I don’t currently work in the automotive industry, but I feel at least somewhat qualified to voice my opinion on this matter because a.) It’s my blog and I’ll write whatever I want, b.) I grew up in the Detroit area and had plenty of friends and family of friends who worked directly for the automotive companies, c.) our injection molding company was an automotive parts supplier for many years, and d.) to reiterate: it’s my blog.

The Problem
The companies Chrysler, Ford, and General Motors all say that they can’t survive the current downturn in the market without an infusion of cash. The fact that no private sector investor, or investment group has stepped up to the plate should be a big warning sign that the future doesn’t look good for U.S. automotive companies.

In November, the CEO’s from all three American companies appealed directly to congress for government assistance. Not even thinking twice about it, all three flew from Detroit to Washington D.C. on their corporate jets. While I agree that private jets have their usefulness (mainly saving time by having the ability to reach small airports in remote areas), reaching Washington isn’t one of them. The fact that neither the CEO’s themselves nor their yes-men (and yes-women) thought this was a bad idea is very telling of their mindset.

Public outrage ensued, so what was their response? To fly coach on their next visit? No, all of them decided to drive to Washington in their most “green” vehicles. In the early morning on the eve of their next visit to congress, I watched an interview with GM CEO, Rick Wagoner, as he left for Washington in his “Chevy Malibu Hybrid with OnStar technology.” He was a rolling commercial! In the passenger seat was his driver who would take over the driving duties once they were out of sight of the news cameras so Mr. Wagoner could “work on his upcoming testimony and make calls on [his] OnStar system.”

My major problem with the current proposal is that, as a conservative, I don’t favor government involvement with private companies. This violates a whole tenant of conservatism. While I do realize that currently there is plenty of government involvement with business in the form of taxation and regulation (to differing extents in different industries), this proposal (which smacks of a nationalized auto industry) is a grand step in the wrong direction. I do realize that almost 30 years ago, Chrysler received assistance in the form of public loan guarantees, but this is a completely different situation.

Additionally, the idea of the government investing in or loaning money to the auto industry opens up a whole new host of problems. Obviously if someone is passing out money, there should be some oversight (unless it’s to the financial sector, but that’s another post). This need for oversight further illuminates the problem. Congress is currently proposing the creation of a position (the “Car Czar”) to oversee the business operations of the auto companies should they receive government funds. The government hasn’t proven itself capable of managing anything, let alone a vast manufacturing operation. In the now immortal words of Ronald Reagan, “government is not the solution to our problem; government is the problem.”

Outside of my general principles about the separation of government and business, here are my main “beefs” with the American automotive industry in no particular order:

1. The U.S. auto unions absolutely had a place at some point in time, but in the past 50 years they’ve gotten entirely out of hand. They’ve taken the notion of entitlement to a whole new level. They’ve continually fought automation and other improvements in manufacturing technology in favor of keeping the same amount of people “on the line.” All the time this was happening, most of their rivals were pouring billions of dollars into technology and automation and have maintained their lead on the Detroit automakers in quality. As proof that unionized labor is a problem and not American labor in general, I can point to other manufacturers in the U.S. who make quality products with American labor: BMW (South Carolina), Mercedes-Benz (Alabama), Toyota (Kentucky), and Honda (Ohio). Just a small side-note here: If you even want to hear the most hilarious “stupid things we did while at work” stories, talk to a current or former automotive assembly line worker.
2. A division of our family business supplied plastic injection molded parts to the “Big 3″ for many years (and parts for the Nissan Qwest for a few of those). Mainly, we supplied different types of under-hood shrouds and shields, interior parts, and were the major supplier of HVAC blower wheels (known in the industry as “squirrel cages”). When I worked there in the 90’s I saw first-hand how they treated their suppliers.
   They’re arrogant. They displayed an attitude that said we “should be happy to have any work at all” (most of our work had an 8% gross margin. After subtracting costs for inspection, scrap, tool maintenance, financial carrying cost, and overhead, our net margin fell somewhere between 0%-2%). Representatives of those companies regularly threatened to “pull the work” or “look somewhere else” if we wouldn’t “meet them” (read: capitulate) on price decreases. Their way of dealing with out-of-control health care costs, labor costs, and spending was to squeeze their suppliers for things like a 5% price reduction per year for the next 3 years (alas, now that well has run dry). As normal course of business, they would also pay their invoices far past their due dates. It was not at all abnormal for GM to pay their bills 180 days after receiving them. Ford and Chrysler were better in this respect, but not by much.
3. Executives of the “Big 3″ love perks and living the good life and I don’t believe that government backed loans or government investment would change that attitude. If finances are really that dire then they need to operate their companies and conduct themselves in the same manner that a small bootstrap company would: save and scrimp. This “good life” attitude is so ingrained in the culture, I have almost zero confidence that it can change.

I just read today that now Tesla, hardly credible as a high-volume auto manufacturer adversely impacted by high gas prices, is looking for a $650 million slice of the government “bailout” pie. They’ve stated that the money will be used to finance development of their new Model S for which they were unable to get private-sector funding. Where does it stop?

The Solution
Get smaller. No government funding. Some people believe that without government intervention, the U.S. auto industry will just die a quick death. This isn’t the case at all. They’ll just need to file bankruptcy and reorganize into a more efficient and sustainable organization. Whether that means a merger of one or more companies, I don’t know. Personally, I think that some of the freedoms that filing Chapter 11 could give the auto companies is attractive. Painful, but attractive in the long run. Will it be pretty? No. Necessary? Yes.

This was presented to me when I logged into PayPal today. At least they’re honest? I’m trying to be positive.

You know what I need when I’m reading the news, but never realized it? A 500 pixel header!

Idiots.

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I ran across this fantastic article on Fox News today. It’s about the current sub-prime lending mess. The author saves me the time of having to write the same thing, albeit less eloquently.

We noticed this sack of unroasted coffee sitting in the corner at the Roastery today after lunch.

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