The US auto industry bailout, part 3

I have posted in the past about the challenges with the big three auto manufacturers.  Specifically, I had suggested that they should be allowed to file bankruptcy since they are burdened with an excessive cost structure.  However, the blame for their problems cannot be placed solely on their cost structure.  That is only a part of the problem.

A car company’s job is to make cars that consumers want.  They must gauge consumer trends and reliability requirements and produce cars that meet these needs.  You only need to look at Honda and Toyota for examples of companies who do this consistently well.  These companies have done a tremendous job responding to customer needs and the Accord and Camry are perennial best sellers and provide the comfort, features and fuel economy that customers are looking for.  This blog entry shows the market share of these cars and others and it is interesting to see that Honda and Toyota own the first four slots.

The US automakers have not been able to respond to the market.  Their cars historically have not been able to compete with the high quality designs and reliability of the Japanese models.  This has led to a consistent decline in big three marketshare while Toyota and Honda’s share has grown.

The lack of a quality and desirable product has really hurt the big three and this has little to do with the high cost of unions IMO.  It directly relates to the design and engineering organizations and their inability to create products that are competitive.  We have seen this slowly change with cars like the Cadillac CTS, Ford Mustang and Chevy Malibu, but my feeling is that it is too little too late.

Now it appears that a bailout is imminent.  How can these problems be solved?  Can a government appointed car tzar help?  Yeah right.  Can a renewed focus on green cars, help?  Maybe, but it depends on the market and consumers.  Just assuming a car will sell well because it is green is a fallacy.  Consumers will buy the cars that they want regardless of whether they are green or not.  The Toyota Prius sells well because it is a well-designed car that is also green.  Taking the same design and manufacturing model of current cars and converting them to a green focus ignores the core problems mentioned above.

In short, the big three face a tough challenge.  The automotive market is very weak right now and the addition of potentially strict government oversight will add more challenges.  As I mentioned in my first post, the best strategy is to let the free market work and allow the big three declare bankruptcy and re-organize.  Having the government run these companies through an auto tzar is a bad idea which does not resolve the core issues mentioned above.

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