Will We Have a Rescue or a Miscue?
The more I read about the automakers’ problems, the more I conclude that government has to force their hand. What that would mean is a complete makeover of the industry, which would accomplish two things:
- Reduce the overcapacity and oversupply problems
- Get the carmakers in sync with building cars the public now demands.
The overcapacity problem, building for years, is at the root of many others. In effect, the industry has killed off, or saturated, its market. One blogger says:
In 1968, the US had 100 million cars for 199 million Americans. In 2006, by contrast, the population of 225 million Americans over the age of 18 was outweighed by an automobile population of 234 million passenger vehicles. Obviously, people will continue to buy replacement autos as their cars age, but there does seem to be a limit to how many cars the country can consume.
You bet there is, and the recent economic recession has weakened demand to a trickle. What do you do about that? The auto companies do not want to bite this bullet because it will mean a complete restructuring of their business model. The government hesitates to force the issue because it will raise the prospect of “social engineering,” “nationalizing,” and—the biggest scare word of all—“socialism.”
But there seems no alternative to finally building cars the public and the times require, plus addressing the energy dependence, pollution, and basic transportation issues the country faces. These require massive efforts and resources. Small, innovative startups are great, but won’t get us there.
Practically, what it means is converting the overcapacity of the carmakers into making socially beneficial things like light rail, efficient buses, high-speed rail . . . and energy-efficient cars. Do we have the political will to do this stuff, or are we going to squabble about it? Most likely, we’ll squabble for a while, then do it.
Instead of firing people and closing plants, the Big Three should be thinking about retraining, conversion, and retooling. I am betting they will go that route if the government pays part of the freight and puts seed money into these efforts. If that does happen, private money will follow. Paradoxically, the Big Three could be the vanguard instead of the laggard.
A columnist from Toronto put it this way:
The Obama task force, in protecting the total $30 billion of taxpayer funds that GM has received and is seeking, would impose on GM a more rapid resolution of those issues. There has long been no cachet in owning a vehicle made by a North American-based firm. That could change if the Obama administration uses its bailout leverage to force a transformation of Motown’s mission.
GM—and Detroit—could re-emerge as a global leader in fuel-efficient vehicle technology if Obama’s task force clears out its senior and much of its nostalgia-enslaved middle management. The precedent was set when FDR threatened a Detroit reluctant to convert to war production with nationalization unless it did his bidding.
Once again, the heavy hand of outside intervention is Detroit’s best, and perhaps only, hope of salvation.
Tell us what you think Detroit will look like in five years.