Thursday, April 02, 2009

Car Crazies

Car Crazies: As I write this, the Gummit has pretty much taken over General Motors and Chrysler. There's not much to say about this other than it's effectively the end of these companies. The only hope we can have at this point is that they don't end up being taxpayer supported dead weights in the economy for the rest of our lives. The plan is that Chrysler either becomes Fiat's problem or it goes in the dumpster. GM is more scary. I can easily see it running on forever, pursuing whatever goals the utopian campaign contributors and self-entitled lobbyists value, instead of getting off the taxpayers back. Electric cars and free day care for all workers first, self-sufficiency and customer focus last -- all financed by you.

Aside: How smart does Ford now look for not taking bailout money? If I were younger and willing to take more risk in my investments, I might throw some money at Ford stock now. Their two domestic rivals just became eunuchs. They have to benefit from that, don't they?

For an insightful recap of how the former Big 3 got to where they are, I suggest another article from The Atlantic from back in December. It starts off explaining how the initial government loans were dependant on the companies becoming viable by March 31, 2009. To which the author says:

There is no way that the auto companies will be financially viable by March 31st. They haven't been financially viable for 25 years.

We have a winner. Although it wasn't really a long shot, was it? The entire article is good, but here are the two money paragraphs:

In the early 1950s, for various reasons Detroit developed a cozy three-way oligopoly. The UAW developed a cozy monopoly on supplying labor service to that oligopoly. In some ways, the UAW helped sustain that oligopoly. If you're a big company whose quality suffers, you have problems. But if you have a union making sure that labor quality cannot vary across the industry, you don't need to worry that your competitors will make a better car. Detroit competed on styling and power, not reliability or price.

During those years of oligopoly, the Big Three's first loyalty (after their loyalty to management) was loyalty to the union. The worst thing that could happen to a Big Three manager was a strike. Making a car that is reliable is only partly a matter of engineering; it's mostly a matter of extremely tight control over the assembly process. That tight control is necessarily less pleasing to the workers than looser rules. The unions could severely hurt a company with a strike. Whereas the customers? The customers could only go to another company where the same union was negotiating the same loose work rules.

And we have another winner. Thanks for playing, Rick Wagoner; you get a multi-million dollar payoff and copy of the Carpocalypse home game.

More recently a NY Times op-ed from David Brooks, which begins:

Some companies are in the steel business, some are in the cookie business, but General Motors is in the restructuring business. For 30 years, G.M. has been restructuring itself toward long-term viability.

For all these years, G.M.'s market share has endured a long, steady slide. But this has not stopped the waves of restructuring. The PowerPoints have flowed, and always there has been the promise that with just one more cost-cutting push, sustainability nirvana will be at hand.

There are many experts who think that the whole restructuring strategy is misbegotten. These experts think that costs are not the real problem. The real problem is the product. The cars are not good enough. The management is insular. The reputation is fatally damaged.

But if you are in the restructuring business, you can't let these stray thoughts get in the way of your restructuring. After all, restructuring is your life. Restructuring is forever. Restructuring is like what dieting is for many of us: You think about it every day. You believe it's about to work. Nothing really changes.

Here's what's interesting about that quote. Replace "G.M." with "Detroit", "restructuring" with "rebuilding", and "cars" with "quality of life" and you still have an accurate assessment. Coincidence?