Monday, December 08, 2008

Bailing out Detroit

Congress just approved a big, expensive bailout bill for the auto industry, still pending (as of this moment) White House approval. It seems to be conditioned on the presumption that the U.S. automakers will reinvent themselves -- that they will turn themselves into a structurally sound, profitable business. This strikes me as a bit odd, because they've been reinventing themselves for a few years. They've started research into increasing fuel efficiency without sacrificing power, and are scaling back production of less-efficient vehicles to support the new-found consumer desire for better gas mileage. They've started designing cars well, for a change, and selling cars based on performance rather than catchy advertising and market segmentation. They've still got heinous union problems, they still suffer from bad management, and for some reason they've been unable to ditch useless product lines. But, compared to five years ago, things are finally looking up for Detroit.

Or were, until gas prices started spiking. Now they're hurting. The problem isn't so much with the U.S. automakers, but with their place in the auto industry as a whole. There are cars available for every market segment, and the Big Three were overly dependent on sales to the market segments that were hit hardest by high fuel prices: full-size pickups; overpowered sedans; sports cars; and full-size SUVs. The U.S. automakers spent too much time and marketing energy getting good at making huge, inefficient vehicles. When you think Ford, you think F150 and Expedition (you may also think Escort, but you don't think fondly of an Escort). Honda wasn't hit hard by rising gas prices. Their best-selling and best-known vehicles are small and economical, which put them in a comparatively good competitive position. Ford, on the other hand, was extremely dependent on people buying full-size pickups as cooler alternatives to minivans. When fuel prices spiked, the buying market shifted from the vehicles in which the Big Three specialized, to vehicles made better by others.

Then the gradual tanking of the economy got bad enough that it was obvious even to the oblivious. And things got worse for the Big Three. Chrysler, which seems to be doing the worst, doesn't even have a product line under $20k (unless you count the PT Cruiser, which is such a bad vehicle in so many ways, its only selling point seems to be vaguely-retro styling; it should come with a factory-installed bumper sticker that says, "I didn't do my research!"). Even Ford and GM are dependent on too many expensive vehicles and too many vehicles that get horrible mileage. And people aren't buying them, or not in the quantities they were a few years ago.

And, the UAW -- possibly the most benefit-heavy set of workers in the entire world. A friend of the family once sold hearing aids for a living, and the best calls were to UAW members or retirees; they're the only workers in the country whose insurance pays 100% of the cost of hearing aids. Congress doesn't get free hearing aids. Unions serve a valid purpose -- they give workers a degree of protection and leverage against abuses committed by their employers. It costs employers more financially to use union labor, but with the benefit that they've got a large pool of expert workers to pull from. But the UAW has been unnaturally powerful for decades. Anecdotal story: a friend was working as a contractor at a Ford plant in Detroit a few years ago, and there was a low-grade scandal while he was in the plant. Two workers backed a truck up to a loading dock, threw in around $40k worth of truck transmissions, and drove off. The theft was caught on tape, but not only could they not prosecute the thieves, they couldn't even make them give the stolen goods back. The union repercussions (equipment sabotage and work slowdowns) would've cost the company much more than the lost parts. This is appalling, and apparently not uncommon. The UAW has made some "concessions" to the automakers as part of the push for a bailout, but the concessions were both inexpensive and insignificant. They're still firmly on the "problem" side of the problem/solution continuum.

So I'm not sure what the Big Three can promise the government. I was at least a little curious what would happen if the bailout didn't happen; Chevrolet said they needed the loans by the end of the year, or they'd be forced to file for bankruptcy. And I'm not seeing the down side of this. Bankruptcy isn't the same as closing your doors; it means you restructure with debt relief as a cushion for your transitional period (I grossly oversimplify). Which seems like what the government is proposing anyway, without using the B-word. But in bankruptcy, the restructuring is less voluntary and more drastic. And, everything's on the table. With a bailout, the UAW gets veto power over anything involving the union; under bankruptcy, a court could order the union contract completely rewritten. And courts have already decided with telco workers that "lifetime benefits" refer to the life of the contract, not the employee....

1 comment:

Anonymous said...

Actually, I think they're on the right track with free hearing aids for the auto assembly workers. That seems like it would have been a tremendously noisy workplace, and the hearing aids seem like they'd be directly necessitated by the workplace injury.

OK, it's be reasonable if they capped the maximum allowance for them at some kind of level. But something to replace an attribute of life that the bosses or workforce didn't realize was being damaged on the job - I can rationalize that.

Then again, I'm a corporate communications girl - rationalization is as tasty as bagels with cream cheese.

-Tina