Bailing Out One of the Most Important and Inept U.S. Industries
November 07, 2008
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I haven’t been involved with the auto industry for about 11 years. However, back in the day, I spent every wroking day as an industry analyst, focused on global competitiveness of the industry, and political and trade developments in that sector. I still follow the industry, and I still love cars.
Today I took my 2004 Ford Focus SVT—a delightfully hot little hatchback—into the Ford dealer for another repair. This car has been a disappointment in durability despite Consumer Reports’ “average” reliability rating for the Focus in general. My wife picked me up from the dealer in our 2001 Honda minivan, which has never been in the shop for a non-warranty repair, and has had only one repair under the warranty. My 20-year old Toyota Corolla, now with 200,000 miles on it, has not been in the shop for a repair since 1997, and only had one other trip to the shop before that. Sure, it helps that I do a lot of my own work, but I can't do everything. The Corolla sits in our driveway, now functioning mostly as an around town daily beater (getting 33 mpg just around town, too).
While at the Ford dealer I wanted to check out the new 2009 Focus; Ford’s newest fuel economy car. However, it was raining, and the only cars in the showroom were SUVs and Shelby Mustangs; expensive gas guzzlers. So, I passed on looking at the new Focus. Instead I sat in a $44K Shelby. Yes, I had visions of blasting through highway onramps, while the awesome V-8 exhaust roared like music in my ears. Of course, I’ll never buy that car. Neither will most (of the very few) people out looking for a new car these days.
I was the only person wandering around the dealer checking out cars. The only thing at that dealership earning money this morning was the service center. All the other overhead and inventory is sitting there helping Ford and the dealer burn cash.
I’m annoyed that I keep having to throw money at my current Focus. Although we do not want to take on any debt, I’m considering dumping the car for something even more fuel efficient and reliable. I would be looking at Hondas and Toyotas. I gave Ford a chance, and I feel like they screwed me.
All this while we see the auto companies going to Uncle Sam for a handout. This, from the industry that has always told government that we must let the marketplace determine all sorts of factors such as fuel economy standards and where investment and jobs should go. I used to sit in on hearings in Washington, D.C. where the Big Three executives would tell Congress that they should leave the industry alone to develop the vehicles the market demanded and invest in factories outside the United States.
My experience both this morning and in past years speaks volumes about where the U.S.-owned auto industry is today. Let’s not assume my experience is everyone’s experience, but we all know the themes that my experience represents: lagging quality of the Big Three (or Big Two, is probably more valid now); a preoccupation with larger cars and SUVs; a questionable ability to transition successfully to smaller vehicles; an ongoing need to sell their historically most successful products (i.e., a showroom full of SUVs and gas guzzling cars, while the Focus’ sit out in rain where noboby wants to go look at them); the more attractive replacement for my American car is not another American brand car (though it could very well be built in America). And of course, an industry that wants to be left alone until it needs to be bailed out for it’s own ineptitude.
While Ford and GM continue to disappointment me with their inability to deal with the modern global auto industry, I am torn. I honestly feel that the United States will be moving in the wrong direction if we lose our domestically-owned auto industry. Yes, I know foreign-owned auto companies have invested heavily in production, management, and research and development here. I’ve been in many of those factories, talked with the mangers and the assembly line workers, studied their business model, purchased their cars, and visited their many domestic suppliers. They are good. They provide jobs well beyond just assembly line and low-level managerial positions. If you live in parts of Kentucky, Ohio, Tennessee, California, Texas, South Carolina...among other states, you know that there is some pretty impressive production going on by Toyota, Honda, Nissan, BMW, and others. To a very meaningful extent, they are American auto companies in terms of what is coming out of their factory doors. Yet, I still cannot embrace the new concept of living in a country that has none of the very highest level corporate and R&D activities of an industry with some of the strongest linkages to other sectors of the economy. Any emerging economy seeks to develop it’s own truly domestic auto industry for all sorts of valid reasons, but yet the United States could lose it’s own domestic auto industry. Somehow, this just doesn’t sit well with me.
I know--I am positive--that for economic and political reasons the auto industry will get the handout it is asking for. We just gave the industry $25 billion in loans, but now they want more. And I am well aware of the cynicism that rightfully will accompany that handout. I am 50 percent of the same mindset of those who say, “Just let the domestic industry die once and for all”. I can’t say that I’ll be shedding any tears if that happens. However, the reality is that the government will not let the industry fail. State governments all over the country will support throwing more money at the auto industry.
The question now is probably this: what obligations should the auto industry have to the United States when they are bailed out? My first thought on the matter is that the days of telling the government that stricter fuel economy standards are none of the government’s business should never be uttered by auto executives again. If they had embraced those standards years ago, we might no be bailing them out now. I think we will also face a dilemma; what can we demand of the industry without hobbling it with truly stifling preconditions?
The other disturbing factor is the competition. Toyota and Honda, while suffering from the global downturn, are extremely well positioned to take advantage of: 1. a new emphasis on fuel economy and "green" propulsion systems; 2. beat the living hell out of Ford and GM not just in North America, but globally. Both Toyota and Honda will weather the downturn far, far better than most in the industry.
I think we are at a turning point with the auto industry. I do not have high hopes that we make a turn in the right direction, but I'll be watching to see where this all goes.
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