Wednesday, December 10, 2008

My Auto Bailout Rant

I have terribly mixed feelings about the condition of the domestic auto industry.

Let's be honest, GM has been burning shareholder value and cash for decades. Even during the few good years they weren't nearly as profitable as they should have been. Internally, the company was a bureaucratic mess and career growth came to those who managed their careers better than the company's assets (check out the list of those at the top today). People with innovative ideas who were willing to stick their necks out found dead-end career paths and better jobs elsewhere.

On the other hand, the managers for the past 20 years were handed a whole host of issues which they were unable or perhaps unwilling to fix (legacy costs, health care, etc. which have been talked about ad nauseum).

When it comes to Washington, I'm also confused by politicians who suddenly find a pent-up desire to watch where our tax dollars are being spent after years of excess and no-strings cash handouts to banks. Similarly, I get a kick out of newly green-minded small-car proponents who have heretofore never proposed any sort of comprehensive energy policy. It's easy to point fingers at "Detroit" for making big SUVs but easy to forget that our federal government has had a policy of keeping oil cheap at the pump (by obfuscating other costs that we all bear). The DOT also passed confused fuel-economy regulations that helped encourage heavier vehicles by excluding trucks from CAFE measurements... and in some cases even rewarded consumers with tax credits for buying the heaviest and thirstiest of their kind.

As for their products, as a car enthusiast who came of driving age in the 1980s and who has never had a desire for an SUV I don't find anything to salivate over from GM, Ford, and certainly not Chrysler. Even niches they should dominate like minivans and family cars have been ceded through decades of complacency and aiming for the middle-ground (US Ford Focus, anyone?). Even new bright spots like the Malibu/Aura are hampered by GM's half-hearted efforts on the first year of 4-cylinder models (lacked the more fuel-efficient 6-speed automatic) and lack of manual transmissions (I know I'm in a small minority, but prefer a stick... part of my upbringing during the heyday of hot-hatches and compact cars). Same goes for the Pontiac G8. I recently spent time working for a charity at a car show and spent a lot of time checking out the various displays. The G8 really stood out as an attractive and interesting car for a very fair price. However, no manual transmission? Pontiac? And I don't need a V8.

Also, while quality appears high the list prices are also. It's simply impossible to justify buying a domestic car without serious discounts due to a lack of perceived long-term value (primarily due to historically terrible depreciation) and "initial quality surveys" aside, there is definitely a feeling that they just won't last as long... justified or not. For example, I spoke with a number of GM dealers who bemoaned sub-standard brakes and oppressive warranty requirements leading to customer satisfaction problems and increased cost (requiring multiple repairs attempts for known problems, for example).

So, yes, while I agree with the idea that we need to maintain a domestic manufacturing capability, I also know that many of the current problems have been around for a long time (particularly at GM about which I have personal experience). I also wonder about bailing out Chrysler when I don't believe Cerberus was ever planning to keep them operating in the first place. Ford may be in better financial shape today but they seriously don't have a single compelling car in their whole U.S. lineup (sans perhaps the Mustang but one niche product can't support the whole company).

I guess my final thought (and I apologize for the length of my rant) is that we should support our domestic manufacturers with loans if only because it's fair. We've given billions to the bankers but they still aren't loaning money. Either these loans need to come from our tax dollars or from banks as a condition of the next round of TARP. Additionally, a failure of GM will likely bring down the rest of the industry and I think it's simply a more efficient use of our tax dollars to keep them running than it is to absorb the cost and further destruction of our economy by the addition of hundreds of thousands of additional unemployed citizens. I also think about the supplier base and dealers, many of whom do make a profit and employ many people... perhaps GM and Ford's losses have simply been a subsidy for them?

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