The Future Looks Clearer . . . and Dimmer

Chrysler plant, Belvedere, IL

Chrysler Assembly Plant, Belvedere, IL

Yesterday we explored some headlines about the auto industry bailout.

Today we create three more, based on what Chrysler and GM revealed in their submissions to the feds yesterday:

We Need $21.6 Billion More Now, $39 Billion by 2012

GM Says Bankruptcy Would Cost the Government up to $100 Billion

Nobody Is Going to Be Willing to Foot This Bill

GM Assembly Plant, Janesville, WI

GM Assembly Plant, Janesville, WI

Ford Assembly Plant, Atlanta, GA

Ford Assembly Plant, Atlanta, GA

Both Chrysler and GM offered the by now familiar cost-cutting measures—and the projections of people out of work, cities in decline, factory closings, parts and feeder industries affected all make your stomach turn. See details of the companies’ proposals here. But there has to be a lot more bullet-biting. For Chrysler, the Fiat alliance won’t be enough.

And, as we all know, there are too many brands. Brands require vehicle development, production, marketing, dealers, and more. So the companies are being given old business advice: Focus on your core business. The Saturn story is a particularly sad example of how GM lost its way. That brand was left to languish for too long, and now that they have good cars that aren’t selling, they’re being put on the block. Hummer and Saab also reflect bad business decisions.

The problem goes well beyond cutting costs, however. It’s really about boosting sales, and how is that going to happen in this economy? Getting people to buy cars still comes down to the same old value proposition: Building sufficient value into the product so that “buyers” will part with their coin. Today it’s impossible to make people overcome their economic fears and forego savings to buy outmoded vehicles.

At the same time, we believe the auto industry has got to survive, and most authorities reflect that if that is to happen, there will be a whole lot more pain.

“I don’t know what you’re going to call it, but they’re going to go through bankruptcy, whether outside the bankruptcy system or with the benefit of the courts,” said Maryann Keller, who has written about the U.S. auto industry for three decades. “At the end of the day, the United Auto Workers are going to have to take a haircut, creditors are going to take a huge haircut, and equity is gone. What will effectively happen is exactly the same as bankruptcy.”

The companies’ decline (and we include Ford) didn’t happen overnight, and reconstructing the auto companies (all of them) into viable, lean competitors will take years.

Anybody reading this who has bought a Saturn? How do you feel about GM’s abandoning the brand?

—jgoods

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