Thursday, November 13, 2008

Auto Industry Bailout: JUST SAY NO

Barack Obama is pushing for a $50 billion bailout for the U.S. auto industry. We are essentially being told that without this bailout the world will come to an end because the U.S. auto industry is just “too big to fail”.

Here is the essential question: Why is the U.S. auto industry in such terrible shape and in need of a bailout? High gas prices? Unfair competition? Bad luck? Nope. They are on the verge of collapse because collectively they have suffered from four decades of the most brain dead management on the planet.

The U.S. auto companies took too long to figure out that producing quality cars actually costs less, not more, and results in higher customer satisfaction and stronger brand loyalty. As a result of not understanding this, they lost their mindshare and market share in the U.S. a long, long time ago. The big thing that has propped these companies up for the last two decades were cheap fleet sales that were subsidized by their financing ventures. For example, a couple of years ago, the most profitable division of GM was GMAC, which was even in the mortgage business.

They were also completely clueless on how to compete in international markets. For example, they used to constantly whine about how Japan was unfairly closed to them. When I went to Japan for the first time in 1998, I noticed three things: A.) The Japanese drive on the left side of the road, like the British, B.) there were a lot of German cars on the road, and C.) there were very few American cars. The problem was that the U.S. auto companies took forever to sell cars that were suitable for the Japanese market (i.e., with the steering wheel on the right side). The complete misunderstanding of the market, along with their chronic quality problems doomed GM, Ford, and Chrysler in Japan.

The UAW “leadership” is equally culpable for the industry's long decline for refusing to enable necessary operational changes. For example, guess who has the most advanced and efficient auto manufacturing facility in the world? Ford. It’s in Brazil. The UAW would never allow a plant with that level of flexibility and supplier integration to operate in the U.S., which is a huge part of the problem.

My view is that there is no reason whatsoever why the taxpayers should be stuck subsidizing decades of gross mismanagement. GM, Ford and Chrysler are NOT "too big to fail". Even if they do fail, companies with smarter leadership will put their resources to better use. We'll all be better off.

So, it's time to “JUST SAY NO” to the auto industry bailout.

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