As the Big 3 executives have returned to Washington asking for emergency funds with gestures that are both symbolic (driving in hybrids and taking $1 salaries) and substantive (slashing the numbers of dealers and brands), the question remains: Should we bail out (or invest in) the auto industry?
In my last Big 3 post, I said that I couldn't support a bailout. But that was before the execs got flamed for their corporate jets and came back to congress in hybrids with business plans… What do I think now?
I'm really disappointed.
While many of the figures in the business plans are truly staggering (GM plans to fire up to 35,000 employees), my reaction to the plans is this: Not enough. Not nearly enough. My criticism flows along three lines of thought:
- There appeared to be no cooperation among the Detroit automakers in drafting their plans, especially with regard to an inspiring "moonshot" style project to create a new generation of vehicles.
- There was little to address the huge overhang of retiree obligations which created much of Detroit's disadvantage to begin with. The labor concessions the UAW appears prepared to accept are minuscule by comparison to the ongoing burden the retirees pose.
- The measures outlined in the plans — while aggressive on the surface — offered little in terms of real, structural changes to the way the Big 3 operate.
The current proposals still smack of "life support" rather than a true plan for vibrant growth.
But rather than sit back and take easy potshots at the executives, I thought it might be more productive to outline what I had in mind. So (using my beloved GM as an example), here is my not-so-modest proposal:
Scale Back the Brands.
GM has proposed scaling back or selling their Hummer, Saab, Saturn and (maybe) Pontiac brands — leaving them with Chevrolet, Buick, GMC, and Cadillac. That is still 2 brands too many.
They should pour all mainstream car and truck efforts into the Chevy brand and clearly distinguish luxury vehicles with the Cadillac brand. Just drop the rest. To paraphrase John Moore, if Pontiac went out of business tomorrow, would any of us really care? Buick? GMC?
I can hear the objections: But Pontiac produces iconic performance vehicles like the Firebird and Grand Prix and GTO, right? Oh, they don't anymore? I think the nation will be OK without the G6 or the Torrent, as well-made as they might be… The Buick brand is surprisingly strong in China, but the appropriate Chevy or Cadillac models should be rebadged as appropriate for that market.
Concentrating on two brands would rid GM of the ridiculous 8x duplication they have today in product development and marketing.
(Ford should drop the Mercury brand, and Chrysler should just become "Dodge" and focus exclusively on trucks and minivans.)
Revamp the Dealer Model.
GM's dealer network is broken — too many dealers chasing too few car sales, and doing so in the wrong way. They've proposed cutting nearly a quarter of their dealers, but they should cut closer to half of them.
One way to speed the process? Get rid of dealers who won't accept the following: All dealers must accept a flat pricing model with no typical dealer shell games. By adopting the major innovation that Saturn offered to the market (and which GM is currently offering through their "Red Tag Event"), GM might be able to offer a competitive difference in the notoriously awful purchase experience. Doing so may draw buyers back to the showroom.
They'd also begin to align the dealer's interest with that of the customer. The dealers that still want to use smoke and mirrors to drive their profit? Get rid of 'em.
Moonshot.
Establish a semi-public National Automotive Technology Institute (or some such entity) with the explicit objective of crafting an inspirational next generation of smarter, more desirable, more fuel-efficient vehicles within the next 3 years.
Force the Big 3 to contribute their energy and talent to the venture. Connect the Institute to the best private- and public-sector initiatives on energy, artificial intelligence, and vehicle design.
Motivate the best and the brightest individuals to develop a true national energy program in which we 1) drastically curtail petroleum use, and thereby 2) stop funding despotic regimes who dislike (or terrorize) America the most: Russia, Venezuela, Iran, and Saudi Arabia.
How to fund this? Any dollars used to fund continuing operations at the Big 3 must be matched dollar-for-dollar with funds for the Institute.
Scale Down Retirees.
The one problem that there is no real solution for is the retiree obligations. Both the UAW and Big 3 management colluded for years to create monstrous future pension and health obligations for retirees that both sides knew was untenable.
They are both to blame. So they both must pay.
First, the retirees must accept significant reduction in their benefits. As painful as that might be, it is better than the alternative of no benefits if the Big 3 go belly up.
Second, the company must meet what remains of its obligations to the retirees. But everyone knows that they can't afford even a reduced set of obligations. So, in exchange for a federalization of the retirement programs (as well as in exchange for a cash infusion), the companies must give up a significant chunk of their equity to taxpayers, to ensure that they are an ongoing concern.
As long as they abide by the other elements of this not-so-modest proposal, a public investment in the Big 3 should turn profitable within the decade as Americans (and the rest of the world) come back to attractive, affordable, and fuel-efficient American cars.
Have I been over the top? Perhaps… But really saving the auto industry will not be accomplished through bland half-measures.
[where: Washington, DC]