The Auto Bail-out Plan Pt 2

In my previous post I listed some of the American auto industries issues. It may look like focused too much on certain things, but keep in mind my prose style. I went into greater detail about some of the more subtle problems that I have observed and was a little lite on some of the more frequently discussed issues (unions, government regulation, etc.)

With all of the mentioned baggage; the big three were still viable and operating with an eye on a more prosperous future. It has been a long road improving their products and corporate cultures to change with the times. Unfortunately the lack loyalty and perception that American cars are over priced junk will take a generation to erase. Toyota and other Asian did not build its reputation overnight and have done a superior job of improving their products over the last twenty years. I also can not overstate the unfair trade practices that have damaged the domestic makers ability to compete in their own markets. Similarly, the $1500-$3000 added to the cost of every car would put any company at a decided disadvantage.

The last two straws should be pretty obvious to anyone, paying attention, to the last year and a half. First the very sudden and very large increase in the price of oil and finished petroleum products (fuel) Their were many factors that caused this sudden shock to the market. I'll simply list them, without too much detail, since this is not the scope of this entry: Weakness in the US dollar limiting our buying power, speculation, production disruption (hurricanes, etc.), instability in the middle east, and a increasing demand that pushed our domestic refining capacity to the limit. As a side note: we haven't built any new refiners in this country for over 20 years.

This sudden increase put a major dent in the domestic's one good and profitable seller: full-sized trucks. Truck buyers are amongst the most loyal customers and only recently have the Japanese come out with a product the can directly compete with a F-series, Silverado, or Ram. The big three have been slow in shifting production to meet the demand for more fuel efficient vehicles. To be fair, they are fairly conservative and were probably waiting to see just how long this price increase would last. Additionally, large companies do not shift gears quickly, especially if they have onerous union obligations. The week dollar and higher transport costs did help the makers buy making it more expensive to import products from over seas – though the climate didn't last long enough to offer lasting aid.

The credit fiasco is what really put Detroit in a bind. All of a sudden people were not buying car at all and the entire new car market tanked over 30%. This was especially bad for Ford, GM, and Chrysler due to all over the overhead and legacy costs they have. They have to sell a much larger number of cars in order meet the obligations. They had been selling enough to barely meet these costs and pay for current costs; treading water for nearly a decade while loosing market share to outside competition.