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Saturday, November 15, 2008

Do not bail out the Detroit Three 


NYU finance professor David Yermack absolutely crushes the arguments in favor of bailing out the Detroit Three automakers. Teaser:

In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen's presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen's calculations.

I was a student in Mr. Jensen's business-school class around that time, and one day he put those rankings on the board and shouted "J'accuse!" He wanted his students to understand that when a company makes money-losing investments, the cost falls upon all of society. Investment capital represents our limited stock of national savings, and when companies spend it badly, our future well-being is compromised. Mr. Jensen made his presentation more than 15 years ago, and even then it seemed obvious that the right strategy for GM would be to exit the car business, because many other companies made better vehicles at lower cost.

Roger Smith, who retired as chairman in 1990, seemed to understand that all too well, and so did Chrysler's management, which happily sold their company to Daimler Benz for $30.5 billion in 1998. That deal, one of the savviest corporate divestitures ever, ended very badly for Daimler, which essentially paid Cerberus a few billion dollars (by agreeing to retain pension liabilities) to take Chrysler off its hands in 2007.

Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998.

As a society, we have very little to show for this $465 billion. At the end of 1998, GM's market capitalization was $46 billion and Ford's was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges. Along with management, the companies' unions and even their regulators in Washington may have their own culpability, a topic that merits its own separate discussion. Yet one can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.

Read the whole thing.

Frankly, I'd love to blame the fall of the Detroit Three on the UAW, but the harsh reality is that these companies have archaic corporate cultures that preclude their renaissance. Even the most casual observer knows that these companies simply have not become 21st century service organizations. If there is creativity and imagination in there, it does not make it out of the bureaucracy. When was the last time you thought cool when looking at an American car? Where is the Steve Jobs of the American automobile industry?

But it is worse than that. Even if the Detroit Three were able to boost the quality of their actual products to the level of the Germans and the Japanese, the dealer networks suck. With only occasional exceptions, the American brand dealers still treat their customers with contempt, at least by the standards of their principal competition. For years we had at least one American car -- either Ford or Chrysler -- but the service at the local dealers is so terrible (again, compared to virtually every Japanese dealer) that we could not take it any more. There is no Dodge dealer out of several in the area, for example, that does not simply blow compared to its Japanese competition.

So then you might ask why the carmakers do not just fire their dealers. Well, the dealers are protected by state legislation that makes them virtually impossible to terminate. Yes, these laws also protect dealers for the Japanese brands, but the Japanese networks are much newer so the dealers were selected after the development of modern customer service practices. If we are so stupid as to bail out the Detroit Three, we should, at a minimum, preempt any state dealer protective legislation. Yes, that will result in some "small" businesses going under, but as a matter of policy we should not care because better dealers will spring up to replace them and, presumably, employ people.

Ultimately, though, the failures are managerial and they almost certainly go a lot deeper than the top ten guys or even the top hundred. I (obviously) know no more about the automobile industry than anybody who reads the business pages, but it does seem to me that more creative management could have developed really exciting products and dealt with the unions and the dealers more effectively. There are a lot of ways to provoke cultural change, and had some small percentage of that $465 billion in capital been deployed to that purpose in 1980 the industry would be very different today. Even the dealer network.

MORE: Via Glenn, Megan McArdle tears into the UAW and the various shortcomings of the union movement as it has developed. All the more reason to oppose "card check," by the way.

I do take issue with this, though:
Almost everyone I know makes less than an autoworker, and has a whole lot less job security.

Megan's experience differs from my own passing observations (although she no doubt has different friends than I do!). Generally, the more people make, the less job security they have. Take a hard look at the longevity of the typical CEO, CFO, portfolio manager, investment banker, or professional athlete, even in normal times. And Detroit Three auto workers certainly do not appear to have a lot of job security, union contract notwithstanding. Of course, it has been obvious for a generation that these companies would not survive as automobile manufacturers. The only people who do not seem to know that live in southeastern Michigan or work in Washington.

46 Comments:

By Blogger smitty1e, at Sat Nov 15, 08:37:00 AM:

The Stormtroopers of Death are safe for work, and on-topic here.  

By Anonymous Anonymous, at Sat Nov 15, 08:42:00 AM:

The painful readjustment is coming whether we spend the money or not. I say, let's get it over with.

Send them to the bottom.  

By Anonymous Anonymous, at Sat Nov 15, 09:40:00 AM:

I live in the heart of autobuilding country. Half of my family or friends either have worked or work now in industries tied to auto-building.
This is heart-breaking in more ways than one, but the only way out is to let GM, Ford, etc. go bankrupt and hope that somehow they can re-organize into companies that can be productive and profitable. THAT should be the goal of the incoming Obama administration; provide expert help somehow to guide them through re-organization. Good luck with that.
As people have noted elsewhere, the European branches of GM and Ford are actually doing alright. It's the North American operations that are in the toilet.
Watching GM, Ford and Chrysler grind down over the last 20 years has been like the death of rats.

The insanity of the UAW labor agreements with the auto companies must end. The levels of compensation for autoworkers is insane, based on their skills and quality of work.
Just as a side note, the local dealers that represent Audi really suck too. My experience with the local Honda dealer was pretty good though.

-David  

By Anonymous Uncle Tom, at Sat Nov 15, 11:18:00 AM:

Only cure is bankruptcy, then only if all current senior management are replaced and UAW contracts renegotiated to achieve near parity with Toyota, Nissan, Honda, et al.

If they merge with each other, we just have bigger dinosaurs. If they are bought by, say, Nissan, they could destroy the buyer--viz Diamler-Benz.

Huge bitter pill for us all to swallow. If they bankrupt look for a Dow at about 7000. eh?  

By Blogger Big Mike, at Sat Nov 15, 11:57:00 AM:

Ford seems to be making the effort as far as quality is concerned, but I can't bring myself to buy any of their cars. Can't anybody in upper management take one look at the car while it is still on the drawing board and realize that there is nothing exciting about it?

I think a good thing to do would be to let GM go under as an object lesson to the other two, and then set requirements so stringent -- the entire upper management must resign en masse, the UAW must be decertified, all stock options given back, no golden parachutes, etc., etc. -- that Ford and Chrysler get serious about fixing things because of the level of pain.

But it won't happen. If the President-elect can emote all over the fate of workers who lost their jobs because they worked for an outfit that made CRTs (hey! we've now found the 21st century equivalent of the buggy whip manufacturer!) then for sure he'll emote all over the UAW.

I love my Dodge Intrepid R/T but it's longevity is due to getting it serviced at a local garage. The Big 3 can make a nice car when they want to.  

By Anonymous Anonymous, at Sat Nov 15, 12:07:00 PM:

> When was the last time you
> thought cool when looking at
> an American car?

Maybe this is the reason? http://www.paulgraham.com/gh.html

-------- relevant excerpt
American cars are ugly because American car companies are run by people with bad taste.
--------

Also, a very telling article about the decline of the Big Three: Although this article talks about the present software industry, it compares them to the car industry of yesteryears:

http://www.linuxjournal.com/article/5069

Costs:

http://townhall.com/columnists/CharlesKrauthammer/2008/11/14/the_bailouts_fault_lines

-------- relevant excerpt
(the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48)
--------

(On the other hand, another article in the National Post puts these numbers as $60 vs. $47).

Vilmos  

By Blogger Purple Avenger, at Sat Nov 15, 04:02:00 PM:

It took IBM about 10 years to re engineer its corporate culture, flatten the org chart, and push decision making down to the lowest feasible level but that was without the grim reaper knocking at the door, he was still a few blocks down the street.  

By Blogger Mrs. Davis, at Sat Nov 15, 04:56:00 PM:

Your point about the dealer network is spot on.

Last summer we bought our 4th minivan to replace wour 12 year old Chrysler with 200,000 miles and still running string. For the first time we seriously looked at the Japanese alternatives. The Chrysler product is still the best designed product out there, even if you think it looks like a shoe box (and I do.) But my wife was so jealous of my treatment at the Lexus dealership that we ended up getting a Honda so that she could get the same treatment from a sister dealership. The Odyssey sux for a 6'2" guy, but she loves it and the decent treatment from the service department.  

By Blogger Assistant Village Idiot, at Sat Nov 15, 09:57:00 PM:

Does anyone know Michael Moore's take on this? The irony-meter must be registering at the redline by now.  

By Blogger TigerHawk, at Sat Nov 15, 10:07:00 PM:

"Roger and Me" was a good movie, and I actually liked it. Moore was more intellectually honest back then.  

By Blogger Mister Snitch!, at Sat Nov 15, 10:08:00 PM:

But they WILL bail 'em out, my friend. You know exactly how it works: You live in Jersey.

And you know what's coming next, too: Cold-hearted Neocons like you don't give a damn about the working man. It's all about him. How cynical of you to assert that it's all about building a political power base, dependent on entrenched pols, taking the country back to the George Meany days. Next you'll be saying that's why Dems fight school vouchers and WalMart.  

By Blogger North Dallas Thirty, at Sat Nov 15, 10:16:00 PM:

The interesting thing is that both GM and Ford are frantically trying to bring over cars from the other sides of the ponds -- Ford with the new Fiesta, future Focus, and upcoming CUV, GM already with the Astra and Vue, plus the G8.

Too little too late, though. There is simply no way that companies where workers are paid the insane rates that UAW people make can survive. Even back in the '80s, when Lee Iacocca wrote his first book, he specifically states that he and his fellow auto executives should have had the balls to lock out the UAW and finally force them to accept commonsense solutions.  

By Anonymous Anonymous, at Sat Nov 15, 11:20:00 PM:

For quality engineering, innovation, stylishness, and entrepreneurshp, check out the Aptera.  

By Anonymous Anonymous, at Sun Nov 16, 12:09:00 AM:

We bought a 2008 Ford Edge after my wife looked at all the alternatives. It was clearly superior and the Microsoft Sync hands free phone/music/audio system is truly brilliant.

Unfortunately, the 2nd worst car I ever owned was a 1988 Taurus, that soured me for many, many years.

The hands-down winner as worst car ever was my wife's 1985 Dodge Shelby Charger. Every single system failed on the car, even the paint.

Those two cars sunk both Ford and Chrysler for me.

Moral of the story: quality and value win out. The Taurus was tight at 30,000 miles, but completely fell apart at 50,000 miles.

My Acura TL is wonderful, as is the Edge (so far). It's a shame that it's simply too late for Ford. Unbelievable it's going bye-bye.

I never owned a GM car or truck.  

By Anonymous Anonymous, at Sun Nov 16, 12:13:00 AM:

It's the UAW contract. They HAVE to keep the people on the payroll, meaning that they HAVE to keep rolling out iron... any old iron... resulting in way too much production capacity, and no chance of rightsizing the company to rational market demands, and no cash to develop new products.

All those cars produced have to go somewhere, for a cheap price, often to rental agencies, leaving them with less cash to work with, plus a lot of "common" cars on the street, killing resale value, and driving up the 5 year cost of ownership... thus the rash of leasing, as people avoid resale altogether... but it means the makers are stuck with all those leased cars. It's a viscious cycle.

The dealership issue is a salient point. 1/2 of them would go bye bye under bankruptcy, and likely 1/2 the UAW, and hopefully 100% of the management.  

By Anonymous Anonymous, at Sun Nov 16, 12:15:00 AM:

Hey! Here's an idea full of hopey change:

Merge and nationalize the Big Three and outlaw all other car companies, or tax them into bankruptcy. (Like Obama's plan for any new coal companies.) Pass an annual federal car registration tax of $50,000 for each existing car to get them off the road immediately.

Have the new American National Motors (snazzy name, eh?) make one electric car for all (call it the Folkswagon or the Democrat) and force everyone to buy it or go without. If you need a truck, add a trailer.

We end pollution, get rid of those pesky non-union Japanese and German car companies, strengthen the UAW, employ millions of people under control of that union, destroy Big Oil and OPEC and get rid of overpaid CEOs.

Perfect.

All Praise Obama (PBUH).  

By Anonymous Anonymous, at Sun Nov 16, 12:22:00 AM:

First, the left rails at big corporations as evil and corrupt because their CEOs are overpaid and corporations don't pay their fair share of taxes and don't pay their people fair wages and fail to "give back" to the communities they steal from and blah, blah, blah. Yeah, Biden tells us it's all about the three letter word "jobs," but though we love jobs, we hate employers. They are greedy, unfair and evil. Get rid of them.

The algorean environuts preach to us that cars are bad because they are ... well, bad. CO2 producers. Killers of the planet, unrecycled land fillers, etc. We should walk. Except for The Elites. They get to fly and have limos and Italian villas.

Harry Reid says coal and oil are bad because they "make us sick." Coal and Oil need to be eliminated.

Except, again, for The Elites, who can drive in chauffeured SUVs, fly on government jets and heat and/or their multiple homes however they want. See Al Gores energy usage, George Clooney's Italian villa or Babs Streisand's Malibu mansion or John Edwards' 10,000 sq foot main house (not to mention the guest house out back).

I say, do as Barack and his leftard friends want: get rid of any corporation you can, when you can.

And get rid of cars, period. And while you're at it, get rid of greedy and polluting oil and coal companies, too.

Letting GM, Ford and Chrysler go under gives us the opportunity to scrape those massive eyesores from the face of the earth and allow Detroit and its environs to return to untouched, pristine, government-protected/owned land the Sierra Club always envisioned.

Think ANWR, but in Michigan.

It would be a nice place to visit...on foot, of course.

//sarc off.  

By Anonymous Anonymous, at Sun Nov 16, 12:29:00 AM:

And why do I say 100% of the management must go?

Let's go back to 1980, during the Chrysler bailout. Iacocca (who the non-car people somehow view as a genius, but we in Detroit know better, believe me) took all of 7-8 years to return Chrysler to near bankruptcy. He is a fool, just like most of the other big names in the industry that you see in People magazine.

But, the makers all saw then that socialism was the future, and when Hillary went after socialized medicine, guess who stood shoulder to shoulder with the UAW with their hand out begging? You guessed it... the auto industry execs. We are all comrades now, comrade.

It didn't happen for them in 1993, but they were certain it'd come eventually, they just had to bide their time. And so they bided away, and never confronted their issues with the UAW, while the transplants grew ever stronger. They just careened to the brink, and here we are. How do you like the view?

Bankruptcy. Fire all management. Reorganize. That will help all of us in Detroit, I assure you. The reorgs will be populated by good people, will make money, and there will be jobs for us. Help the country, and help us. No bailouts for these incompetents. 1980 Chrysler bailout should tell you all you need to know.  

By Anonymous Anonymous, at Sun Nov 16, 12:30:00 AM:

There are 780,000 GM/Ford/Chrysler retirees/Democrat voters that need to be paid off.

There are 2.5 million working Democrat voters in or attached to the Big Three who voted for and believe Obama (PBUH) will save them.

Do you seriously think Nancy Pelosi or Barbara Boxer or Diane Feinstein will not pay them to continue voting for them?

Open your wallets, boys. And bend over while you're at it.  

By Blogger Georgfelis, at Sun Nov 16, 12:35:00 AM:

Anon 12:13, my 89 Taurus is still going perfectly strong at 144k with only the expected hiccups (belts, alternator, battery, EGR, etc). I've had similar good results with other Ford/Chevy products, buying at 100k+ and selling mostly to the scrap dealer, highest I've hit so far was a Dodge Caravan at 249,900. The Citation ran like a flat brick on wheels, the Caravans all held up perfectly fine including the one that intercepted a head-on with only injuries being seat belt burns and an abraded hand (from being pushed into the windshield by the airbag), all the way back to my first Ford Falcon. My only trip into foreign carland was a couple Subaru wagons back in the 70s. They ran good but boy were they expensive to repair for transmission issues (while anything else could be repaired with a screwdriver and a set of metric sockets).

Ah, those were the days.  

By Anonymous Bozoer Rebbe, at Sun Nov 16, 01:54:00 AM:

Whoever said that consumers were rational actors must have been using my bong (US Patent #4,253,475).

Many, if not most, car dealerships are owned by companies that sell more than one brand. Your neighborhood Ford or Chevy dealer probably also sells Toyotas. Do you really believe they send all their lazy, rude employees to work in their domestic brand stores?

People whining about the crap Ford or Chevy their dad owned in 1985 would be like never shopping at Sears because their mom had a POS Kenmore vacuum cleaner 20 years ago. The same folks who bitch about Detroit quality and customer service happily buy a new iPod when the old one is too expensive to repair out of warranty. They tell themselves they are getting such a great deal because the new one has a colored case, a bigger hard drive, and plays videos, when what they are really getting is a bill for a subscription fee to be in Steve Jobs' club. At least iPods can be repaired. Most consumer electronics can't be repaired. I don't mean they can't be repaired at a reasonable cost, I mean they've been designed not to be repaired and no replacement parts are available. If you send them in for warranty work, they'll just send you a new one. This is true for products that can cost hundreds of dollars.

The UAW already has made concessions that will put the domestics on an even playing field in terms of structural costs. The problem is that most of the savings don't start being realized until 2010.

I'm no fanboy of the UAW. Wages and benefits were on the rise long before the US car industry was organized in the mid to late 1930s.

I see that $72/hr figure bandied about. At least the UAW workers are doing something for their wages. They build cars. What do Federal employees do for our money?

By way of comparison, in 2005 there were ~1.6 million executive agency federal employees with another 2.4 million pensioners. The average salary for all civilian non-postal Federal employees in 2006 was $66,371. That’s salary folks, not including a benefit package that is much more generous than anything available in the private sector. Almost 20%, of Federal civilian employees make over $77,500 a year in salary. That’s 288,000 people sucking hard at the Federal teat, about twice the number of UAW members working for the domestic auto companies. At least the UAW members do stuff for their wages. Their wages are paid out of the voluntary purchase of products they make. The Federal employees on the other hand, don’t seem to do much of anything productive, and they are paid by taxes coerced from the general public.  

By Blogger TigerHawk, at Sun Nov 16, 02:19:00 AM:

Bozoer Rebbe,

I have of course seen dealers that sell multiple brands, but around here (central Jersey) they mostly sell foreign badges, and even then, most of the dealers (by a long shot) are single brand shops. We have bought Dodges from both of the local Dodge dealers, and do not like either of them. Same with the Ford dealer. The Toyota dealer is fabulous by comparison.

We had the same problem in Chicago twenty years ago. We set out to buy a Ford, and the dealer was such a greaseball that we ended up buying a Toyota instead.

I am sure there are good American dealers. I just have never lived near one.  

By Blogger Foobarista, at Sun Nov 16, 03:21:00 AM:

Part of me wants to have sympathy for Detroit; one thing that people haven't talked much about is Detroit is dealing with the first bunch of major changes in drive-train tech since the early 20th century. This is causing people to delay purchases of all cars while they want to see if things like the various hybrid techs, electric, etc pan out.

My guess is this became apparent this summer when gas prices shot up. Why buy a Buick this year when you could wait a couple years and try out a Volt?

I know I wouldn't buy a new gas-powered car now; if I happened to need a new car, I'd buy used. I'd consider a hybrid, but I want to see how things behave when the batteries aren't new first.

Also, quality *is* better, which is part of the problem; you can now afford wait for ten or more years before buying your next car. If you're uncertain about what standard will win the war, you won't buy. Electronics companies experience this fairly frequently, but this is the first time car companies are confronting this effect.

Unfortunately, Detroit is particularly ill-suited to thinking this way.  

By Anonymous Anonymous, at Sun Nov 16, 06:51:00 AM:

Bozoer -

Nice bong. Just so happens I work for the feds, specifically the patent office. I'm pretty sure we do something useful, but that may be just my way of being able to sleep at night by justifying my fleecing of the American people through my mind bending salary.
I do agree, though, that much of the federal (and state) beaurocracy is bloated to the point of ridiculousness. I wouldn't mind seeing some jobs slashed (though not mine, of course :))
As to the UAW salary, I think the number gets bandied about as a comparison to the non-union shops of the foregin manufacturers in the US who do the same thing and make less as a general rule.
Overall, I'd rather see bacnkruptcy and reorganization than a bailout. It'd be best for the economy in the long run. Sucks for the big 3 and their employees, but nothing changes with a bailout. Then again, politicians make their living by punting problems down the road for other politicians to worry about.  

By Blogger Dangerous Dan, at Sun Nov 16, 08:15:00 AM:

My GM experience: A few years back I took my '96 Blazer to the local GM dealer for a transmission flush. I mentioned to the service writer that the rear windows wouldn't work and could they check that out. He mumbled something about a standard $39 troubleshooting fee.

When I picked the vehicle up I was told the child safety lock switch had been on and it was simply a matter of flicking it to the off position. I was charged $39 for them to do that. I protested some but the general manager was at lunch, I was in a hurry, so I paid that ripoff fee.

I haven't been back since, I will never be back and when car shopping you can bet I do NOT bother looking at GM products. I am now a happy Nissan owner!  

By Anonymous Disappointed, at Sun Nov 16, 08:26:00 AM:

I strongly disagree.

Somebody who actually knows about cars and the auto industry has to stand up for Detroit.

GM by the observation of anyone who follows automobiles, was on course for a renaissance like no other--particularly with Bob Lutz at the helm when the government came in (who else) and changed CAFE laws.
Almost immediately, many much-needed products in the pipeline had to be scrapped or pushed-back while GM took another look at these new government regulations (in an economic downturn no less) to try to adjust its product mix again.

Keep in mind a new car costs about $2 billion to develop.

I am shocked you can claim to have conservative/libertarian roots and not see the problem with excessive and ineffective government regulations and their role in this mess.
Wait until the EPA starts regulating Carbon Dioxide!

Also,I would like to see some dealer satisfaction figures apart from your anecdotal evidence. Most "evidence" about GM and Ford vehicles are stuck in the 1970s and 1980s.

Take a look at some real auto publications; you will get a much different story.  

By Blogger smitty1e, at Sun Nov 16, 08:33:00 AM:

Fuggedabout all this.
If Detroit won't at least send me a postcard of the car I'm buying, but will never see in three dimensions, I'm going on strike, and will never buy any of their crap again.  

By Anonymous Disappointed, at Sun Nov 16, 08:34:00 AM:

dangerous dan said...
My GM experience: A few years back I took my '96 Blazer to the local GM dealer for a transmission flush. I mentioned to the service writer that the rear windows wouldn't work and could they check that out. He mumbled something about a standard $39 troubleshooting fee.

When I picked the vehicle up I was told the child safety lock switch had been on and it was simply a matter of flicking it to the off position. I was charged $39 for them to do that. I protested some but the general manager was at lunch, I was in a hurry, so I paid that ripoff fee.

I haven't been back since, I will never be back and when car shopping you can bet I do NOT bother looking at GM products. I am now a happy Nissan owner!
---------------------------------

By law there is nothing GM can do about that dealer--nothing.  

By Anonymous Anonymous, at Sun Nov 16, 09:38:00 AM:

Disappointed,

I am a car guy, too. Let us tackle one set of leeches at a time. Let's deal with the UAW and Big 3 Mgt now, and the government slugs later.

Agree with you ab't govt regs, but the Big 3 careened to the brink on that too. Powertrain development stagnated, even as CAFE finally tightened.

Ford is still selling that 50 year old 5.4L V8 in their flagship vehicle, the F-150. Sure, they've put some lipstick on that pig, but it's still a pig. And the tranny is still that 50 year old 4R75... a fuggin FOUR SPEED... IN 2009!

OK, it appears they're switching to a 6 speed finally, but I wrote the first program workplan for that tranny back in 2000-2001 for Ford, and it's only NOW making it into that F- 150. Ridiculous. On a vehicle they squawked about selling nearly 1M of!

And you don't wanna hear about how badly they missed their cost target on the launch of the new 2004 F-150. Think about $1B per year in revenue missed, or more. They lied, or are stupid, or both.

Sure, they're cash poor, but they've been stupid, too.

Google "Ford" and "palladium" and "stupid clueless board of directors dumbasses", to confirm that stupidity, and that's just one example of it. The idiots decided they were precious metal speculators, rather than carmakers.

Bankruptcy. Now. Do it for the kids here in Detroit.  

By Blogger dagwud, at Sun Nov 16, 09:54:00 AM:

I think TigerHawk's "exception" misses Ms. McArdle's point.

She's not talking about CEOs, CFOs, etc. Notice the wording of her comment, "Almost everyone I know makes less than an autoworker." That means almost everyone she knows is not a CFO, a CEO, etc, and not subject to the "increased income, decreased security" experience (which I'm not challenging).

Most of the people I know have poorer compensation than autoworkers - lower salary, lesser benefits, 401(k)s instead of full pensions and healthcare. And they don't have union contracts keeping them employed.

Tigerhawk may have taken exception, but the resulting explanation doesn't contradict McArdle's assertion. They're two sides of the same die.  

By Blogger TigerHawk, at Sun Nov 16, 11:05:00 AM:

Disappointed, you wrote "By law there is nothing GM can do about that dealer--nothing."

I think that was the point of my post, that any bailout plan needs to include the federal preemption of the state laws that protect automobile dealers from replacement. Otherwise they will continue to suck and that will hurt the American brands.

At a macro level, I think that Detroit's fundamental mistake in the last thirty years or so is that it still thinks that manufacturing is, well, manufacturing. The best manufacturers in every industry have learned that manufacturing is really just another service industry. You can make the best widget, or car, around, and if you service is poor you will not be a successful business. Unfortunately, Detroit has a hard time doing anything about the service because of the hammerlock of the dealers. Any intervention needs to solve that problem, or these companies will never be successful.

Also, Disappointed, I agree that regulation is an issue, but the foreign manufacturers all have to deal with that, too. More to the point, neither regulation nor the UAW explains why Detroit does not beat the Japanese in the major foreign markets. Only bad management explains that.

Back in the early 1980s I lived in Ann Arbor. My roommate's father worked for General Motors. I remember asking him why the then "Big" Three did not important small, fuel efficient cars from their foreign operations -- why wasn't Opel a big brand in the United States? His answer was that the internal politics at these firms precluded it. Who knows if he was right, but it certainly seems like a good explanation.  

By OpenID MagicalPat, at Sun Nov 16, 11:57:00 AM:

When was the last time you thought cool when looking at an American car?

You think the cars are bland now, just wait until the new CAFE standards are imposed on the big three.

I remember 1978 when they destroyed the beauty of the Monte Carlo, the Grand Prix and the Oldsmobile Cutlass in an effort to squeeze a few more MPGs out of them.  

By Anonymous Anonymous, at Sun Nov 16, 12:41:00 PM:

Would bankruptcy really even help? Would any of you buy a car made by UAW workers or with a Ford logo on the grill?

The reputation is long gone, the brands are toxic. I see the Chevy logo and I think "There's a car I'd never buy."

Seriously, the words Buick, Oldsmobile, Mercury, Cadillac, etc are synonymous with "old fogey" and "uncool". And nothing will ever change that.  

By Blogger Joel A. Levitt, at Sun Nov 16, 01:22:00 PM:

I think that TigerHawk may have employed too narrow a point of view in adumbrating the value of the Big Three. Of course, this thought may be the result of my limited experience, prejudice and ignorance. I am not an economist. I was employed by Ford as an applied physics researcher from 1972 through 2002. I live in Ann Arbor – in South Eastern Michigan.

Ford owns and operates office facilities and many large plants all over the U.S. Merely maintaining these facilities takes the experienced talents of thousands. Moreover, Ford plants are supplied by very expensive electrical, natural gas, water and waste disposal lines, which are owned by independent utilities and authorities. They are serviced by equally expensive roads, built with the taxes paid by generations of the residents of the towns, counties and states in which they are located. Further, the hundreds of thousands of automotive employees own homes or rent in locations convenient to their places of work, and the value of these residences (as measured by price) depends on the convenience of their locations. Similarly, these employees are serviced by thousands of retail and other facilities, built in locations convenient to their customers, not to mention the educational and medical systems, built to care for them and their children.

To a considerable extent, within each unit, Ford’s employees know each other. They know whom to trust and whom to doubt. They know who gets the work done and who holds it back. Many have economically marginal skills, but many are sophisticated computer users or talented machinists or heavy equipment operators or engineers or accountants or attorneys or etc., and their productivity and potential are magnified by the organizations to which they belong and which they understand.

Any meaningful estimate of the value of the Ford Motor Company must take account of the value of all of these physical and human resources and of the cost of replacing them. Our “don’t recycle, just throw-away-and-replace” economy, is no guide. The value of the Ford Motor Company is not measured by its market capitalization, and I guess that this is true of Chrysler and GM, too.

Despite the foregoing, I don’t mean to imply that Ford is not in need of reorganization. If we contrast the organization of Ford with that of Toyota, which has always been open to sharing information about its organization and methods, the need for reorganization is glaringly apparent. A few years ago, Toyota was governed by a board of 56 trustees, each of whom was a working administrator. Reporting to these trustees was one layer of supervisors, designers, engineers, scientists, accountants, attorneys and HR personnel. Immediately below this layer, were the plant workers and sales personnel. And, not only was each employee charged with improving the way that his/her job was done, but each employee was required to spend some time in the plants and in sales, before beginning to do the work for which they were hired. And, the goals of this organization were first high quality and second low cost. And, the measure of Toyota’s success was the ten year or longer profit picture.

At the same time Ford resembled a feudal state. There were hundreds of vice presidents, each at the head of a barony, most concealing the mistakes made by their organizations and concealing the problems that they had yet to solve, most ready to climb over each other to gain advancement and almost all ready to spring to the defense of members of their class. Below these Ford barons were their loyal directors, below them the managers of managers, below them the loyal managed managers, below them their supervisors, and, finally below them were the workers. In contrast to Toyota, which expected each worker to improve the way that each job was done, Ford abandoned its EI (employee involvement) program. Rather than improving the performance of already proven major components, as was done by BMW and Toyota, Ford continually focused on brand new designs, because that was the way to enlarge one’s barony. The Ford slogan was “Quality is Job 1,” but the fact was that the market price of stock options was far more important. The ten year profit picture was seldom considered, and thinking two years ahead was often considered visionary.

What about attention to the needs of the customer? In the ‘80s when gasoline was in short supply, customers began to demand small and efficient cars. But, the position taken by Henry Ford II was: If we don’t know how to make small cars at a profit, then we will make only large cars.

The Big Three must be reorganized in a way that returns the American automotive industry to health, while preserving the immense investment that we have made in them. I wish I was sure I knew how to do this. I hope that some of my ideas are useful.

Chapter 7 bankruptcy is no solution. Chapter 7 Bankruptcy is used by “companies [that] are so far in debt or have other problems so serious that they can't continue their business operations.” “Their assets are sold for cash by a court appointed trustee. Administrative and legal expenses are paid first, and the remainder goes to creditors.” This process does nothing to preserve most of the assets already listed above. Chapter 11 Bankruptcy is also inappropriate, but it may contain clues as to an adequate solution. In the case of Chapter 11 Bankruptcy, “committees of creditors and stockholders negotiate a plan with the company to relieve the company from repaying part of its debt so that the company can try to get back on its feet.” “The U.S. Trustee may appoint another committee to represent a distinct class of creditors, such as secured creditors, employees or subordinated bondholders.” “After the committees work with the company to develop a plan, the bankruptcy court must find that it legally complies with the Bankruptcy Code before the plan can be implemented.” Unfortunately, this process does not deal with preserving any assets that are not owned directly by the debtor company, and it is only directed at producing such viability as is needed to enable the repayment of the creditors. It does not focus on long term company survival.

It is important to decide what we want the final state of the automotive industry to be before we start proposing means for getting to it. It seems to me that the conditions that have allowed the Big Three to become such a problem are captured in their name. They are too big, and there are only three of them. That there are only three is the result of the negligence of the federal government, the energetic efforts of automotive executives and financial interests, and the fact that they are too big, that is, the fact that they are vertically integrated.

As our automotive firms grew, the car business came more and more to resemble a centrally planned industry, and it behooves us to learn from the ubiquitous failure of the centrally planned Socialist economies we have witnessed during the past century. Many of us can remember Chrysler’s acquisition of American Motors, DeSoto, Plymouth and Studebaker. Perhaps the anti-trust division should have prevented these acquisitions and allowed these firms to stand or fall on their own, while providing salutary competition. Many can also remember GM integrating the design and production facilities of its formerly distinct divisions so that divesting in response to an anti-trust decree would be nearly impossible. But, even if Chrysler’s acquisitions had remained independent firms and if GM’s brands had been disaggregated, some, perhaps most, would have failed, and it would have been unlikely that new firms would have been formed to compete in the automotive market. It would have been unlikely, because the investment needed to compete with the vertically integrated giants would have been too great.

For the purposes of this note, we may divide the functions of the Big Three into: finance; research; component design; component engineering; component production engineering; component production; vehicle assembly; marketing; sales, and after market care. And, for efficiency, these functions might be grouped into five areas: (1) finance; (2) research; (3) component: design, engineering, production engineering, and production; (4) vehicle: assembly, marketing, and sales, and (5) after market care. It seems to me that our goal should be to have several management-slim firms competing with each other in each of these five areas, and each of these firms should be independent of its suppliers and its customers.

What, then, should the government do? First, it must, for a time certain, loan just enough money to the Big Three to keep them afloat. Second and just as important, it should create committees of the automotively knowledgeable and a committee representing the public interest to work together to prepare a plan for reaching the aforesaid goal, offering further support when an acceptable plan has been developed, and taking a preferred stock position in the result.  

By Anonymous Disappointed, at Sun Nov 16, 01:24:00 PM:

Anonymous,
This is what I mean by old anecdotes about 80s Fords.
Oldsmobile has not existed since 2004 when it was dissolved. Four years ago.

And Buick and Cadillac have long passed you in terms of product content. You've probably seen but not recognized any of them, and it'd be worse if I showed you the glowing reviews. The latest two models from Buick and Cadillac have been unable to keep up with consumer demand--particularly Buick.

It is Lexus sales that have been in a free fall since spring at least.

TigerHawk,
I see what you are saying. GM has had years of bad management, but the auto press is almost unanimous that its best management in years has been now--particularly Bob Lutz their product czar who has pushed the creation of cars that have finally been considered equal to or better than foreign rivals. And nobody can say the auto press has been in love with GM or the other domestics in years. They were very tough.

CAFE disproportionately penalizes domestic manufacturers because of the way it is structured. It forces them to sell less of their most popular models and yet allows foreign makes (like Toyota and Nissan) to increase their market share of those same types of vehicles without penalty. It is truly bizzarre.

It even created the SUV and doomed the wagon because of the way it calculates a "vehicle footprint".

I know people are wary of this money going all over the place, but in my opinion, AIG and GE should have been left to fall (along with maybe a few others) and the government should have sent "help" (although that is trouble in itself) Detroit's way.

It is too important to fail.  

By Anonymous Anonymous, at Sun Nov 16, 06:45:00 PM:

Disappointed,

Again, you make some good points, but you downplay the fundamental problem. The Big 3 is failing because of their business model, not their products.

They still control about 1/2 of a potential 17M vehicles/year NA sales market. They have at least some good products (and I disagree with you about Lutz's influence re products. New vehicle programs are 4-years in the making, minimum, and he hasn't been their long enough to impact that cycle broad and deep as you're suggesting.. Lutz is just another blowhard marketeer, like Iacocca, and I've seen his kind pass through this town for decades now. They are there to move the iron, under the same stale old business model. You see the results of that breed.).

Notice Ford is slightly better financially right now than the others. It's blind luck, because they're equally dumb. But they were in trouble 2-3 years ago, went to WS for cash, hocked everything, including the furniture and the blue oval, and got $23B to float them.

But, WS's price was heavy for the Detroit blowhards. They were forced to bring in Mullaly to run the show. Imagine! A dirty unwashed aerospace exec, why, he's nowhere near as smart as we "car guys".

You should have heard the wailing and gnashing of teeth around here. But this guy is the real deal, and knows how to reform to a proper business model, unlike the "car guys".

Most of the wailers and gnashers should be fired, and will be if we let it happen.

You can sell junk and still make money, if you employ a strong business model. The business model fights through all, if it's properly constructed.

The market is about to force these 3 to create a viable business model, if we stand aside and let it work. Most of that $1/2T of capital Tigerhawk mentions as being "destroyed" is salvageable, with a new model.

Bankruptcy is the best option for Detroit. We have talent here, believe me, but it's being wasted. Only a new business model will salvage that talent and capital, and the "car guys" have proven incapable of building one.  

By Anonymous Disappointed, at Sun Nov 16, 08:29:00 PM:

Anonymous,
No way is Bob Lutz a "marketing guy". By any stretch of the imagination. If you have ever heard him speak, he is a PR nightmare, because he shoots from the hip in a way you have never heard any other executive do.

Your opinion is distinctly not held by anyone in the automotive press. They would unanimously agree that Bob Lutz is the reason why they have--at long last-begun to produce cars that have impressed the auto critics.

Also Lutz has been there for about six (6) years now--and he interrupted cars in mid-stream as soon as he got there. His cars are here: the 2008 Chevrolet Malibu (beat the Toyota Camry in a recent Car and Driver comparo), the Cadillac CTS and Buick Enclave (smash hits with consumers and the press).

The flock of cars started under his watch are coming out now, and they have consistently been reviewed as top notch.
Yours is definitely a minority view in the automotive world.

You might be thinking about Ron Zarella and the Procter and Gamble MBA flock that invaded GM in the 1990s with disastrous effect.
That was an epic disaster that set GM up for years of pain to come; but Zarella is gone (thankfully).
Don't blame the janitors for causing the mess they are cleaning up.

The funny thing is that this short-term stock-price driven approach is what dooms companies. Toyota's CEO does not worry about the stock's short-term performance and is thus not pressured to quick-fix.

In America we force people to fix things immediately; so we careen drunkenly between CEO after CEO and from "Sigma Six" to "Kaizen-lite" to "cost-cutting" to "mergers" in an ADD-like string of business moves to pump up short-term stock value.

The problem is that does not work for companies with 50 years of structural problems (including labor contacts and dealerships they cannot close down).

GM is much leaner now than it used to be. If the credit crisis wasn't here we would not be talking about GM's death.  

By Anonymous Disappointed, at Sun Nov 16, 08:33:00 PM:

Here is a Car and Driver feature on GM:

http://www.caranddriver.com/reviews/hot_lists/high_performance/features_classic_cars/gm_standard_of_the_world_once_more_feature/(page)/1

Note: Car and Driver has consistently over the years been accused of having a foreign bias--particularly for Honda and BMW.  

By Anonymous Anonymous, at Mon Nov 17, 12:40:00 AM:

Disappointed,
Yes, the MSM likes the "car guys",... the personalities... they give them a story... it's fun. Lutz's bluster makes good copy. Jet pilot... busts off some good lines... but I'd still maintain that his contributions in the product arena are those of choice and selection, of style, and not of true product development. It's personality driven... not process driven.... which is Detroit's history... and downfall.

The "car guys" are careening towards the cliff because of that attitide. And the automotive media is no different than any other media... they'll stay in American Idol mode until the Big 3 business model is over the cliff. Check the WS meltdown, Paulssen was touted as a genius less than a year before this disaster today. Media is media... dumb.

I'll see you one blowhard Iacocca/Lutz and raise you one Derrick Kuzak over at Ford, who is globalizing Ford's platforms. Dirty, painstaking work, and the media is absolutely blind to it, as he's a rumpled, stooped over curmudgeon with no quick snark on offer. But, this is the real work of changing the business model, and Lutz has never and likely will never accomplish this. Mullaly and Kuzak may. Maybe not.

But their work is the holy work, and it flies below C&D's radar. Think about this, because you can sell JUNK, and make a profit, and you can have your full lineup on C&D's cover and go bankrupt, as all the Big3 are poised to do.

I think we're on the same page re the root causes here, with my added kicker that these personalities, and the personality driven culture they've personally thrived in... HAS to go.

Quick now... can you name even one Jap auto exec?!? The Japs depend on their process... not personality. I can go up to any Toyota spring engineer's work station, pull open his files, and find what I need/want. They work efficiently, common systems... and it pays off. No blowhard "car guy" ramming through personal preference, which might show up in C&D, but comes at the expense of the org, is out of synch, and worst of all... unprofitable.  

By Anonymous Anonymous, at Mon Nov 17, 01:23:00 AM:

Also, the ADD of which you speak is the prime driver of this personality driven, marketing based culture which Lutz personifies. The business model is too unstable, and sales MUST be there. If not... death.

So they go for the flash. They tart up the product, flit around, and spin their wheels on dead ends.

I remember a couple years ago, wjen Chevy came out with that 4 wheel steer on their pickups (did Lutz have anything to do with that abortion?). Big ad campaign... they were gonna conquer the world... sure game changer. Hah!

So, we were down in the Dearborn PDC studio looking at the clays of the next Ford Super Duty, and some "car guy" bounces in telling us we were gonna have to put that 4 wheel steer onto that Ford. What a joke. Waaaay too late for that, of course, and after a 2 week fire drill, even this idiot knew it, I figure Chevy burnt at LEAST a $1/4B of capital on that abortion, and likely close to that in expense. And Ford wanted to follow them!

Now, if Lutz or whoever hits on something like that, great, but they're still ADD ridden car guys, scurrying around like ferrets on crack... and that's inevitable when you're scrambling for market share, in frantic effort to support an unsustainable business model. It's roulette.

That's all true with or without the finnancial crisis. GM might be leaner, but they're not lean. Their business model was doomed by gas prices long before FM FM went bust.

Gotta blow it up. Save what's good, sh!tcan the rest. There's plenty of good, but almost none at the top. No profits, and you've simply failed.  

By Anonymous Disappointed, at Mon Nov 17, 09:18:00 AM:

You know, you are correct in that people wonder if GM can continue to operate well after Lutz is gone. Will he change the process?

These questions have already been asked about him and the answer is yes.
For started this "global platform" thing wit the Mondeo, and failed miserably in the 1990s.

Ford is only now starting to do that?
GM is way, way ahead of Ford in terms of platform sharing by miles. They already have products to market in different countries and well as having divided up engineering responsibility by global region--all this was done under Lutz. There is no platform in GM's stable that is specific to only one country or region--or that is not sold in America. (Ford by contrast is yet to bring over their excellent European offerings in any form).
Only their Sigma platform is Cadillac-only.
Every other platform spawns multiple cars in multiple markets.

Bob Lutz also is credited with changing the process (yes!) by which they design cars. Ed Welburn and himself will tell you that GM was very "research-driven".
They had tons and tons of research looking for every possible niche there might be. But during those years there was hardly any hit with customers. The old Malibu? (Oh dear no!)
They were given a package of dimensions and amenities and told to "design a car around that"--often with constant interference.

But indeed, there is a place for cay guys--a vital one.
On many levels a car is an emotional purchase and much like style there have to be people mindful of how to make a connection with the consumer.
It cannot be a series of numbers. "Process" can never create a hit. It can, however, sustain one. You forget that before there was the Camry, there was the Taurus-- a hit that the Japanese "process" never envisioned but copied and sustained? How about the minivan? It was a hit the Japanese "process" never envisioned (Chrysler did) but copied and sustained.
Japan's lone "hit" is the Prius, and Honda has only now come around to copying its formula off Toyota.

Now GM is heading off to the Volt--likely to be the first 100mpg car in history, and Toyota scrambles to say that they'll be making a plug-in version of the Prius--in a few years. Nissan and Mazda are now running behind the concept.

Look at the Pontiac Solstice/Saturn Sky.
Until they were killed by labor costs (which had not been addressed yet), they managed for the first time to do something Toyota could not do with the MR2 or Honda with the S2000: outsell the Mazda Miata.
Those were purely Lutz's babies and they could not stay in stock for a period of years.
"Process" does not create hits. GM had a bad process before; all reports are is that Lutz has done serious work on this issue.

And that has been the consistent verdict of the reviewers. I know you are skeptical of them, but Lutz couldn't sway them to be so consistently positive about such a vast swath of GM products a they have been about these; because they are used to empty talk from Detroit. Boy are we all!

Ford is only now beginning to do this with the Edge (to a small extent) and now the brilliant Flex.

Their sedan lineup has been hit with the "rename everything" disease that Detroit carries and has served to confuse even car enthusiasts! (Much more the consumers). They have done consistent quality work here as well as of late, but they have a ways to go. It does help that they are smaller than GM.

But Mercury is floundering, Lincoln is nowhere near Buick and cannot even be mentioned in the same breath as Cadillac.

No, GM has done a remarkable job under Lutz and (surprise) Wagoner. They have pushed through a massive restructuring in an impossibly short time. The question is, will they survive the downturn to see it?  

By Anonymous Disappointed, at Mon Nov 17, 09:35:00 AM:

The culture that produced 4-wheel steering was not a bad one. By all reports thee people who bought it loved it.

The thing is, GM had loads of other problems--some of which have yet to go away:

1. Consistency. GM is notorious (and worse, Ford) for not sticking with an idea if it doesn't make cash--now!
The Japanese pick an idea and refine and refine and reduce costs and improve until the cars shine. GM sees a loss and turns tail and runs. No losses allowed remember?

They are only now learning this. Toyota made a loss on the first generation of Priuses--and only started turning a profit late into the second generation.

Cost killed 4-wheel steering.They never tried to improve it.
This time around GM says they are willing to take a loss on hybrid tech as well as the Volt in search of what the Prius has.

2. Marketing. GM is pure bull---- in this area. Unadulterated crap.

But, all that said, GM has long had some culture of innovation, and there is no reason that that should not continue.

Look at the half-truck/half-SUV concept that Honda ended up copying in its Ridgeline. Then there is the head-up display BMW suddenly discovered for its M6. GM introduced that years before.
Then there is Magnetic Ride Control. GM created that with Delphi and now Ferrari and Audi cannot get enough of it.

Then we have not even begun to talk about GM's research in the field of memory metals (more practical) and hydrogen fuel (more futuristic)etc.

But along with Honda, Gm is probably the only manufacturer close to selling hydrogen cars.
GM is very good at research and innovation.
They do need to improve their process,I will agree. It has killed many a great idea; but one process they do not need to kill is Lutz. Look at their lineup. Read about it. Read about the changes Lutz brought to the company.

I will look for articles on such a little later.  

By Anonymous Anonymous, at Mon Nov 17, 10:03:00 AM:

Tigerhawk said: "I am sure there are good American dealers. I just have never lived near one."

You live near at least one good dealer of American cars. I heartily recommend Belle Mead Garage, a Chrysler/Jeep dealer on 206. I've bought cars locally from Toyota, Lexus, Mercedes, Audi and Belle Mead (several minivans and a Jeep). Audi was by far the worst dealer (and most fun car) and Belle Mead the best, though the Toyota dealer isn't bad.

The management is at fault at GM, as are the shareholders for not holding management to account for myriad and obvious malfeasance over a long period. The factories will restart under new owners, and many workers will get their same jobs back, but the old owners need to go and the assets awarded to better stewards.

Sink the big three? Hell yes, sink 'em. We'll suffer far less.  

By Anonymous Anonymous, at Mon Nov 17, 11:37:00 AM:

There are huge levels of fraud in the domestic dealer base. Ford and GM can exert very little influence over the techs and the treatment of customers. The dealers themselves will engage in warranty fraud on the automakers as much as they do on the customer.

For example, dealers are paid to return "core" parts for recycling. These parts are refurbished and used as low cost replacement parts, or recycled and the precious metals extracted. Dealers will often return far more parts then were acuatlly replaced at their dealership. They will buy or steal an alternator for 5$, and return it for 20$.

Ford has an archaic warranty payment system with very little oversight. Most succuessful dealers hire admins who know how to input a claim so it will be paid. But they don't have the money to fix it.

That is to say that the managment system is not to blame. Managers make stupid decisions all the time. Factory and Powertrain groups have far more say in product decisions then any other group, even though they are the least competitive and efficient of all the Ford Groups.  

By Anonymous Anonymous, at Mon Nov 17, 01:44:00 PM:

Disappointed,

How can GM "continue to operate well", if they're not operating well now? They are operating horribly, and losing pots of money. I think you understand this, but you don't seem to recognize it as the root of the problem. The problem ain't product-related, it's business-related. Lutz's window dressing can't compensate for the poor business model, and IMO, is a distraction from the resolution of that problem.

The programs you give Lutz "credit" for canceling, ostensibly for reasons of CAFE, were in fact canceled because GM hasn't the cash to execute them. CAFE was a convenient excuse, but as we see, they're broke, and couldn't have done them.

Specifically, none of the Big 3 are profitable beyond trucks... and that's what's killing them. Their business models can't support this market for smaller cars. This was known, and ignored.

I agree that GM has some decent product, as does Ford, but I'd disagree with you on what GM has done better than Ford, specifically as to what offerings truly impact in this new market. GM has led in POWERTRAIN development, and any perceived vehicle development advantage is lost in the wash of their unprofitability.

GM's next gen 6 cyl was the true gamechanger IMO, introduced years ago, and Ford is only NOW getting around to working theirs into the lineup. The Duramax diesel was years ahead of Ford, and the Allison 6-speed transmission similarly. Variable displacement? Check. ISG? Check. GM's got small block diesels in the pipeline, and other goodies (and I see the Volt as small bore in this effort, and I'll bet you lunch it stays that way, if only for price).

Lutz has/had little to do with any of this, by the way. These Powertrain programs were in the works before he showed up. And if he's pursuing fuel cells, then it's a foregone conclusion that he's a money-wasting hog. I see little or no stationary engineering applications in use today, and that means his grandchildren will go to the cemetery in something other than a fuel cell hearse. Don't do it, Bob. No matter what your media and marketing sycophants tell you... DON'T DO IT!

I have no allegiance to any of the makers, although I'll consult for whoever and over the years mostly Ford, but I dont' see a dime's worth of difference between them in terms of business model, and that's what's core here. Theirs suck.

Like GM, Ford has wasted tons on research, also. Mullaly brought over his aerospace R&D guy, who tabbed up spending vs. implemented technology, and pronounced it DOA. Lutz work here is admirable, but common sense, obviously.

I doubt Lutz has changed the engineering "process", because that hasn't changed since Noah built the ark. The problem has been, the business model doesn't call for or contribute to an effective engineering process, in all teh Big 3.

I'll give you quality, cost, weight, form and function every time... all the time... if you can set up a sustainable business model to support that. As mentioned, you can make money selling junk, and lose selling the best ever. Product ain't the problem.

I still believe we're saying the same thing, identifying the same problem, but we disagree on the solution. At root, you believe the current business model, at GM at least, is fine. I don't.

Not to get too personal, but from your patois I'd guess you're a marketing guy (like Lutz). But product and marketing won't fix the business model, and I think the Big 3 now understands this, even if it's too late. Unfortunately, at the end of the day, 1/2 of marketing must DISAPPEAR, as I'm sure you are well aware of if you're in this industry. We will shed marketing, finance, as well as management towers in all. Don't need 'em in a 21st century well-run maker, not to the degree we have them now, anyways.

The REAL car guys are about to rule, if we let them, but they won't be Lutz style "rulers", they will be faceless workhorses, like Kuzak and Mullaly... not Lutz.

You shouldn't speak well of Wagoner. He and his mentor Jackie presided over the current state of GM. Beancounters both, they failed to balance the beans, and turned the shop over to the "car guy" marketeers, who scrambled to have the market save them. It won't. Not this time. Jackie and Rick signed labor agreements that we SCREAMED would destroy them, fair weather deals... KNOWING that the weather would turn foul eventually. Their business model is dead company walking.

4-wheel steer, you're defending that abortion? Come on now! And it's only blind luck that the Ford lemmings didn't fly over the cliff behind you!

$1/2B pissed away, in one small corner of the GM universe... and all for the never ending marketeers quest for a "hit". Please.

Those at the top gotta disappear, Dis. They ignored the problem, and are accountable for that.

The good can stay, and will, but I can tell you that Wagoner is likely about to be beheaded, as you know. Deservedly so. Lutz has a good rap... he'll stick somewhere... but the sharks who take over after Chapter 11 won't tolerate a blowhard big spender, I'm guessing, friendly media or not. They'll probably try to steal Mullaly!  

By Blogger Noumenon, at Tue Nov 18, 06:08:00 AM:

When was the last time you thought cool when looking at an American car?

Every time I see a cool looking car, it turns out to be a Mustang from a different angle. That design is really, really cool.  

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