Why the giants of Detroit have stumbled.

The rhetoric around the Big Three bailout is virulent. The finger pointing is intense. And most of it is total poppycock.

The New York Times had an article this morning about the Chevy Volt electric car. One car is all GM, a global auto manufacturer, is betting the whole company on one car. An overpriced one at that- 10 years late to market. Read:

The Chevrolet Volt, a plug-in hybrid, will not arrive in showrooms until late 2010. But it is already straining under the weight of an entire company.

The Volt is expected to go on sale in late 2010. G.M. plans to sell about 10,000, priced at about $40,000, in the first year.

Executives at General Motors, the largest and apparently the most imperiled of the three American car companies, are using the Volt as the centerpiece of their case to a skeptical Congress that their business plan for a turnaround is strong, and that a federal bailout would be a good investment in G.M.’s future.

In ads that ran this week, the company said of the Volt: “This is not just a car. It’s a vision of our future.” Another claimed that the vehicle would “completely reinvent the automotive industry.”

There is a long tradition in Detroit of relying on a single new model or technology as a silver bullet to quickly solve bigger problems. Sometimes it works — the Chevrolet Corvette, the Ford Mustang and Ford Taurus, and Chrysler’s K-car lineup of compact, fuel-efficient cars in the early 1980s all gave their companies an enormous boost.

But whether the Volt can live up to its billing is already a matter of debate. And some industry analysts note that General Motors has a poor track record of introducing green technology to the market.

The Volt is a big long-term bet. New vehicles typically cost $1 billion to develop, and the Volt requires new technology that probably inflated that price tag even more.

G.M. says the car, which is scheduled to arrive in showrooms two years from now, will be able to travel 40 miles on a charge, but it will also have a small gas engine to extend the range to as much as 640 miles using both the battery and gasoline the 1.4 liter, four-cylinder engine is intended to run a generator that will power the car and recharge the batteries once they are depleted. It is expected to cost about $40,000.

G.M.’s Latest Great Green Hope Is a Tall Order – NYTimes.com.

It’s not the UAW, or health care costs, or even quality that is at issue here- it’s that GM lost its way as a car company over the last 40 years. Instead of building cars- they built “brands” and spent a lot of money trying to tell us there was a difference between a Camaro and a Firebird. They became a finance company- GMAC, financing everything from cars to homes. They introduced new model after new model that ignored lessons from history- like the 1973 oil embargo, where people were lined up at gas pumps, and were looking to more fuel efficient cars. All while GM kept paying the “Leadership” more and more, and delivering less and less market share.

At some point, the market, was supposed to correct bad companies – according to the wisdom of the now fully naked and deposed emperor, Alan Greenspan.

Reality: while everything else changed faster, the American auto giants became the proverbial Goliath- and a simple slingshot has now taken them down.

Change wasn’t in their vocabulary. An “American Revolution” was actually a call back to the glory days when there was no global competition and little innovation.

We should wonder how our country was able to turn on a dime after the Pearl Harbor attack of December 7, 1941. America switched from building cars to building tanks and bombers to win the war in under 4 years, while GM has been unable to respond to a hybrid car in ten. Read what Ross Perot had to say about GM’s culture – and you begin to understand.

In the  eight years that the Toyota Prius has been on the market, the Big Three automakers have probably spent more money on lobbying Congress not to increase the CAFE standards than on developing a more fuel efficient product line. No, it wasn’t the UAW’s fault this happened- it’s our nation’s belief that Government is something we buy- instead of something we already own. It’s our belief that we need to spend money to micro-manage decisions by the “representatives” of the people- instead of just worrying about how to win in a global economy.

When the Big 3 whined about the cost of health care– they didn’t try to solve it by having a showdown with the insurance companies- they lobbied Congress. When Hillary Clinton was talking about a national health care program- they didn’t step up in support, but stood on the sidelines. We’ve become a nation of lawyers and legislators instead of a nation of innovators and competitors.

How hard would it have been for the Big 3 to get together and pool their resources to back an Automotive Industry Health Care buying collaborative, where they used their scale to go direct to health-care providers to buy health care (instead of insurance) for their employees? We’re talking a pool of millions of workers, giving them the same economies of scale that make them so “invaluable” to the American economy that supposedly warrants a bailout.

Instead, GM had five corporate jets to ferry executives around.

GM has fought against efficient transportation initiatives for years. Now, it’s asking for a free lunch after decades of planting the wrong crops. Maybe the American automobile manufacturing days should be over- with the US switching to fast light trains and clean energy (see the Apollo Alliance) – maybe cars aren’t the answer.

Either way- right now, it’s not GM, Ford or Chrysler in the driver’s seat- and for good reason. Any company that takes ten years to respond to competition in today’s economy, isn’t ready for the next ten years. Congress isn’t much better- reactive legislation has become their standard operating procedure.

We won WWII in 4 years. Will Barack Obama be a leader who can turn us around in four years? The war is against the loss of our entrepreneurial spirit, the loss of our understanding of reap what we sow. Economic strength does not come from lobbyists but from innovators. It’s time to end our system of buying legislation- and start investing in innovation again. Time is the enemy in both innovation and in compound interest on the national debt.

It’s time to stop rewarding stumbling- and to start rewarding speed to innovation. We don’t need giants to jumpstart the economy- we need speedy sprinters. If Congress is looking for answers, fallen giants aren’t the answer to our problems. Bigger isn’t the answer. Smarter and faster is.

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8 Responses

  1. Jim Crotty November 22, 2008 / 11:29 am
    I don’t agree with everything that David writes on his blog, and I’m definitely far more to the right on the political spectrum when it comes to ideology. But with that stated the above referenced article by David should be a MUST READ for EVERYONE. This is one of his best. My favorite quote from his entry – “We’ve become a nation of lawyers and legislators instead of a nation of innovators and competitors.”

    That says it all folks. That says it all.

    Amen brother.

  2. Chris November 22, 2008 / 3:42 pm
    I agree with a lot of these things, but I feel like you are basically saying that the UAW has nothing to do with the problems. Over a year ago, you came and commented on my old blog when I brought up the issue of the UAW and the Moraine plant, and stated it was all the corporate executives fault basically. Now, since then, I have come to the conclusion that the executives and engineers and designers deserve a lot of blame as well. I feel as if your politics may be preventing you from being able to admit that the UAW may have something to do with the current situation.

    How much more does it cost to make a Chevy than a Honda? I saw $2000, so let’s go low and say $1000. Even if the problem is that Chevy has a lot of retired workers, while Honda does not, that still means Chevy starts out at a huge disadvantage. How do they make that up? They have to sell cars with higher profit margins, or have lower quality control. They’re not a charity; they need money to reinvest in R&D and whatnot. GM probably can’t pay less to workers building Malibus than those building trucks, can they?

    I know the executives and designers did a lot of bad things. But the union has been shortsighted as well. What is their plan now? Make it easier to unionize the Honda plant, so Hondas cost more.

    I also like the quote about what our nation has become. We need more scientists and innovators. And I say that as a lawyer. But you are blinded by ideology from seeing unions may be less than perfect.

  3. David Esrati November 22, 2008 / 4:50 pm

    @Chris,
    I’m not letting the UAW off the hook- but, reality is, they weren’t the people flying the corporate jets to DC to ask for a handout. And, there is no doubt that unions have just as much political clout- and try to buy their way through politics.
    One of the refreshing things about the Obama fund raising is that unlike past democrats- he was able to raise money from the general public- not just the unions and the wealthy.
    Maybe it’s time we see what happens when we stop selling out to the highest bidders.

  4. Jeff November 22, 2008 / 6:39 pm
    There’s been a good ongoing thread on the auto industry crisis over at Urban Ohio. One of the things I found out was that Walter Reuther was pushing for some form of national health care already in the 1960s as he realized the union health care benefits where not sustainable.

    So it’s not that union leadership wasn’t aware of the issue. The problem, of course, was the right-wing political culture of the US. When the rest of the English-speaking world (the UK, Canada, Australia, New Zealand) were instituting various forms of “socialized medcine”, the right wing in the US opposed it as socialism, leaving it up to unions to negotatiate this benefit, industry by industry and contract by contract.

    I’d point out the people pissing and moaning about the UAW and their luxe contracts would also be pissing and moaning about a real social safety net as being socialist.

    So f*(k y’all.

    Thankyouverymuch.

  5. Gene November 23, 2008 / 12:05 pm
    Ave. Detroit line worker was making over $100k a year….. too much. Are these the same wage at our plants?

    Executive made too much. Blue collars… they all f**kec each other. This situation is no different than baseball, everyone makes a pile of cash while the fan is held hostage to go to the games to pay for everyone else. Let them fail.

    I am going to figuare out the total taxes I have paid to the federal govt in my lifetime and ask for it back – and it is over a million buck, or close to.

  6. Greg Hunter November 23, 2008 / 12:12 pm
    Jeff, so true, the American people forget that while they sacrificed a great deal to win WWII, we came out of that war with a great competitive advantage in industrial production that allowed the US and A to become “Greatest Country in the World”. We were unparalleled in industrial capacity, hard work and cheap energy. These advantages allowed the US (and Auto makers) to build unsustainable models in industry, capital manipulation and health care. If you really think about it, WWII industrialization directly benefited auto and airline makers to the detritment of other industries (local food production) and all Americans paid the price for the Auto Workers to have a golden age from the 50s to 1973, when Japan and Peak US Oil Production hit America.

    Dayton was a great place to study the models as we had all the elements. UAW with their nepotism in hiring their kids so education was not prized. Management and UAW negotiating health insurance that was envied (yes I envied it as GM arrogance in management and line workers of this “benefit”). In the 1970s glasses cost 100.00 for me and 5.00 for a GM kid. I can attest that seeing the blackboard or a fast ball leads to a competitive advantage in many ways. The GM healthcare model became the American model that focused on pills instead of prevention. (For instances, In my experience the use of the Neti pot greatly reduced my reliance on sinus medicine and nasal spray, but no Doctor or Institution makes this option the first line of attack. It is right to the script book, which is a great thing if you are a pill maker or a hot college cheerleader that needs a pharmaceutical job that pays you for style over substance. Which is another reason why America blows, as these over blown salaries allow the good looking air heads to breed and invest in building an unsustainable future – The Free Market in Action)

    During the late 60s as the rich manipulators of the stock market recognized that the UAW would never accept innovation (robotic manufacturing) at least on the terms that the money boys could explain the war that never stopped between labor and management flared anew. Instead of working on building a society that made sense we let the Market take over(Chicago School of Economics), as the socialists ideas failed or were designed to fail (Great Society). The car makers continued to hire accounts and the money men put pressures on short term ideas which produced short term cars.

    Now that the money boys (NYC) have paid off DC and moved all production to areas where cheap malleable labor could be accessed with labor or environmental rules, without providing stock options to the workers or American Taxpayers who un wittingly financed this transition, we inherited exactly the wrong type of manufacturing and society to compete on the world stage. But never fear instead of hitting the line at GM, the unemployed can head to front lines, because America can not figure out how to make a sustainable society, we will send you to die so we can make weapons, burn more oil for no good reason and return to full employment.

    If Barack Obama, saves the Auto Industry, then we are throwing good money after bad and the term meet the New Boss, Same as the Old Boss is more than appropriate. I would hate to lose the industrial capacity as these former auto and steel operations could churn out wind mills, trains and rails that the newly unemployed Wall Street Bankers could install for America’s Benefit. While we transform the industrial mid west, the Wall Street Bankers can begin getting in shape for this work by re digging the Erie Canal.

    I used to have a dream of being elected, but now I believe Americas only hope is for me to be swept to power. Enlightened Despotism

    :)

  7. Greg Hunter November 23, 2008 / 12:38 pm
    God I need an editor – Accountants
  8. Drexel Dave November 23, 2008 / 1:04 pm
    What Greg said.

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