![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
No Neverending Bailout
Dec. 31st, 2008 08:59 amSo my friend and blogger ![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
jeff_duntemann had a post arguing against the Big Three auto bailout. As even casual readers will note, I have been in favor of a bailout. Well, Jeff asked the question "Apart from Chapter 11 bankruptcy, what can we do to make the Detroit automakers "sustainable"?" In other words, do we need a "Neverending Bailout?" (Jeff's words).
I don't think we need a Neverending Bailout. Contrary to popular opinion, GM is making cars people want to buy - they are still selling the most cars per year in the world. (Toyota is a close second.)
GM's problem is they have capacity for and fixed costs of a company selling a lot more cars then they do. The past several years have seen a massive attempt to reduce those fixed costs, including such things as:
- Moving retiree medical costs to the unions
- Shutting plants
- Moving to a two-tier wage scale, with new hires getting significantly less cash.
GM still needs to reduce dealerships, which may require legislation, and they may want to / need to sell Saturn and Saab. Saturn in particular might be an attractive target for some of the Silicon Valley electric car startups. Saturn has a dealership network, loyal customers, and a reputation for developing innovative stuff. But the bottom line is that GM can get into viability, given some time.
Chrysler's big problems, and the reason that GM was considering a merger with them, are:
1) Chrysler has no significant international presence. That was what the failed Daimler merger was supposed to bring to the table.
2) As part of the Daimler merger, Chrysler's new product development efforts and resources were taken over by Daimler. When Chrysler was re-spun off, Daimler kept most of that.
The business logic for a GM-Chrysler merger would be for GM to scrap plants and products, keeping basically Jeep (which sells, and which could go international) and the mini-van line, which GM is not as strong in.
I'm actually not sure that Ford is in crisis at the moment. You will recall they were not looking for actual cash, just the option to get some if needed. Ford has a strong international presence, benefits from the UAW's two-tier deal, and has a new product pipeline.
In short, I think the Big Three are fixable, although we may end up with the Big Two, plus or minus a niche company.
jeff_duntemann had a post arguing against the Big Three auto bailout. As even casual readers will note, I have been in favor of a bailout. Well, Jeff asked the question "Apart from Chapter 11 bankruptcy, what can we do to make the Detroit automakers "sustainable"?" In other words, do we need a "Neverending Bailout?" (Jeff's words). I don't think we need a Neverending Bailout. Contrary to popular opinion, GM is making cars people want to buy - they are still selling the most cars per year in the world. (Toyota is a close second.)
GM's problem is they have capacity for and fixed costs of a company selling a lot more cars then they do. The past several years have seen a massive attempt to reduce those fixed costs, including such things as:
- Moving retiree medical costs to the unions
- Shutting plants
- Moving to a two-tier wage scale, with new hires getting significantly less cash.
GM still needs to reduce dealerships, which may require legislation, and they may want to / need to sell Saturn and Saab. Saturn in particular might be an attractive target for some of the Silicon Valley electric car startups. Saturn has a dealership network, loyal customers, and a reputation for developing innovative stuff. But the bottom line is that GM can get into viability, given some time.
Chrysler's big problems, and the reason that GM was considering a merger with them, are:
1) Chrysler has no significant international presence. That was what the failed Daimler merger was supposed to bring to the table.
2) As part of the Daimler merger, Chrysler's new product development efforts and resources were taken over by Daimler. When Chrysler was re-spun off, Daimler kept most of that.
The business logic for a GM-Chrysler merger would be for GM to scrap plants and products, keeping basically Jeep (which sells, and which could go international) and the mini-van line, which GM is not as strong in.
I'm actually not sure that Ford is in crisis at the moment. You will recall they were not looking for actual cash, just the option to get some if needed. Ford has a strong international presence, benefits from the UAW's two-tier deal, and has a new product pipeline.
In short, I think the Big Three are fixable, although we may end up with the Big Two, plus or minus a niche company.
