Another week and another visit from the beleaguered Detroit Three – General Motors, Ford and Chrysler – to Capitol Hill, cap in hand. The Detroit Three want the US Government to give them US$34 Billion (that’s US$34,000,000,000) to help them survive the recession and to ‘modernise’ themselves. But should the US taxpayer give it to them, or is more drastic treatment the only way to save the US car indutry?
History is not kind to the Detroit Three. Dur to a variety of factors within and outside of their control, they have been serial destroyers of value for decades. And they have faced bankruptcy in the past too: The US Government gave them piles of taxpayers money to modernise themselves during a previous bailout. The trouble is, they didn’t. They continued to do the sane old things as they always had. The net result is that the Detroit Three still make poor quality vehicles, that few people want to buy and that lose them money immediately after they leave the factory.
How can any company, let alone a whole industry, that has abused its customers for so long, ever hope to survive in today’s hyper-competitive, globalised business environment?
The ultimate decision whether to give the Detroit Three US taxpayers money will be driven by politics, not business sense or common sense. But having worked in the automobile industry for quite a number of years, I doubt if a bailout, certainly not one costing US$34 Billion, will result in the root-and-branch reform required to reinvent the US automotive industry and to make it fit for the 21st Century.
The only way to do that is to let the Detroit Three enter Chapter 11 bankruptcy one by one – probably starting with General Motors at the end of this year – and to use the advantages that Chapter 11 provides as the catalyst to restructure themselves from the ground up. Maybe Chrysler wouldn’t even survive Chapter 11 bankruptcy. But let’s be honest, no-one would really miss it!
Bankruptcy will be very painful: The legions of suppliers will be decimated, tens of thousands of factory workers will lose their highly-paid jobs, whole communities will be mothballed by factory closures, but as they say, there is no gain without pain. And it is probably the only long-term option if the US automotive industry is ever going to be able to compete head-to-head with much better run companies like Toyota, Nissan and Honda. And to make high quality vehicles, that customers want to buy, that make them an attractive profit.
What do you think? Are the Detroit Three worth saving as is? Or is it time for a new US automotive industry to emerge from Detroit’s ashes?
Post a comment or email me at graham(dot)hill(at)web(dot)de to get the conversation going.
Graham Hill
Independent Consultant
Interim Manager
Full Disclosure: I have previously worked closely with Toyota Germany for a number of years. And with Ford of Germany for a number of years and other motor manufacturers before that too.
Thanks Graham – excellent article,
My background is the car industry, so it pains me to say it, but as you rightly point out the US big three have been distressing their own market for decades.
It has been semi-covered up by a strong market and the ability to make their money out of financing, rather than selling, automobiles – but both of these have now gone, and they’re left in a sorry state.
A couple of things that I have witnessed in horror, driven by the product-focused sales “numbers game”:
– they’ve created, fostered and encouraged ‘bad’ customer behaviour through constant incentivization
– they have managed to build in the law of diminishing returns in their strategy and planning: “a promotion (i.e. discount)HAS to be offered this year because we did one at the same time last year”; not “what’sthe right thing to do to meet customer needs this year”!
Thanks, too, for your great contribution to the “Importance of the Customer Experience in a Down Economy” Report.
Peter Lavers
WCL & Customer Futures
Great article Graham.
Evolve or perish – it’s as simple as that. In my opinion, the Big 3 were willfully lazy and followed an antiquated management philosophy that went out of vogue several decades ago, along with the two-hour martini lunches.
One of my clients is a domestic automotive manufacturer, and as much as I’d like to see my company keep the business, I will not support my tax dollars going towards shoring up companies who grossly mismanaged their business for so long. Instead of channeling their resources on expensive lobbyists, they should have been investing in R&D.
You are correct, they should file Chapter 11 then salvage what they can and start over again. It’s the only way to get to the next phase. The bailout will only delay the inevitable. Saddled with legacy pensions and hobbled by union demands, Chapter 11 is the only way out.
Wipe the slate clean – it’s their only chance at a “do over”.
Leslie Park