Congress insisted that U.S. automakers present a plan for solvency before it would approve a bailout — and then didn’t approve the bailout anyway. Which I was actually cheered by. Then Ford decided it didn’t need a bailout, and again I was glad — partly because I drive a Ford (a Mustang convertible) and would hate to feel dragged down by association into bailout-hood. If there is no longer a stigma in insolvency, we should create one anew.

My first problem with the proposed automotive bailout was that it treated all three of the U.S. manufacturers the same, even though their circumstances were very different.

Ford makes a good car — a number of good cars — that have been selling very well, especially that Mustang and the Focus and the F-150 truck. Yes, Ford may have too many brands right now (Mazda? Volvo?), but the company has cash reserves and was making money. Ford’s problem was the sudden credit freeze of the second half of last year. The near-collapse of the economy panicked most buyers, and those who were left standing couldn’t get access to credit. That left only the people who were going to pay cash for a car — and as we know, those people live in China.

Chrysler is owned by venture capitalists. Here’s what VCs do: They make many bets in the marketplace, and some pay off and some do not. VCs seek a return of 10-to-20 times their investment, and they like to get in, and then get out, of these bets. So when the Germans (Daimler) were losing a bundle on Chrysler, Cerberus did what VCs do — they picked it up cheap and tried to turn it around quickly so they could unload it with a huge return. Unfortunately, they made a very bad bet. Why you and I should be forced to finance their mistake is unfathomable to me. We’re certainly not going to share in any good investments Cerberus made in the past. To really nail home the point, let me note that as a non-public company, Cerberus is incapable of issuing any stock to the U.S. government as a way of paying back the investment (if that were ever even to happen). Chrysler should just be allowed to fail.

Which brings us to GM. Compared to the rest of the marketplace, they don’t make good cars; even if you believe they do, almost no one else does, so that perception becomes the reality. Their manufacturing and marketing is remarkably inefficient. Compared against Toyota, whose sales are almost equal in the U.S., GM has about one-third too many dealerships. And their chief executive is an utter failure who lacks the good grace to go away. Bankruptcy might actually be a good option for GM, so long as the company emerges from it. Because GM is so large, and directly or indirectly employs so many people, that the idea of GM simply vanishing from the economy ought to give us all shudders.

So:  three very different situations.

But why write about this now? Wasn’t the failed auto bailout big post-election story of November?

That brings me to my second problem with the idea of running to the rescue of the automakers. While they did come up with plans that at least claimed to lead to financial success, all their new design ideas seemed retrograde:  Please save us and we’ll build hybrids and we’ll expand research into electric cars. How 2004. Remember when great American companies championed innovation? You don’t hear much of that coming out of Detroit.

So today I stumbled upon this in the New York Times:  some actual forward-thinking ideas of what U.S. automakers could build into their cars to make them more attractive. They include:

• dedicated short-range communication that could prevent accidents
• robot-controled driving to improve traffic flow and reduce emissions
• solar cells to reduce dependence on gasoline
• built-in smart-phone technology (if the car can drive itself, you can check your email)

These technologies already exist. And they sound like the sort of thing that Barack Obama means to invest in when he talks about putting money into infrastructure. This is what Detroit should be asking for — the proverbial hand up instead of the hold up (“Give us money or we’re going to close, and  you’ll be sorry.”).

This entry was posted on Saturday, January 3rd, 2009 at 11:52 pm and is filed under Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.