Flutterby™! : Why U.S. automakers are failing. 2008-11-11 16:16:24.818055+00

Why U.S. automakers are failing.

2008-11-11 16:16:24.818055+00 by Dan Lyke 14 comments

Aides: Obama suggested more help for auto industry. Philip Greenspun spends one day in a General Motors vehicle:

How about the rest of the car? The rear hatch kept popping slightly open while driving, generating some road noise and a warning message… underneath the tachometer in 1970s-style LED letters.

Yes, letting the big U.S. automakers fail would play hell with the midwest's economy, but can we afford to let them continue on this doomed path?

I would hope any bailout would be tied to some very aggressive CAFE regulations.

Unfortunately, it would mean more expensive (but better) cars. Ford has already made statements that the cars they sell in Europe won't make it in the US because they are too expensive. Like the $25K Focus in this BusinessWeek piece.

The basic attitude is "spending more should net a bigger car" rather than "spending more nets a better car that suits my needs". I even encountered this at the VW dealer in Boulder. Ironically, Boulder is a place known for folks who buy small, fuel-efficient cars even when they can afford much more elaborate cars. (for instance, the Audi A3 is very popular here because you can get it in a fuel-efficient 1.8l turbo with all-wheel-drive).

I was spec'ing out the features I wanted in a new Jetta Diesel to the salesman. When he finished totaling it, he said "that's almost $30,000 - why would you want to spend $30,000 on a Jetta?"

Between astronomical executive compensation and equally astronomical pension plans for 25 year employees, I'd think that if the auto makers made 16 million cars last year and sold 12 million, it sounds as though it's about time one of them had to close the doors.

It may be a big hit in the midwest, but it's a simple law of supply and demand. Why should we pay $25b to a handful of companies to make products that no one is buying? In the past 10 years when high-profit SUVs were on the market, I don't remember the auto companies offering to place windfall profits into the coffers of the government or average consumer, only into their executives and employees.

At the end of the year the automakers paid more tax money on their "windfall profits", as did those people who got bonuses.

#Comment Re: made: 2008-11-11 19:57:15.070644+00 by: mvandewettering

Let's face it: GM is failing because they a) have unreasonable levels of compensation for their execs b) are carrying lots of costs in the form of pensions for their workforce but most importantly because c) they are seemingly incapable of making cars which are in any way competitive with reasonable imports. Both Ford and GM rode the SUV bandwagon as a profit center, but the writing should have been on the wall that increasing gas prices would make these vehicles much less desireable. Companies like Toyota, VW and Honda were much better positioned to handle this transition, and quite frankly, just make cars which are better.

Let's be clear here: GM, Ford and Chrysler were putting all their good work into SUVs because that was where they make their money.

This leads to things like: a) Fleet sales of very economical cars for a loss (Hertz, Avis, rentals get cars very cheaply) b) Sales of smaller vehicles at a loss. Since they already know they're going to take a bath on it, they don't put a nickel more in than they need to pass safety requirements and not kill them on the warranty service.

So I think looking at the small car is ridiculous because you knew it was going to be bad before you got to a specific model.

The UAW contracts make it cheaper for the automakers to build cars they lose money on than to idle or lay off anyone. Congress is complicit in this.

I'm with JT: There is no reason we need to have 3 automakers. Chrysler has been bailed out before, for heaven's sake!

This is Congress paying back the UAW for election favors (contributions, off the books in-kind donations (the kind that really matter)) and will protect UAW jobs at the expense of the American taxpayer. Bush was willing to trade that for passage of the Colombian fta, but the newly excited Congressional left is having none of it. The Waxman challenge (implicitly backed by Pelosi) to Dingell is an interesting twist the meaning of which is not fully clear yet.

I've been car shopping lately (probably not buying until after the 1st of the year, if then), and I have a few observations.

Example one: GM is screwing the pooch (according to multiple dealers) in part because they do things like only offer the Chevy Aveo with the 1.6l engine in it. If they offered the 1.4 (as they do in Europe and Asia), they'd have a model which would get 30mpg and which would get people in the dealerships, even if most of them walked out the door with the 1.6l model.

Example two: The HHR - supposedly "high roof". The front roof-line plunges so low that with the left rear seat folded flat, and the driver's seat as far reclined as possible in this configuration (not very reclined), I can see exactly three car-lengths in front of the vehicle. This is a high roof?

Then again, I'm disappointed by almost all the auto manufacturers. I want either RWD or AWD (almost 30 years of RWD experience have all my muscle memory doing the wrong thing in FWD cars). My golden numbers are 30/30. That is, I want a car capable of getting 30mpg (even if I don't see that in my daily driving), and which sells for under $30k, while still passing my "back seat down" driving position test. I'm finding precious few cars that qualify.

Ones that might make the cut: Suzuki SX4, the VW GTI (http://en.wikipedia.org/wiki/Volkswagen_Golf_Mk5) which misses on price, but if they made the R32 without a sunroof, they probably would have sold me a car already, and the Pontiac G8 which misses on mileage, but shows a spark of sanity from GM in that they let Holden build it in Australia so they couldn't screw it up here.

Another car that has piqued my interest, but which I can't get in the US, is the Fiat 500. Looks like it might have a high enough roof. And there's the Smart fortwo, which I was predisposed to like, having first seen it in England in 1999. Except I'm not going to spend a year on their waiting list to get an underpowered car that apparently struggles to get 30 mpg. Both are FWD, but could be cheap enough and get good enough mileage that they might be good "summer in the city" cars.

My reaction to the Smart is that you can buy a Honda FIT for half the price and get better mileage.

I bought my Nissan Maxima, 12 years ago, to replace a BMW 528e. I figured they both had roughly the same displacement and the same performance numbers, weighed about the same, so they'd be similar cars, except the Nissan was quite a bit cheaper. And of the cheaper cars, Nissan was one of the few manufacturers where I could sit in the back seat without bumping my head. I'm 5'10" in thick soles.

Unfortunately, the Maxima's mileage relative to the BMW sucks rocks, the BMW actually did get over 30MPG on the highway, and, yeah, I feel much much safer in a rear wheel drive car. In a rear wheel drive vehicle, taking your foot off the accelerator is generally a safe move, in a front wheel drive vehicle it's a recipe for disaster. And the Maxima's turning radius is awful.

I don't know when we're going to replace the Maxima, but I think the replacement is going to be a beater pick-up truck. Probably a Toyota.

#Comment Re: made: 2008-11-12 14:47:01.92836+00 by: JT [edit history]

Being a few inches over 6', and having an adult sized child, we drive a large Ford Taurus (Large american family car made in Mexico) and because we live in a nice sometimes snowy and sometimes muddy place, we also have a Honda Passport (Small Japanese SUV made in Ohio) with 4wd. It's getting time to replace both cars and because we're not a family of tiny people, it's going to be difficult to find something that fits the bill of being able to carry everyone (plus a dog or two) and luggage/etc for when we go to grandmas or go camping.

Because of the price vs quality issue, we're probably going to try to lean towards something either made by Honda or Toyota. Hopefully we'll be able to buy something manufactured in the US to support the economy a bit, but we realize we're going to need something of higher quality with better gas mileage. Where the parent company is located is mostly moot when it comes to the family budget though.

I’m scared about the fallout from a failing auto industry too, but we are not fixing anything by giving the big 3 money. We are only delaying the pain. Why not guaranty loans to companies like http://www.teslamotors.com/ that are lean and agile?

#Comment Re: The "big three" automakers made: 2008-11-12 19:37:05.177111+00 by: andylyke

Here, again, we have firms that are "too big to fail". I believe a fundamental problem in our place and time is that there are entirely too many enterprises "too big to fail". Nonetheless the resolution to the financial crisis (caused by "too big to fail") is mergers and consolidations, so that we will come out of this crisis with institutions prepared for the next hiccup that are too bigger to fail.

I know it's anathema to free marketeers, but perhaps we need to artificially cap the size of institutions, to sizes just a little smaller than "too big to fail". Ironically, these dinosaurs of "free market capitalism" are themselves destructive of the "free market". (Do you think it's easier to open an independent lumber yard because hd and lowes exist? How about a clothes store near a Walmart?) For years, the Japanese and French (and, I'm sure, others) resisted incursions by Toys backwardR Us and Walmart, precisely to preserve ease of entry for the small entrepreneur.

So let one, or two, or three of the auto manufacturers fail (but claw back the exec bonuses), and free the way for Tesla and others that would invigorate the market through truly free enterprise. and incidentally, I've no idea how to "limit the size" of enterprises; it's just a thought that recurs too often.

DaveP: Give the VW TDi a try. I'm not as thrilled with the new body style - the front pillars block too much of my view. But you'll see 30+ mpg in the city and 40+ mpg on the highway, even with a lead foot.

Perfomance wise, I drove a 1986 Porsche 911 for almost two years and never got a ticket. One week after taking delivery of a Jetta Wagon TDi, I was on the side of the road getting written up by Johnny Law.

Eric, I'm pretty sure that being in MN, I'll stick with gasoline -- I know there's less worry about gelling diesel in the winter now, but the DSG on top of the twin turbo offers pretty darned good performance, and based on current prices, about the same cost per mile as the diesel (though a little less oomph off the line). But I'll probably drive both to be sure.

And in spite of being 6'5" and 300#, I drove a 1992 Camaro for years. I'm probably not willing to drive around that prone any more, and the two models since then have lowered the roofline even further. The 2010 is interesting though, since it's based on the same Holden as the G-8, but it's unlikely to be comfortable.

I'm completely behind innovators like Tesla and against dinosaurs which roam the streets of Detroit. Let them go. The crack addiction must end.