In today's New York Times, former Republican presidential candidate and Massachusetts governor, Mitt Romney, makes a strong case against congress agreeing to bailout the big three American automakers.
Here is an interesting point that I did not think of as part of the reason why there is a problem for a Ford to compete with a Toyota:
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
It is amazing, but when one thinks about it, it is very accurate that a Toyota Avalon looks like, feels like and is considered a luxury car. Not that there is anything wrong with a Ford Taurus, but when it does not look like, feel like and not considered a luxury car, it is not.
Here is something else for Chrysler, Ford and General Motors to consider:
The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad (George Romney) cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.
It could not have helped that the executives of the three major American car makers went to Washington today to beg for a hand out-on their private jets, of course!
Nobody wants to see any or all three of the American car makers resort to chapter 11 bankruptcy, but if this is not a case for it too occur, there would never be one.
Chapter 11 would give the car maker(s) the ability to reorganize and thus renegotiate the labor contracts that are a contributing factor to the decline of the once mighty American car makers.
One must also remember that the foreign competitors are already building many of the cars that American's drive right here in the United States. Toyota just opened a new plant in Indiana.
And, they are doing so at less cost because they are not negotiating with the United Auto Workers.
And because of that, a bloated, outdated American auto industry is on the ropes. And instead of making the tough choices, the CEOs and the head of the UAW traipse to Washington, hat in hand.
Mr. Romney is correct that one if not all of the American automakers do not need a handout. They need to accept the new reality, and suffer the consequences now for the possibility of a better future. Otherwise, if the federal government agrees to a new round of cash, $25,000,000,000 on top of another $25,000,000,000, it is just delaying the inevitable.