Tricky Business

The US automakers are in Washington with hat in hand asking for loans. This is not a good thing. I don't claim to have all the answers on what needs to be done, but here are some of the issues lawmakers (and taxpayers/consumers) need to know about and take into account.

Did the car companies do this to themselves?

Yes, by and large.

GM, has been poorly run for years. They are too big, have too many lines with similar products and too many dealers competing to sell essentially the same products. Couple this with legacy expenses from pensions and healthcare they are hampered in adjusting to changes in the market and economy.

Ford, is coming around. They have some sharp products, made some wise financial moves (selling off Land Rover and Jaguar) and are positioning themselves well to emerge from the brink of disaster. They also have too many dealers (all the Big Three do) and need to get rid of Mercury or rebrand it somehow. Merely selling Ford's with the Mercury label and a few different shiny parts isnt' exactly cost effective.

Chrysler, needs help. Daimler took a company that was struggling and helped to drive it into the ground. Sure, they gave the company some great powertrains, and a few sharp looking lines, but many many stupid decisions on interior trim, new models, and some of the recent redesigns of vehicles hurt Chrysler greatly. Couple this with legacy costs, too many dealers, too many similar models and odd for being owned by a European company for so long, no small high mileage (35mpg+) models continue to make Chrysler plod along losing market share by the year.

Chrysler is pretty much hoping to be bought by another company to reengergize the company and give them a springboard to succeed. Chrysler has many positives for it, it merely needs time.

Here's where things get tricky: Everybody says they want more fuel efficent cars. However, the market doesn't show that. Last month when gas dropped significantly the biggest sales spikes were all full-size SUVS, the Toyota Sequoia, Honda Pilot, BMW X5. Sales of small fuel efficient cars dropped even further. Gas will go back up, people will complain again, and the cycle will continue. The government should slap an additional $1 a gallon tax on gas, THEN lets see the market adjust.

Another problem. Small cars don't make any money for automakers. Seriously, the profit margin on small cars in miniscule compared to trucks and SUVs. That's not even counting hybrids which if a company can break even on is a happy day. Its not simply "build smaller cars and you will make more money" because you won't. You'll have to sell LOTS more cars just to make the same amount of money you are making now. As market shares grow ever smaller, this is not a way to profitability as things stand.

A final problem that needs to be tackled is the enviromental issues. Oh, don't get me wrong, I'm all against gas-guzzling vehicles, but you must consider that alternatives have their own problems. Hybrid batteries are horrendously expensive, and disposal of them poses a big enviromental challenge. Manufacturing them is also not an overly green process. Does this mean they are bad? No, it merely means that just they are not 100% perfect either.

So, to sum it up, here are the main problems facing Detroit, and all car makers to a certain extent: Car sales are down. Its tough to make money with small cars. Consumers have not shown they will stay away from large SUVs if gas is cheap enough. Alternative fuel vehicles have plenty of their own enviromental issues as well.

A radical change needs to occur in this industry, but I just don't see it happening. I don't know how it can. It is such an entrenched part of our economy and such a vast retooling and downsizing would need to occur it would make things much worse before they got better.

One thing is certain though, until GM decides that it is still 2 to 3 lines heavy, I see no realistic hope of them turning things around.