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Bailout Blues: The Big 3’s Shock Therapy

With the recent approval of a House bill to provide $14 billion, the Senate remains in question as to whether the American auto makers will get their BAILOUT anytime this week. With this money comes the inevitability of Federal oversight in the guise of a “car czar” that would handle how the money is spent. Another possible action is the immediate removal of the Big 3 CEOs to introduce some fresh blood. Despite the constant reinforcement of many car people like Lee Iaccoca, I have come to the conclusion that infusion of new CEOs into the American auto industry is probably the best thing that could happen. This conclusion hasn’t been rash as I’m completely against the bailout. Why should the Federal government pick winners and losers? Adam Smiths “Invisible Hand” has worked pretty well in cleaning out the failures of inept (ex. Enron, Delta, Adelphia and others) and despite the inevitable financial pain, the economic principals of “shock therapy” have proven themselves time and time again to be true. Suffer in the short term instead of languishing for the next 10-15 years with constant pain. Simply put, the quicker you get to the bottom, the sooner you’ll start to see growth again. So, with my complete support of letting the Big 3 suffer, how can I be for ousting Wagoner, Nardelli and Mulally?

Recently a few other auto blogs have done some testing on the 2010 Ford Fusion Hybrid. As the peak of Ford efficiency technology, the car got almost a combined cycle of 45MPG. A recent CNN Money story has shown that GM has spend almost $750 million developing the new Volt. I have no idea where Chrysler is as there’s almost nothing exciting coming out of there the last few months. Besides that, how, you say, could I be against companies spending so much money and bringing such efficient cars to the road at a time when energy efficiency and research is so important? Because it’s all a sham.

Let’s look at the Chevy Volt. $750 million dollars and what does GM have to show for it? A test mule. In terms of car development, that’s a huge amount of money. GM has stated most of that money went towards battery technology. So, that mean GM is going to be a battery maker? If their supplier Cobasys (currently in financial trouble) fails, they will.  So, why hasn’t GM decided to work with companies like GE, EnerDel (Tesla, Mercedes) or even Toyota for that matter in acquiring proven battery technology created by people who have been at this a lot longer than them. Why are they trying to re-invent the wheel? I understand that the vertical nature of the car business works in many cases. However, can you possibly say that you can make a better battery for hybrids than someone who has been doing so for 10 years already? Additionally, why would GM buy a failing company?

Let’s check out this Ford Fusion Hybrid now. 45MPG combined cycle for city and highway driving. To the average American, that sounds pretty good. However, what about the average European? The Ford Mondeo (Fusion equivalent) with a 2.0L diesel engines gets almost 57MPG. The 2.2L petrol engines gets around the same 45MPG as the Hybrid Fusion but without all the time and effort and money spent in developing a new, COMPLEX hybrid drivetrain. Look to some other brands that are selling full sized sedans like BMWs 320d and you’ll see a ~$30,000USD car that gets 59.1MPG and still does 0-60 7.9 seconds. The point is, why is Ford spending all this money when they already have a product that surpasses all US safety and economy standards for sale in Europe and the rest of the world?

Chrysler still has nothing new in any sort of hybrid that stands out or they have tried to make a huge deal about. Maybe this is a good thing. Though I can’t see the point of cars like the Aspen Hybrid that still only gets 19 / 22 MPG in the city and highway, respectively. UPDATE: Ah, here’s what happens when you’re that boring… Detroit Free Press

The point of all this is to show that even in a time of changing requirements (fuel efficiency) and dramatic economic upheaval that would end in bankruptcy if nothing is done, Detroit has done nothing truely dramatic to change their destiny. Whereas Tesla and Fisker are coming out with amazing plug-in electric cars liks the Roadster and Karma, whats sporty or fun about the Chevrolet Volt (most unoriginal electric car name ever, besides the Chevy Ohm, Ford Ampere and Chrysler Impedance). Have they shifted their brand (or attempted to) like BMW has with the EfficientDynamics or Mercedes with their “Blue” (BlueTec, BlueZero) brand? They all could just as easily gone the complete opposite way and say, we’re just going to be super cool fuel efficient cars like the Toyota iQ that doesn’t need hybrid technology and slow down production of our trucks to create more of a “halo” arond the large vehicles with a more limited brand.

There are a thousand reasons why Detroit needs new leadership but only one of them matters. They are all about to go bankrupt without huge amounts of car purchasing today or large scale loans (from either banks or the US Government). Considering even banks realize how bad an idea loaning them money is, shouldn’t that mean that tax payers money is an even worse idea? Let’s clean house in the Motor City and turn these car giants into lean, mean machines that can compete with their Japanese (and French in the case of Nissan/Renault), German and Korean counter parts. Either let them fail for their lack of foresight. Bankruptcy isn’t the worse thing in the world. Neither is failure. Experience is what you get when you didn’t get what you wanted and this is exactly what America will be getting. Experience. “Saving” these companies now will only hurt the American car makers in the future. If you though the credit crunch was bad Detriot, wait until you feel the wrath of the American consumer. You will have stole their hard earned money via taxes so you could continue to waste cash and live off the fat of the land like some sort of corporate welfare recipient. Do like millions of Americans and earn your money by being the best. That’s how we got to be the most wealthy and prosperous nation in the world and it works. There is no “easy” way out and in the end, taking the bailout money will hurt you. It may not seem like it when you get that first check from Uncle Sam, but in 3, 5 maybe 10 years from now when your market share has eroded to almost nothing, you can look back and know exactly when it all went wrong.

UPDATE: Well, the entire process has stopped again with the death of a bill in the Senate this evening. It seems GM, Ford and Chrysler have been given another chance to fail. I applaud the Senate for not approving a plan of action that they were not 100% sure would work. Throwing money you don’t have at a problem that might not be fixed by it is a waste and the American people should applaud this.

  • Dr. Joseph Prince

    I disagree with replacing the CEOs at this time. If that happens, you’re telling me the government is smart enough to know how best to handle a banruptcy and restructuring. Nothing could be further from the truth! The CEos are still most knowledgeable and can be effective if given some guidelines, such as no golden parachutes for execs, unions must back off demands to agree with foreign automakers, reduction in employees and goodies, and oversight by independent expert specialist such as lee Iaccoca. Govt can provide an available loan with a payback schedule of the loan after an effective plan for restructuring has been developed.

  • Joe B.

    If the CEO’s of the big Three are so good then why did they make such poor decisions? Their cars are boring. They have less quality. They have poor mileage. I say get rid of the CEOs but don’t stop there. Get rid of the VP’s like Bob ‘global warming is a crock of sh!!’ Lutz.

  • Very interesting article, as are some of your other posts. I have bookmarked your great site for future visits.

  • Thanks for stopping by Grant!

  • Haha ^^ nice, is there a section to follow the RSS feed

  • Did Gm deserve the bailout? You Ask me I would say NO.. why? When Honda and Toyota were out inventing new cars, GM was busy boasting about its pride and Showing off its hungry hungry Daughter the Hummer