Wednesday, November 12, 2008

Bailing out auto makers

I just saw on the news that Congress is planning to vote on a bailout of the auto industry next week.

Once upon a long time ago I was a dedicated Ford man. Several things happened to change that.

1) I bought a brand new Ford Maverick. As I recall, in less than one year the car was rattling!

2) Something in the driver’s seat of another new Ford broke, dropping me backwards into the back seat. Although this was clearly a major safety defect, my extended warranty didn’t specifically cover it and Ford refused to pay for it—and I was stuck with the bill at a time when I really couldn’t afford it.

3) Although my extended warranty specifically covered my car’s ignition, my ignition malfunctioned and the Ford dealerships flatly refused to honor the warranty. They said that even though the brochure advertizing the extended warranty specifically showed the ignition as being covered, the actual warranty did not cover it. I’m sure I could have taken them to court, but at the time I barely had enough money to put shoes on my kids feet!

4) My Ford Escort with a diesel engine only lasted 80,000 miles before the engine gave out. I didn’t have money to fix it so I had to sell it for peanuts. I got an old used junky Toyota. It turned out to be more reliable than my new Ford.

5) Not wanting to give up on American cars, I later bought a year-old Dodge. I eventually discovered that the cooling system didn’t work right and the car overheated regularly. The cost to have the dealership fix it was much more than I could afford.

6) Then, when I would go around corners, I started hearing this clunking sound in the rear end of my new Dodge. I took it to a dealership and before the mechanic even saw the car, he described the problem and knew right where to look. It was apparently a major structural defect in the rear axel. Dodge wouldn’t cover it and I couldn’t pay for it.

That’s when I gave up on American cars. I’ve owned Toyota’s ever since. They run practically forever, take very little maintenance, and have never given me any real problems.

So as far as I’m concerned, when automakers can’t make a decent car and they won’t stand behind the junk they sell—they deserve to go belly up.

Ford and Dodge have received enough of my money. I don’t want them taking my taxes too!


Kevin said...

I own Hondas. Both are paid for. Both get good gas mileage. My 2001 Civic has 120k miles and my '93 Accord has 214k and runs like a champ. I will not buy American cars until they demonstrate they're reliable... it's just not a good use of money.

That said... the problem w/ the automakers seems to be that they're locked into union contracts that they can't afford. Competitors can build plants in the SouthEastern United States providing jobs in the region that boosts the local economy significantly, but without being saddled with contracts that make them unable to compete. The auto-makers should be allowed to go bankrupt... their investors should suffer, their management should be fired, and the unions and workers that benefited for unsustainable contracts should get to deal with the consequences.

Dennis said...

I agree completely. But since powerful union bosses and powerful Democratic Congressmen go together like hand-in-glove, we will probably get stuck with the bill.

professor ed said...

May I respectfully offer another angle. With one exception, a ford Galaxy, I have always owned a GM car. Yes, I agree the "big three" automakers are each seriously burdened with union pensions, rules, etc. But to allow these companies to go belly up, would undeniably lead to depression. Great numbers of jobs would be lost, not only in Michigan, but Tennessee, California, Montreal,etc. We do not want to see this happen. Maybe the three can be encouraged to merge? Maybe these three can merge with a foreign company; as Chrysler did for a period of time. But the bottom line is we cannot let these three leave the scene. Just as an aside, on Nov. 17th, 2007 my Pontiac Grand Prix GT collided head-on (120 miles per hour closing speed) with a smaler Datsun which had crossed over into my lane. All three occupants of the Datsun died. I attribute my survival, in part, to my larger, heavier built car.

Kevin said...

Bankruptcy is not complete shutdown. Many companies go bankrupt, close some of their money losing plants or stores, restructure their contracts, and go-back to business.

What's scary is how cavalier the government has gotten with throwing around money and how quickly they change their story about what it's needed for and why it's needed. That $700 billion bailout was said to be needed to buy up bad mortgage debt, now their focusing on bolstering consumer credit companies ( is this wrong... I don't know... but it does seem to show a lack of understanding about how to solve this problem, and a huge opportunity for political manipulation and financial mismanagement.

Robert said...

I've owned a variety of imports and domestic vehicles over the past 15 years. The quality has improved dramatically on the domestic side but they still have some demons they're wrestling with.

1) They've got problems with the pensions they doled out and the healthcare costs they're providing. Something has to be done about these as they're just dead weight for the company. Problem is, they committed to these benefits and I don’t see any real way of backing out of them (at least on pensions) in the short term.

2) Although executive bonuses make up a fraction of the amount paid in ongoing employee benefits, they represent a public relations nightmare that presents a picture of incompetence and corruption. Issue here is that getting rid of all bonuses for executives may cause a serious “brain drain” where they lose their most skilled staff to other companies willing to pay those bonuses. The trick will be to reward for progress and not reward anything beyond the industry norm. No matter what though, any bonuses are going to be seen as negative to the public.

3) The unions. These anachronisms are killing the industry. Their inability to find common ground with management and the “us vs them” mentality is destroying the company from within. It’s not just the high paying salaries they get for limited scope work, but the lack of accountability or empowerment of the individual. Why should an employee work harder than his neighbor when the compensation will be the same? Almost any future solution means limiting the influence of the union or getting rid of them entirely.

4) Management. Okay, it’s been said a ton of times. You guys suck. You’ve succeeded in choosing the opposite direction of the market for the past 20 years. People wanted quality and you ignored it. People wanted fuel efficiency and you ignored it. People wanted some style and you ignored it. Now the end of the road is coming because of your lack of foresight. Thank God some of you guys are starting to get it, but you still need to do a massive house cleaning.

5) Rebuilding the brand. Let’s face it, people reflexively think of your brand as sub-par. You’ve done a huge amount of damage that you’re not going to fix overnight. The only way you’re going to fix it is by consistently over-delivering on promises and reestablishing the trust you eroded. That’s going to take years – which unfortunately you don’t really seem to have. By the way, commercials about your improvements aren’t going to change the mind of the buyer. It’s going to take word of mouth and consistent quality to make that change.

6) Start building cars people are excited to drive and “experience.” For all our talk about reliability and safety, people still want a car that gives them a little thrill. That could mean a lot of different things for different people. GM has a gazillion brands. Start making them mean something other than making them clones of each other. For goodness sakes, stop devaluing your iconic nameplates with boring looking designs like the 2008 Impala SS.

7) The Government. It hasn’t been totally innocent in this collapse either. Whether it’s been the MI state government or the feds, they’ve been killing the golden goose through regulation and taxation. You need to give it a rest and let the market make its own choices. Start being a little pro-employer once in a while.

Dennis said...

Great posts, guys! Thanks!