Darwinism for the Big 3: Weighing in on GM and the impact of its failure for the global automotive industry
Yesterday, Congressional Republicans went on the record saying that they opposed an auto industry bailout. Today, long-time Democratic senator, Chris Dodd of Connecticut went on the record opposing a $25 billion bailout to the Big 3 automakers.
New York senator Chuck Schumer had this to say:
“Survival of the auto companies is imperative for America to remain the global leader in innovation. We should not drop out of the race before we have a chance to compete.”
Unfortunately, Sen. Schumer’s analysis is short-sided and blindly optimistic. Of particular interest is the idea that by not approving this bailout, we will drop out of the auto industry and a major world player. Schumer argues that the U.S. will effectively lack competition in this area.
The reality is that the U.S. has never been terribly competitive when it comes to innovating the auto industry.
Banking chairman Dodd is right. The auto companies have seen this crisis coming, and the management has done little or nothing to improve the situation. Even Sen. Schumer agrees that a major restructuring plan must accompany the bailout dollars.
So here is Beyond the KM’s analysis. First, the government should not be “giving” money to the auto industry. The companies, which have for so long preached the benefits of competition without government interference, should continue that philosophy and refuse governmental help.
Instead, automotive companies seeking assistance from banks should open up their books, and change up their strategies and corporate structures. If banks and investors see a viable future, the money will come, and so will the buyers. But if the “Big 3” continues the downward trend of producing poor automobiles that refuse to acknowledge the future of high-energy prices and better quality and design, then they will fail on their own, as they should.
While all three of America’s largest automakers deserve due consideration in this article, the focus of this commentary is going to be General Motors, due to its size and potential impact on global economy. GM is also the car company with the worst strategy in our view.
The future is green, not grey. As part of a restructuring effort, we should bear in mind that every single vehicle coming out of Detroit needs to have hybrid and flex-fuel capabilities. In addition, efforts to implement current technology including fuel saving dual clutch transmissions and direct fuel injection in addition to weight saving measures has to accompany all vehicles produced from this moment forward.
Outside of energy savings interests, GM needs to change their product strategy. In this, GM must stop the practice of product or badge re-engineering. If a product line can’t support it’s own vehicle development, it shouldn’t exist – plain and simple. No matter the value of a brand, GM is in no position to throw ad dollars at a car that is not given full attention. Adding a badge as an afterthought is a slap in the face to car-lovers and consumers, alike.
Now, I will introduce the plan to really making GM a lean mean, car-making machine. I fully acknowledge this part of the plan is also the most radical and few if observers are suggesting this – certainly no one in Detroit is exploring this idea. To sum it up, the plans calls for a break-up of GM. We break each brand into its own company, so figure Buick, GMC, Saab, Pontiac, Saturn, Daewoo, Hummer, Holden, Chevy, Cadillac, etc. each becomes its own company. Likewise, GMAC also is fully spun off. Private equity can pick at the good parts. Brands/companies that aren’t economically viable, that’s probably a few of the brands, should and will fail.
This plan seems a little radical to some, but guess what? In the end, every piece will come out stronger. No longer will one brand rely on another to produce, design, engineer, market or sell its cars for it. Everyone starts pulling their weight. Think of this approach as a form of survival of the fittest. In the end the industry as a whole is better able to innovate and is more nimble for manufacturing. This restructuring also forces healthcare, pension, and union contracts to be terminated or renegotiated thus saving billions.
You know who is buying Buicks these days? Hint: it’s not the elderly – they have moved on to Hondas. The answer is Chinese limo drivers. As such, why not move Buick to China, thus taking advantage of lower labor costs. We can still design the cars here, but there is little case for continuing to beg the American public to buy horrible sub-luxury cars. The American consumer is far too sophisticated now – we’re not stupid GM!
So Rick Wagoner and Bob Lutz can decide which of the brands will likely be most successful and then pick the other company. Let’s not spoil the whole pot gentlemen!