of course not. Like my dad, they buy what has worked for them now and in the past. They won’t buy/stop buying what has epicly failed them in the past. Pretty simple stuff. You ask far too much of ordinary citizens.
I wouldn’t have bothered writing any of this if I thought people are already including community consequences to their purchasing in their buying behavior. However as to whether I ask too much or ordinary citizens, I don’t see why. It’s not beyond the grasp of ordinary citizens in Japan, France, China and Brazil. It was once, in living memory, a more common behavior in the U.S.
Phil
Ressler: “I wouldn’t have bothered writing any of this if I thought people are already including community consequences to their purchasing in their buying behavior.”
That already exists. It was a more powerful force in the auto market in the past but Detroit failed to capitalize on it, preferring to abuse the consumer for their short-term gain.
I’m sure that if you attempted to use the “communitarian” argument in an effort to get GM to be a good neighbor and repair your vehicle that is slightly out of warranty, they would laugh behind your back and deny it to you to your face.
If you suggested to a staffer that it was patriotic to provide a bit extra to the customer on their dime, they would ignore it and not bother to help.
If you justified getting that repair on the basis of social responsibility and a balance between the individual business and its society, you would get the same rejection but with a bit more vigor.
Don’t fall for any of this stuff. If it isn’t reciprocated, it isn’t fair. And since you know that it won’t be reciprocated, you can be damn sure that it definitely will be unfair.
Kixstart-That already exists. It was a more powerful force in the auto market in the past but Detroit failed to capitalize on it, preferring to abuse the consumer for their short-term gain.
I would argue that it is a part of the reason the Debt 3 are in this mess.
Consumers failed to send a strong “we’re sick of this (insert suitable explitive)” message so Debtroit concluded that buisness as usual was fine.
That’s right Phil, you are part of the problem, not the solution. I had to stop enabling one of my sibs behavior at one point also. It hurts but it’s the right thing to do.
Just an opinion.
Take care.
Bunter
That’s right Phil, you are part of the problem, not the solution. I had to stop enabling one of my sibs behavior at one point also. It hurts but it’s the right thing to do.
The cars I didn’t buy were my message back to the D3. The cars I did buy were a different message to do X instead of Y.
The result is that I’ve not had negative experiences with the D3 — nor their dealers in three widely-separated coastal metropolitan areas — at any time in the past 25 years. But I chose carefully. Moreover, no one I know who has done business with the D3 in same time span has had any remarkable problems either. But they chose carefully too.
Phil
Bunter1: “I would argue that it [strong domestic preference] is a part of the reason the Debt 3 are in this mess.”
I agree; many buyers, through inertia, faith, brand loyalty, “communitarian” beliefs or whatever, provided the cushion Detroit needed to build crap and get away with it.
Ressler: “The result is that I’ve not had negative experiences with the D3 — nor their dealers in three widely-separated coastal metropolitan areas — at any time in the past 25 years.”
Good. Then you buy their cars. Heck, pretty soon, and for pocket change, you’ll be able to buy GM.
The cars I didn’t buy were my message back to the D3 and, as far as I can tell, it’s a message that’s still worth sending. That message is, “you didn’t make me happy with my car, so I am going elsewhere for my next car.”
Half-measures strike me as pointless. The company earns and keeps my business or it doesn’t; I’m not picking and choosing models from a lineup that includes known crap or from a dealer who’s done me wrong.
An important aspect to note is that communitarian behavior is the individual’s choice. There is no notion of state control, nor authority to coerce behavior in favor of community interests. If you include communitarian considerations in wielding your economic power, you do it on your own initiative.
Phil
Ah, Communism by free choice…
Well Phil, based on all the lengthy responses, you certainly struck a nerve. But I have to agree with the majority on this one… There’s a difference between helping and enabling. Enabling is “helping” the addict NOT change.
When Detriot decides to build quality vehicles that Americans want, GUESS WHAT!, Americans will start buying them. It’s pretty simple really. And if they’re too stupid, lazy, or incompetent to do that… then let them die.
Ah, Communism by free choice…
Emphatically, no. Nothing about communitarian conduct takes from others according to ability nor redistributes assets according to need. Nothing. It is completely unrelated.
“All for one and one for all” is not a communist idea, predating it by many centuries.
Phil
Soon you’ll get US cars like those of other government-supported makes, like the Lada, the Yugo, and the Trabant. Enjoy!
Phil, surely the name on the label says it all? Branded products should be made to a consistent standard. The customer shouldn’t need to know which are good and which are crap products of the same brand, only which he likes and which he doesn’t.
And marketing-wise, car purchases are more like marriages than sales. The customer pays a lot and lives with the product a long time and comes to depend on the product’s trustworthiness and reliability, and eventual resale value. Red-ink Rick shouldn’t go ka-ching on the cash register as soon as the vehicle leaves the factory. He needs to worry about the total ownership experience — the dealer, the workshop, the spares, the roadside support etc.
Being an accountant, he probably looked at the profit margin on spares and decided that selling a defective car was an asset. (Anyway, don’t the D3 contract out warranty claims, so they get no feedback on reliability issues?).
Phil, surely the name on the label says it all? Branded products should be made to a consistent standard. The customer shouldn’t need to know which are good and which are crap products of the same brand, only which he likes and which he doesn’t.
I can’t think of a single brand for which your claim is true. Every Honda is not equally competitive with peer models. Toyota makes its share of dogs. Mercedes have become uniformly troublesome, so perhaps that’s what you meant. Closest to your ideal might be BMW, but even they stumble on model-to-model reliability and step on their own appendage with the X6.
Certainly there are brands outside of cars that legitimately won loyalty irrespective of product. Sony got there in consumer electronics, as has Pioneer Elite in video. Apple has that kind of relationship earned largely by design rather than value. In cars, Toyota and BMW, and perhaps Honda, have such a brand relationship but it’s not warranted uniformly by their products, so buyer beware if you’re lazy about evaluation.
In any case, if you want to do your part to influence a more socially-supportive economy you’ll put this thinking aside and take on the small extra effort to discern what’s good from what’s not. The whole point of a more communitarian approach to commerce is to make conscious choices regarding the objectives you want your economic power to encourage. You’re not shaping your world proactively if you’re too lazy or disinterested to think beyond a brand, though that’s exactly the behavior that marketers strive for. Your purchases are a vote, wielded more frequently than your political balloting. The U.S. could more rapidly reshape itself and extract itself from its economic problems much more quickly than pundits warn, if we individually and collectively expand the decision context we use when we spend. It’s not just cars; it’s everything. Americans are — and long have been — squandering their power and influence by disconnecting spending from shared objectives.
Phil
@ Phil
Your purchases are a vote, wielded more frequently than your political balloting. The U.S. could more rapidly reshape itself and extract itself from its economic problems much more quickly than pundits warn, if we individually and collectively expand the decision context we use when we spend.
Point taken. You say the consumer isn’t shouting loud enough. I say the manufacturer isn’t listening hard enough.
Two sides of the same coin.
I suspect that more cars and trucks are being built inside the United States than at any time in our history. The change is “foreign” names are on about half these cars and fewer and fewer are built in the upper midwest by UAW members. Are auto workers in Kentucky, Tennessee, Alabama, Mississippi, etc. less American than auto workers in Michigan and Northern Ohio? Further, why should American citizens in the South, in the Right to Work states, have to give money to manufacturers who give money to unions that give money to candidates that want to raise our taxes?
I suspect that more cars and trucks are being built inside the United States than at any time in our history. The change is “foreign” names are on about half these cars and fewer and fewer are built in the upper midwest by UAW members. Are auto workers in Kentucky, Tennessee, Alabama, Mississippi, etc. less American than auto workers in Michigan and Northern Ohio? Further, why should American citizens in the South, in the Right to Work states, have to give money to manufacturers who give money to unions that give money to candidates that want to raise our taxes?
I’ve written previously: transplant production is much better than losing all automobile manufacturing in the US. But transplants are not a 1:1 economic replacement for domestically-owned companies. Move all domestically-owned production to transplants and the net economic footprint of same unit sales will be smaller. Transplant producers reserve highest-value roles and production for headquarters, accumulate transplant-derived currency elsewhere and still contribute to the trade deficit.
Further, without the politics of competition, foreign makers will lose some of their current incentive to invest in transplant production, particularly if / when currentcy values that underpinned a decision to product locally run against the original rationale.
As for the latter point regarding whether southern transplant autoworkers should indirectly shore up the unions and taxation-inclined candidates: There is more to politics than taxes and everyone has to make up their own mind on that too.
Point taken. You say the consumer isn’t shouting loud enough. I say the manufacturer isn’t listening hard enough.
Two sides of the same coin.
No doubt. But the threat to the D3 is now existential, and that changes the balance. Consumers can support these companies by buying their competitive products. We can apply leverage to producer listening habits through the conditions for assistance programs and then further when they are back on their feet through consumer engagement. The expenses and opportunity costs of losing these companies outright, in a rapid catastrophic collapse, are a far greater disruption than accepting it will take some more time for the D3’s remaining uncompetitive portion of catalog to whither.
Phil
About nationalizing GM-Chrysler: There is the example of British Leyland but there is also the example of the nationalization of Renault which was a success.
About opening new plants: Why would the D-3 want to open new plants? They make less cars in the US now than in the seventies.
Aren’t the Nissan, Honda and Toyota transplant factories “Domestic”? I dont hear them crying.
The D-3 have made their own beds.
In the family, there are three Acuras, all of which were made right here in the USA. Honda reliable the bunch.
I used to have a VW Hecho en Mexico.
Lotsa Beemers and M-B made here, and they (mostly) don’t suck.
This means that a lot of money is sent “overseas” instead of staying here.
If there is a 200+ day supply of Vettes, how little could a base manual go for ?
Everybody is crying with this carmarket. But the foreign transplants have the advantage that they make cars than trucks and that it is cheaper to cut imports than it is to cut locally produced cars