General Motors not only survived the Great Depression, it did so without ever running in the red for one single year. They were in the black for every one of them.
Such a feat is inconceivable today; GM is simply denied the means to acheive such a thing. Rapid, extensive cost-cutting measures are needed right now to stem the tide of red ink, but this is no longer allowed. Still lumbering under the New Deal labor model, GM lost the flexibility in dealing with the current crisis a long, long time ago.
The CAFE restrictions destroyed the platform that made Detroit famous: the 4-door V8 family sedan. These were our fathers’ Buicks, Pontiacs, Oldsmobiles and Chevrolets. These restrictions also exploded the cost of development of new vehicle platforms, insuring that the difference between all of these various intra-company brands would inevitably become reduced to differences in trim and styling (i.e., transparently derivative). Through a loophole unforseen by Congress regarding the applicability of those standards to light trucks, the innovation of the minivan and the SUV emerged to become the profit center of the entire US auto industry.
In order to survive today, GM, Ford and Chrysler need more freedom on cost cutting than their unions will allow. Make no mistake the cost cutting they need would be quite painful and extensive across their entire worker base. They also need dramatic regulatory relief in order to shorten both the design time and cost of bringing new vehicles to market. Currently it takes over a billion dollars and 3-5 years to move from drawing board to showroom. This situation stiffles innovation and risk-taking, always encouraging what is seen as the “safe” play (and until recently this has always meant rolling out the next SUV or light truck). The latest version of the CAFE standards require immediate suspension and repeal. The Big Three are facing an existential crisis, this is no time to be committing them to pie-in-the-sky MPG requirements that rain down additional costs they can’t afford right now (if ever). The estimated cost of this year’s “Energy Bill” to the US automotive industry: $100 billion dollars.
Every component of what I mentioned in the last paragraph won’t sell in today’s political environment. Every one. Only two alternatives exist, then, for the Big Three: bankruptcy or bail-out. Count on the latter. They may allow one to die, probably Chrysler, due to random cruelty and an august “sense of measure!” But really if we are bailing them out we should just be bailing them out.
During any bailout politicians will no doubt extract a price from these companies. I can’t see how this price will not be ludicrous and misplaced. It will probably require more labor concessions, not less, or a more constrictive approach to allowable emissions among the fleets, etc.
Ironically, fundamental change is exactly what the American auto companies need right now, at the labor relations level, in the regulatory environment, and at the drawing board. But the odds are that this change will be hardly denied, or even entertained for one moment.
