The implosion of the Big 3

5 12 2008

The begging on the Hill resumed in earnest today.  The CEO’s describing how they drove from Detroit to Washington in their own vehicles.  Watching them beg reminds me of the many times I have seen  customers in a dealership attempting to buy a new car and getting completely hosed in the process.  Most of my frustration is aimed at GM.  I have been a GM person for years, but have been won over by Toyota/Lexus and the bar they seem to raise every year.

Car dealerships are usually owned by individuals, they are an autonomous entity.  They buy their new vehicles the regional distribution center, usually located in a shipping port.  Some dealerships are factory owned stores, which means they follow they plan-o-gram dealership design.  Factory stores are the manufactures idea of setting an example that their indy dealerships should want to look like.  In either type dealership there is NO communication between the people that sell and repair the vehicles and the board members in Detroit.  GM is the worst offender by far.  They build one unibody vehicle and tweak the exterior and sell it under at least 3 brand names.  Buick should have been canceled ten years ago when execs made the decision to mercy-kill the Oldsmobile line.  Nobody wanted faux wood grained station wagons since Chrysler introduced minivans in 1984.  If a particular model sold poorly they would change some exterior pieces and keep trying to push something nobody wanted to buy.  Model designs don’t change frequently enough, a 1999 model X looks just like the 2003 model X.  If you don’t create social desire to get the latest modern design, people will keep driving their old car.  The import guys change the looks of their models much more frequently than the domestic builders do, they actually create instead of rehash the old.

I understand that worldwide infrastructure of parts manufacturing will slow to a stop if production runs don’t return.  If there is no bailout money then thousands of jobs will be gone overnight.  If the taxpayers don’t bail these guys out then everybody goes broke, or thats the story they tell.  I don’t have a solution to the mess, but everyone knows the big 3 brought this on themselves.  The domestic auto industry lives on a paycheck to paycheck basis, cars must move monthly.  If there is a few bad months in a row, operating capital is gone and layoffs follow.  The disappearance of consumer credit played a large part in this, preceded by inflated oil prices that tightened wallets.

Here’s why the domestic builders brought this on themselves:

Too many dealerships in close proximity to one another.

Too many identical models underneath different brand names (GM).

Technology that is perpetually 3-5 years behind Japan, they claim the reason is the delay from idea conception to production.

Too much R&D emphasis placed on focus group reviews instead of feedback from showroom/service departments.

The employee price sale was a terrible idea.  It moved stagnate models, but people were waiting another year for the next sale to save money.

Building ugly, inefficient,and outdated models named after a first generation muscle car, that has nothing in common but the name.

Finance departments that got greedy upselling things like useless paint protection that costs nothing and does nothing for $999.  They had to make this money on the back end of the deal because of the race to zero between local dealers that was initiated by the corporate offices.  After people noticed they were getting robed in the finance department on extras custoemrs started buying from Carmax, the arguable inventor of the no-haggle price guarantee.  Even Carmax laid off 20% of its workforce in the 2nd quarter of 2008, if nobody can get financing, even the discount dealers cant move inventory.  If we bail out Detroit it will give them a licesnse to keep sucking on the lollypop of mediocrity for the next 3-5 years instead of actually working to improve their product lines.  I want to believe if credit lines were freed up again and people could actually afford to pay back borrowed money, a ridiculus sum of tax dollars could be saved from a bailout.  The American buisness model has always been about the risk vs. the payout.  If we take away the risk and provide a tax dollar safety net what would be the incentive for companies to improve?



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