GM Chrysler and Obama : Automaker Debacle "a failure of leadership – from Washington to Detroit" : No More Bailouts without Restructuring

As reported by the BBC, no more bailouts for US carmakers GM and Chrysler if they do not restructure swiftly.

President Obama has correctly called the American automaker debacle of GM and Chrysler “a failure of leadership from Washington to Detroit that led our auto companies to this point.

Scott Oldham, writing in Popular Mechanics in the year 2000 (!), identifies many of the mistakes that were made in the past 50 years in his article History Lesson On A Century Of Cars.

From the very beginning of foreign competition in the automobile market, starting in 1959, when the German Volkswagen Beetle came onto the U.S. market and quickly cornered a 10% market share, America has failed to read the writing on the wall. As Oldham writes:

While the relationship between our nation’s legislators and our nation’s carmakers has been, at times, confrontational, it’s Washington that Detroit turns to when the road turns rocky.

When Japanese carmakers began to find niches in the U.S. car market starting in 1967, there was no sensible response by the American automotive industry or by the United Auto Workers (UAW) to face the openly visible competitive challenges that were facing them. Already in 1974, as the result of the 1973 oil embargo, many American car buyers opted for better-made lower-mileage Japanese cars, increasing the Japanese share of the automobile market to 20%. The Japanese soon even started setting up auto plants in the USA. They had the better products.

Oldham writes:

The Detroit River flowed red. The Big Three turned to Washington. Lee Iacocca asked President Carter for an $800 million loan guarantee to save the floundering Chrysler Corp. And got it. The UAW petitioned for quotas that limited the number of imports that could be brought into the United States. Those quotas were refused, but Japan agreed to voluntarily put restraints on its number of exports. Then Detroit pleaded for an investigation into Japanese “dumping”-selling cars at a price lower than in Japan, perhaps even at an unprofitable price, to gain market share here.

The Washington bailout kept Chrysler running then, but this did not keep European car manufacturers such as Mercedes, BMW, Jaguar and Land Rover from successfully entering the market. The market share of U.S. carmakers continued to drop, without any corresponding export balance. The U.S. cars were simply too poorly made, too expensive and not economically efficient enough to survive in foreign markets.

Oldham, writing in 2000 about the prospects for the future, then makes a serious error in his article in adopting the flawed way of thinking that has categorized America’s view of the automobile world:

As we enter the third century of the car, Ford owns Jaguar, Volvo passenger cars and Aston Martin outright, as well as a third of Mazda. GM owns Saab passenger cars and a large chunk of Isuzu. And Chrysler, which briefly owned Lamborghini, went out and married Daimler-Benz, forming DaimlerChrysler.

Such partnerships not only blur the lines between domestic and import cars, they eliminate them. Should this trend continue, Detroit will one day effectively exterminate the import car from its turf-which has clearly been its goal for the entire second half of the 20th century.” [emphasis added]

Wishful thinking is not a solution. If that was Detroit’s goal, they have failed miserably. The only way that America could ever have “exterminated the import car from its turf” would have been to make better, cheaper, more economical cars. Instead, America continued to make poorer, more expensive and less economical cars and went into the SUV and truck craze in the 2000s, “fueled by” the totally mistaken conception that petroleum-based fuels were endless and that American car manufacturers were somehow exempt from the economic realities of the rest of the world.

One of the advocates of the SUV and truck craze was the chief of General Motors, who on March 29, 2009, was just forced out of his job by the Obama administration, after having led the company into total ruin in a decade of hopelessly flawed leadership. He epitomizes one problem of the corporate (and political) world in general, which is the over-prevalent hiring of CEOs who are “well-liked” and “popular”, rather than people who know what they are doing. One must seriously ask, who are the board members that keep these incompetents in office, year after year, when it is clear that they have no business being in the position they are in?