According to this CBC article Chrysler and GM have been saved by a 17 billion dollar injection of taxpayer money. My question is does this do anything other than delay the inevitable?
My understanding of the financial crisis in the US is thus:
Noboby wants to lend money to anybody else right now.
Nobody wants to spend money right now, other than necessities.
While cars may be a necessity to many, brand new cars are a luxury and as such are currently way out of the price range of Joe Public.
So what’s the plan to make these companies solvent by March? How do you start selling items that nobody can afford and nobody can borrow money to be able to afford? What makes any of these companies think there will be a sudden surge in sales (post Christmas, when everyone is flush with cash and has at least $12k to get rid of!) that will turn the tide? I know they’re gutting union contracts and executive bonuses and all that fun stuff but at the end of the day they’re still sitting on top of a mountain of products that people neither want nor can afford right now. The idea that a mere three months will be enough time to start making money again seems ridiculous to me. Is there any realistic chance these companies will survive or are they just rearranging deck chairs on the Titanic?
So Chrysler’s plan seems to hinge on borrowing money from the government so they can lend that money to their customers who will then be able to buy Chrysler vehicles. They also seem to have their hopes pinned on a line of electric cars that I thought were still in the theoretical stages. Aside from loosening the credit markets up they don’t really say at all how they’re going to get people buying their products again.
A funny thing I noticed: in their explanation of what a Chapter 11 bankruptcy would do to them they note that their collective agreement would be frozen and they’d have to keep operating under it until the court case was settled which could take years. So the employees are actually better off if the company goes bankrupt!
GM’s plan (which I just read the summary of) seems to be gut the union, fire a bunch of people, get rid of some products, become fuel efficient (I bet Toyota will never figure out how to do that!) and live off the government’s money until people start buying cars again.
I’m certainly no financial expert of any sort but these strike me as bad plans. These companies have to sell things, millions of things that nobody wants right now. Nobody can afford these things right now. Nobody wants to plunk down hard earned (or hard borrowed) cash on a vehicle with a possibly evaporating warranty. Appealing to a citizen’s sense of patriotism isn’t going to overcome the cynicism that comes with today’s economy. Buy American so you can suffer too! I don’t think so. If I had the spare $$$ laying around for a new car, I’d buy Toyota. Or Mazda. Or anyone except GM and Chrysler. I think these guys are hooped, bridge loans or not.
In one way. In another, more serious way, I guess they lose big time, since tax dollars will be taken from Ford, their dealers, and such to be given to GM and Chrysler. Also big loses: Toyota, Hyundai, Honda, et al. Also big losers: Ordinary taxpayers like you and me, who now get to pay for Rick Wagoner’s private jets and whatnot. I wonder if I can ask for a discount if I buy a GM car now, since my money is helping to keep their failed business afloat?
These days, being incompetent, arrogant and stupid will make you billions. But if you’ve run your business well, you get nothing.
Unfortunately, that doesn’t seem to be the plan. That would actually be a workable plan, which might or might not work. Ok, it wouldn’t work, but it’ the best plan we could possibly expect from people who are protecting their jobs.
The actual plan seems to be to get the money, make some token changes, wait till march, then do it all over again, hop[efully retiring while handing out golden parachutes.
I think GM has a better chance of surviving than does Chrysler. GM actually has a lot going for it - they’re making the best engines in the business right now, they’ve got state of the art technology throughout the vehicles. The new Malibu and the Saturn Aura are both world-beating vehicles. The Chevy Volt could be a game changer. The new Camaro could eat the Mustang’s lunch. GM’s path forward is pretty clear - cut a whole bunch of dealerships, downsize, reduce the number of different vehicles/nameplates by half, and negotiate a better deal with the unions. GM’s problems are no longer lack of technology or lack of competitive vehicles - their problem is structural.
But Chrysler? They make the worst vehicles around. Most of them wind up near the bottom of comparison tests. They’re way behind technologically, and bet their farm on the Hemi engine while everyone else was working on advanced direct injection engines. They don’t offer a single vehicle that is better than equivalent vehicles from other manufacturers. They had a hit on their hands with the Chrysler 300, but that car is aging and it’s no longer at the top of its class.
I think GM and Ford could survive if Chrysler were gone and GM and Ford grabbed a decent amount of their market share. That’s probably what needs to happen.
I think your analysis is correct. The astounding thing is, Chrysler’s brief marriage with Mercedes-Benz did not result in great quality improvements for Chrysler-why is this?
For the same reason the “marriage” ended in divorce. The companies had no business merging, had no reason to, and couldnt’ efefctively work together. They stuck some management on top, but the two simply don’t have compatible culture.
Mercedes builds high-end luxury autos which require a lot of maintenance and offer a lot for it. Chrysler… does not. And that’s simply the most top-line issue which rolls off the tongue.
In the 2008 JD power initial quality rankings among mid-size vehicles, guess who was #1? GM, with the Chevy Malibu. the Ford Fusion (another great car), was #3. Both vehicles beat the vaunted Camry in initial quality.
The mid-size sedan market is the biggest market for cars, and both Ford and GM are positioned very well? Chrysler? They have the Sebring and the Dodge Avenger, both of which ranked dead last in quality and routinely finish last in comparison tests.
In large cars, GM was again ranked #1, with the Pontiac Grand Prix. Ford was #2 and #3.
Overall, Ford and GM did quite well. Look at [url=http://www.jdpower.com/autos/ratings/quality-ratings-by-brand/sortcolumn-1/ascending/page-#page-anchor]this chart, and sort by quality. Ford and GM are up with the best brands. Dodge, Chrysler, and Jeep all finished clustered with the bottom group at 2 stars.
The best bailout the auto companies could get is if more people would buy American-made autos. If that happened, they wouldn’t need $17 billion(or 17 cents) of taxpayer money.
Chrysler exec said that 25 % of the people who try to get financing now get rejected. The billions that were given to the banks to loosen up the credit has failed.
And if they made quality vehicles that people wanted to buy, then they wouldn’t need a bailout at all. But they didn’t, and still don’t, mostly, so people don’t buy their vehicles.
In a nutshell, if US automakers go down, they might take some of the parts suppliers with them - parts suppliers who also supply the Asian automakers as well. Another effect of American automaker bankruptcies could be a fire sale of their current stock, killing an already weak new car market. Lastly, and maybe worst (in the eyes of the existing foreign makers), a sell of of assets would create a ready made manufacturing base for some Chinese and Indian automakers anxious to get into the US market.
I still don’t understand why GM and Ford don’t import, or manufacture in the US, the diesel vehicles they sell in Europe. Those things are awesome. And they all get 40+ mpg. At least the ones I drove. The Volvo S80 was an incredibly luxurious, large and comfortable car that got 47 mpg on a trip from Scotland down to the Chunnel.
Is there some import restriction, or clean-air law, or something else I don’t know about that prevents this from happening? It seems like they could get traction on this almost immediately.
All of the above. Diesels until very recently have not met the U.S. Clean Air Act requiements for particulate emissions. The newest, cleanest diesel cars do, but they have the problem that there’s little built-up infrastructure for diesel fuel (at least, not as well built up as for gas), and therefore these cars are at a competitive disadvantage.
There are other regulatory reasons why the car companies haven’t brought over their European cars. Crash regulations is a big one. They are quite different in Europe so cars built to the European standard are hard to convert to the U.S. standard.
I believe there’s some CAFE standard issue in the mix as well. I remember Ford recently petitioning the government for CAFE relief by allowing them to include their European models. I’m not sure how that affects the distribution.
Finally, there was an attitude in Detroit that Euro cars wouldn’t sell in America, because they were too small and not powerful enough. There’s some truth to that - Americans generally like larger cars - probably because they drive them farther and harder and more often, and because they have wide roads and lots of parking space.
We advertise cars that are comfortable like a couch and have the power of a rocket. I do not know if that is what people want. Even Lincoln commercials show them flying around town at great speed. Either that is what Americans want or that is still how they want to market to us. They seem to forget advertising mileage and safety . They want to peddle the expensive and plush cars,leaving the practical car market to whoever wants it.
The future should be cars like a Fiero size 2 seater with at least a hybrid power plant. (preferably plug in).
The oil boycott a few years ago opened the doors to VWs and foreign cars. When the Big 3 responded they made some crappy cars. ie Pinto,Chevy11,Falcon,Vega etc. Then they grew them. They kept getting bigger until they were small cars in name only.
The Yugo was sold here. It had to pass crash standards.
The problem is that even if they start building the best cars ever seen, the conventional wisdom is set so hard against them that people will still continue to joke about crappy their vehicles are for years, and of course their current state of near bankruptcy isn’t helping their reputation. I’d guess far more people choose which cars to buy based on reputation and past experience then reading up on recent car ratings, and its going to take a while to turn that around. Probably longer then GM has, at least absent further gov’t assistance.