Friday, November 21, 2008

Is it time to let the Big 3 Die?

I have been forecasting this for years and finally with the latest economic crisis they have been pushed over the edge. The American auto-makers have been dieing a slow death for years for many reasons. First of all, the unions which breed bad attitudes and create a huge rift between the management and the labour. Secondly the short-term thinking and 'i-want-it-now' philosophy of American culture which permeated the ideals and direction of these companies and just feeds the 'old boys club' mentality of the management. Last of all, the product which because of a cash strapped company with a bad work environment and not enough R&D did not evolve with the competitors and suffered for it. And that is just the start....

In the early years of manufacturing unions were required in order to get the employees a decent wage and basic safe working conditions. Today the government has set so many standards and the economy drives the wages that unions are not required (at least in this industry). The union has become a self-perpetuating catalyst for itself. It's main concern is keeping itself in business. They drained the companies for all they were worth and now the workers are paying for it. The huge pensions of such a large workforce have to come from somewhere. It is said that for each car that Ford sells $2000 is going to the pension fund. It's no wonder a Taurus can never match a Camry for quality. Right off the top there is $2000 less quality in there just to make it competitive.

The omnipresent attitude in north-american culture has always been 'I want it now', 'I want it fast' and 'I want it big'. This explains many things about north america including fast food. These car companies give in to these ideals by trying to offer products too quickly with not enough research put into them. It brings down the standards of the company and they end up only caring what the car will look to make it to sell and not about refining the car to make it last. A good example is the Ford Pinto. When civics and corollas started to flood the market Ford rushed out the Pinto to compete with the lower prices and fuel economy. It sold well at first until thousands of problems surfaced (including exploding gas tanks which Ford refused to acknowledge). It just shows that you have to do the right research and refine your product (at least enough that it won't explode). Today they clearly have not learned from their past. While Toyota continues to develop and refine the Prius, GM is putting money into building a Hummer plant.

Tied into this attitude problem is the parts. Because the Big 3 are under so much pressure to lower the price of their vehicles to remain competitive they start to pass that on to their parts suppliers. The parts suppliers are forced to manufacture cheaper parts which equals worse quality. I once talked to a guy who worked for a company making carpet for the interiors of several manufacturers (domestic and imports). The carpet must meet strict measurements in order to fit the car perfectly. In a meeting with some Ford management the Ford guy flipped out and said "I don't care if the shit doesn't fit, just put it in anyway!". I think this says a bit about both the management and It is a perpetuating cycle that is passed on to the consumers, some of whom will never buy from that company ever again. The CEOs have made the claim that you have to support America and that they are the life blood of America. Sorry but that only works on rednecks and they aren't the ones buying new cars.

The philosophy is that if you get as many of your cars on the road as possible you will be able to get the money back when they start to bring them back to the dealership to be fixed. It is the quantity over quality philosophy which works for Wal-mart but not a vehicle manufacturer (especially when there are better options). They have been going down this road over the last several years and it has partially worked. It really is remarkable what you can get in a car for 15-25K but in the end the company is not making any money off those cars. They are the mainstays that have to carry the brand through market changes.

So lets take a look at a couple examples:
Cavalier: It was decent to start as a cheap competition product but GM never invested in it and it stayed basically the same for 15 years while the civics and corollas got better and better. That is 15 years of lost R&D that they tried to get back with the Cobalt which didn't work.
Taurus: A best seller in '86 it was left to decline and eventually died. Ford tried to bring it back a year later but it is too late. This could have been a great car if they had only kept it up. The Ford Explorer is a similar deal except that it is still going.
Jeeps: There are just too many models. It used to be pretty simple; Wrangler and Cherokee. But now you have 6 options that are too similar. They have created extra models in the hope that the consumer will turn around and buy the next vehicle if they don't like the first one. Not the best business strategy.

In the end I think the answer is pretty clear. The market is saying these companies should not be in business. Propping them up is just postponing the inevitable. But it would be a huge loss to our economy. Many jobs depend on these companies. Maybe other companies would take their place since it is clear that North America is in love with the automobile but either way it would really hurt to lose them. I have always said that this was inevitable but now that it is about to happen I am not so sure that it is such a good thing......

What do you think?
Post a Comment