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Strong opinions, weakly held

Things are tough all over

Honda is selling off its Formula One team and getting out of the business of supplying other F1 teams with engines to save money given their poor fortunes in the current economy. Much attention has been paid to the suffering of America’s inept automakers, but it’s also true that all of the auto manufacturers are doing very poorly right now. Anyone think that Japan, South Korea, and Germany are just going to let their car companies bite the dust? I doubt it.

9 Comments

  1. Are the Japanese, South Korean, and German car companies doing so poorly that they are begging for billions in loans from their governments?

    All companies suffer in a recession. The poorly run ones will go out of business.

  2. I don’t think the big three need to go out of business, but I do think they need radical change. The biggest issue they all have is huge pension obligations that counted on continual growth in revenue and market share. Once market share started dropping they became a problem, now that revenue is dropping it’s causing them to bleed out.

    I don’t know what can (or should) be done to save them. I really don’t. I do know this bailout proposed will do little.

    The market cap for Ford is $9 billion, GM is $2.5 billion while Chrysler is privately owned. That is how little folks think about their prospects as currently structured.

    Let that sink in compared to the magnitude of money they are asking for. I definitely don’t think the Detroit auto industry should die, but any type of bailout that is not accompanied by RADICAL change (and I’m not talking about deunionization though it should be on the table) is nothing but throwing taxpayer money down the drain.

  3. I wasn’t necessarily saying all (or any) of these three auto companies need to go out of business, just that companies with such problems tend to die off during difficult times.

    Their problems are huge and like you I don’t see a sound financial answer.

    I do find it interesting that everyone is talking “bailout” instead of “bankruptcy”. Bankruptcy is a normal, legal way for companies with severe problems to try to restructure their business, possibly taking radical step to do it, under court supervision. This sounds like exactly what these companies need! Many companies continue to run under bankruptcy (look at most of the airlines over the last 20 years, for example). I’m not clear why that option seems off the table.

  4. The problem with bankruptcy appears to be that nobody will buy cars from companies that are bankrupt, sensibly doubtful of the prospects for warranty service and of the quality of a car produced by a company in a chaotic state.

    That said I don’t know what to do about the car companies. Nationalize (or pseudo-nationalize), restructure, refloat? Most likely any deal is not going to look the way I would like it to. And the banking bailout demonstrates that you cannot trust the present administration to spend money sensibly. But any deal may be better than letting them collapse.

    We’re really in a bad spot. Companies the size of GM ought to have the resources banked in the good times to survive, reduced, during bad times. Instead they have enormous debts. I blame management, shareholders, dealers, customers, and workers, roughly in that order.

  5. I think one of the problems is that GM hasn’t really had good times in a while. Their GMAC financing unit was the only part of the business that was making money for a while. Effectively, GM was building cars so it could make money financing them.

  6. Jacob- Why would you blame the customers?

  7. For putting up with mediocre cars for so long instead of demanding quality, basically.

  8. how do you “demand quality”? I mean, I’m tired of hearing people say that “customers didn’t demand” better gas mileage (e.g.) — I demand it; I certainly wanted my 2004 car to get better gas mileage than my 1989 car, but it doesn’t — instead it had 20 additional horsepower (which I didn’t demand, or even want)! cars aren’t configurable like computer boxes — I’m constrained by my need for certain features (can carry needed number of passengers in reasonable comfort, accomodate expected loads, etc.) and then have only a thimblefull of cars to actually choose among. that doesn’t leave me much room for “demanding” anything — heck, it doesn’t even really allow me to develop much brand loyalty!

    grump.

  9. You do it the same way you “demand” any other kind of consumer good: you withhold your money from companies that fail to provide it and buy from those that do. And hope that the shunned manufacturer notices, which of course they’re often too stupid to. You note that I ranked customers very low on the “who’s to blame chart”; the managers at the car companies are primarily to blame here.

    There are probably 100 different cars on the market (and were in 2004) including very reliable and fuel-efficient lightweight cars. You “demand quality” by buying one of those. It’s pretty simple.

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