Wednesday, November 12, 2008

U.S. Auto Maker Bailout: There Better Be Major Strings Attached

The US auto industry has been in decline since the first oil crisis in 1973. Even during the heyday of SUV's and big trucks in the 90's and 00's, anyone with a serious forward-looking focus could see that any major blip in oil prices, oil supply, or macroeconomic health would send the industry off the cliff.

Why? Because American consumers change their buying habits quickly, and the American auto makers have never built a diverse enough fleet to satisfy consumers' changing whimsy.

The major foreign makers, like Toyota, Nissan, and (yes) Hyundai have built and maintained a diverse fleet of vehicles of useful features and high quality that meet customer expectations. You can buy a bad-ass pickup or SUV from them, and you can also buy quality subcompacts and alternative fuel vehicles.

Meanwhile, Detroit has fought long and hard against improvements in the most basic standards for safety, fuel efficiency, and emissions. They claim that better standards will cripple the industry. At the same time, they spend years developing buggy, butt-ugly vehicles that fewer Americans are willing to buy. Just look at Honda and Toyota, and what they have successfully done on their own in the same areas, using the same market forces that Detroit seems unwilling to heed.

Here we are now, and Detroit has been caught off-guard again, with a huge inventory of big clunkers and no answers for consumers' current demands for highly efficient and high quality vehicles. Auto dealerships for American cars are closing at a fast pace, too, and that's no wonder. I have rarely received good service on either the front or back ends of a car sale through an American dealer.

So now, Detroit has joined the mantra: "Bail us out!" Now, I certainly don't want the auto industry to implode, at least not right now. Job losses will be mounting over the next few months, anyway, and a few million more added to the jobless rolls would be nasty.

That being said, we can't just give money to Detroit and expect them to do the right thing. Left to their own devices, they would just go back to designing 20th century vehicles for the 21st century. And, they would still complain about improving standards, the same as before. Hey, Detroit, quitcherbitchin!

So, Congress, here's what we should ask for return from Detroit before handing them the money:
  • Ownership stake in the companies (preferred stock)
  • Observer status on the Board of Directors
  • Commitment to design of vehicles which meet aggressive fuel economy and emission standards. (Additional tax breaks are welcome here.)
  • Commitment to manufacturing processes which are sustainable. (Again, additional tax breaks are okay.)
  • Retooling of the sales and inventory process, so that most vehicles are built to order. The traditional auto dealership should be moved to its proper place...a museum.
This is the short list. In any event, we should not allow Detroit to come to the trough without expecting some long term changes to their business model.

No comments: