Wednesday, November 19, 2008

A Case Against An American Automaker Bailout

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.

5 comments:

DoorHold said...

"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."

Seems Romney has fallen hook-line-and-sinker for one of Detroit's lies. A new Avalon sells for 27-35 thousand dollars, the Taurus for 24-31 thousand dollars.

The Avalon appears to be a better car because it has (at least) three-to-four-thousand dollars worth of extra content, content that is reflected in the price, before factoring in any "disadvantage."

Ford has not only wrung out that two-thousand-dollar disadvantage, they went and wrung out ANOTHER three-to-four-thousand dollars worth of content to keep their prices lower than Toyota's.

Three thousand dollars PER CAR would make a TREMENDOUS difference in quality, but Ford simply won't go for it. For whatever reason they prefer to say, "Our car is three thousand dollars crappier than theirs."

How much better would the Taurus be, and it's already one of the finest cars Ford has ever produced, if they added enough content to simply MATCH the Avalon's price?

Will they sell fewer Tauruses (Tauri?) at that higher price? Maybe, probably. But Toyota sells fewer Avalons than Ford sells Tauruses, and who's more profitable? The one selling the better car, that's who.

Rightwingsnarkle said...

So, you're saying that auto manufacturers need to realign their business models on the backs of the people who do the work, by paying them less money and scaling back on their benefits?

Hmmmmm.

What if the U.S. auto manufacturers, and American businesses in general, were able to get out from under the cost of providing employee health insurance, a cost that their foreign competitors do not have to meet? Would that improve their competitive position?

Righty64 said...

Mr. Snarkle, no it would not. It is not just "on the backs" of the workers. If you read the Romney piece, he suggested that ALL have to suck it up. NO company can expect to survive in a competitive, global market giving the kind of health care and retirement benefits that Chrysler, Ford and General Motors give their employees. As well as the compensation to management. It is a nice attempt to push for socialized medicine though, Mr. Snarkle!

Rightwingsnarkle said...

Why don't auto manufacturers in other industrialized countries (Japan, South Korea, Germany, Canada, etc.) offer healthcare benefits to their empoyees and retirees?

What about pensions?

How do they escape those substantial costs? How does that enhance their competitive position?

Really, they're simple questions. Go ahead, take a stab at answering them.

Rightwingsnarkle said...

Go ahead, take a stab at answering them.

Just the sound of crickets chirping.