US Government Owns Car Companies Too? 3 / 29 / 2009

We have now officially crossed the chasm. There is no turning back. Any company considered large enough that its failure will result in large scale, prolonged unemployment benefits payments, the US Government will come in and save. Folks, President Obama just stated that the US Government will honor all car service plans and warranties. Does anyone find this remarkably shocking even in this era of daily government bailouts?

So, does this mean that when a corporation has a bad year or a bad few years in a row, all it need do is suggest that a bankruptcy is coming and beg for a hand out? You know folks it's all well and good that Executives and CEO's are seeing reduced bonuses and pay cuts. But what of the millions in salary and bonuses they "earned" between 2001 and 2008? Granted, there are a lot of issues that burn us all. But perhaps the biggest issue is the refusal by the US Car makers to refine and improve the qualities of their models in favor of profits. 40 years ago the US made the best cars, period. And beginning with the first oil crisis of the 70's, Auto makers began squeezing out profits by cutting manufacturing and parts costs. Seeing the car as a commodity and consumer disposable, and less like a business critical tool, luxury good, or consumer durable.

In the name of profits they started putting cheap parts and cheap engines into great product lines and poof, consumers and brand identity eroded. Ford made us all endure decades of crappy Mustangs. GM ruined the Cadillac. Crysler..well they destroyed the Jeep. And while this was all happening, and consumers moved to Honda and Toyota, the Big Three began to convince the consumer to drive their trucks instead of their crappy sedans and charged us more for the privilege.

Ok so I have over simplified here, but not by a lot. The real point is that when Honda and Toyota were building substandard cars in the 70's, they competed on price and poured profits into improving their quality, and ten years later were able to charge 25k for their cars and gain significant market share. Hyndai is the latest example of this business model - though they are 20 years behind Toyota and Honda in the cycle.

The sad part is that the Big Three knew this was happening. They knew that they were trading all their build quality and brand strength for short term profits. And the proof is their recent response. Each of the big three has taken a portion of profits and began rebuilding their signature cars to Toyota and Honda quality - the new Cadillacs, Mustangs, Camaros and Corvettes are as good as they ever were. But rather than having the ability to leverage this renewed value, they have run out of time. And only the government believes they can and will endure. The workers are refusing to recognize their position or the long term vision, the executives continue to point fingers, and the build quality for 90 percent of their fleets still lags the Koreans, Japanese and the Germans. In all consumer durables, build quality is synonymous with value at all price ranges.

So maybe it is up to the US Government to step in and save the industry. Maybe in this case the same government who the auto workers voted in has no choice but to save them. But once saved, we should all be afraid of these companies repeating the same mistakes in the future. Maybe they need to hire foreign workers and Japanese and German executives who still understand that value is built incrementally every day year over year. If we were this government, we'd do what Regan did. Lock'em all out and take over the assets on behalf of the shareholders. Then hire cheaper and importantly better workers. Yes extreme, but that's what's needed these days. These companies lose vast amounts each week they remain open in current state.

Build Value Every Day.

Brad van Siclen