Car company bailout quiz

I've been listening to much of the hot air from all sides of the discussion regarding bailing out the Detroit auto companies, and it struck me that nobody is asking (or answering) the correct quesions. Mostly I'm hearing tactical questions from the politicians, and answers that amount to short-term incrementalism. How much do you need now? Umpteen billion. Will you need more later? Can't tell yet, it depends. Are you tightening your belts? Oh, yes, we are giving until it hurts, and then some.

Frankly, I'm more interested in hearing the so-called leaders (management, union leaders, and boards of directors) fess up as to how they and their predecessors let down all of their employees, workers, creditors, and stockholders — slowly and steadily over a period of at least thirty years. It didn't happen this year, try as they might to convince us that the recent financial crisis was what did them in.

Why aren't the CEOs or union leaders being asked to explain the quality and reliability of the cars their firms have been making? All I've heard along those lines is a comment or two about how the cars rolling off the assembly lines today are somehow "at parity" with their competition. No follow up questions, such as "Oh, really? How many years ago did your management team and your union decide that quality and reliability of your firms' products deserved at least as high a priority as your job banks, your gold-plated medical plans, your bonuses, and your corporate jets? Was it one month ago? A year or two ago, maybe?"

It's too late now, but the union leaders, CEOs, and boards of directors have had some big, important clues available to them for at least three decades, if not more. One highly-visible source for clues has been Consumer Reports magazine. I made a special trip to the bookstore yesterday to get the latest copy of the issue providing extensive, multi-year ratings on the quality and reliability of almost all of the car models we consumers are driving. (It's only seven bucks for a wealth of objective information on car quality; what a bargain. Pick up a copy of it next time you're at a magazine stand.)

No surprise: the results this time look similar to those I've been seeing for many years. I decided to borrow four examples from the magazine to assemble a simple little quiz, to illustrate my point. Here's the quiz — and it's open to anyone, including union leaders, CEOs, and senior executives of bailout-hungry auto manufacturers.

Three-question quiz
Let's assume you are in the market for a car assembled in America, made with at least 70% US-or-Canada-sourced parts. You saved enough to pay cash for your new car. Using the latest Consumer Reports magazine, you've narrowed it down to the four popular models shown below. After examining the ratings, and without peeking ahead, answer these three quiz questions:

1. Which car would you buy: A, B, C, or D?
2. Which car is most likely made by a Detroit firm and the UAW?
3. Which car is most likely made by a company asking the government for bailout money?

Now click on the following graphic to see which cars you picked...

It is no mystery to me why General Motors is asking for bailout money. They can't convince enough of us to willingly exchange our money for their products, so they're asking for the government's help in getting our money.

Conclusion
In my opinion, a high-priority infrastructure project for the Obama administration should be wider highways leading away from Michigan — towards the states where a lot more skilled auto workers will be needed after the ineffective companies and unions at last go out of business.

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End notes, Q&A:

• Will national defense needs require us to bailout Detroit anyway?
Well, General Dynamics is effective at making the armored vehicles GM used to make; why not turn the remaining assets in question over to GD as well, or to some other competent firm?

• We bailed out financial firms; why not car makers?
Reason: the government has ultimate responsibility for the soundness of our economy's money system; it is NOT responsible for the soundness of the economy's passenger-car manufacturing systems. Money flows in one direction, real goods and services flow in the opposite direction, as explained here. The government must (reluctantly) step in as necessary to prevent the collapse of the nation's money system; private sector nonfinancial firms succeed or fail within that system. 

Comments

[Mike H]

Is anyone as upset as I am that a Republican president is thinking about going against the will of his own party and the will of Congress in general and make this bailout happen all on his own?

[Bob]

With all the hoopla going on about BK, isn't strange to realize that GM is, according to their balance sheet for,the quarter ending Sept., in fact technically bankrupt?

Assets ~110B
Liabilities ~170B

And it has been this way for the last four quarters.

Nevertheless, Steve brings up my hot button with regard to the Detroit 3 (I don't use Big 3, because there are ONLY 3). They failed to differentiate their product from the competition. So, all that's left is price. And, with a 10% or so gross margin there's not much wiggle room if you screw up.

[wonderputz]

There are at least two fallacies at play here, and they are both founded on perception.

The first fallacy: the perception that Consumer Reports is a purely objective source of information. I won't reveal names, but I can say that at least one product that I know very well has appeared in Consumer Reports accompanied by some very blatant lies about its production features.

The second fallacy: The perception that domestic vehicles are less reliable than foreign vehicles. I am a mechanic; I see just about every common daily-driver on a daily basis. The reality is, every car is only as good as its owner/drivers. It's kind of a vicious circle.

In general, people that are buying cheaper cars (Taurus, Impala) are more inclined to keep their cars longer, and less inclined to spend money on maintenance. On the other hand, those who were willing and able to spend more on a Camry, Accord, or Maxima are more likely to keep up on maintenance, for one, because they can better afford it, and for two, because they don't want their more expensive car to let them down.
In the end, the perception that the "cheaper" domestic vehicles are somehow sub-par has actually led to them becoming sub-par on paper, even though they aren't.

[Grodge]

Mike H,
Why the outrage at this late date? Have you only now discovered that the authoritarian Cheney regime cares not what anybody else thinks?

[Optimist123]

Adam,

Thanks for your input.

Consumer Reports might not be perfect, but its ratings are generally confirmed by a nonscientific sample that includes my own personal experience as well as the experiences of friends and family over a period of thirty years.

I would welcome your suggestion regarding a better source for rating multi-year reliability and frequency-of-repair, model by model.

[Mike H]

Grodge,

I have had problems with this president throughout. Many of them in hindsight since I have basically formed my views under him(I was 18 when he was elected). I see the current events as trying to leave on an note of appeasement, now that people don't care as much what he does. On the other hand, this does go hand-in-hand with some other Bush actions. He talks like a supply-sider, but has governed like a Keynesian. His tax cuts were supply side, but he has tried to be counter-cyclical (rebates/bailouts) many times as well.

[Bob]

Steve,

Kelleys' Blue Book and Edmunds might be some reliable sources for rating the Detroit 3 versus the Japan 3 and South Korea 2. Resale value may be a good indicator and they may have summaries so you don't have to hunt and peck.

I'm so disgusted with this whole issue that I could spit. It is beyond my comprehension that GM( yes, they are in my sights) should be rewarded for utter failure. This Too Big To Fail thing really needs to get out of our system.

[Don Webb]

As an auto industry insider, I agree with most of what has been said about GM. I also agree with Adam's comments about Consumer Reports. They are unfair and unbalanced and have been for years. May I suggest researching the study in which the badges were switched between an American car and a Japanese badged car? In both cases, before and after the switch, consumers chose the Japanese car. Our biases betray us!

There are three groups at fault here, the auto executives, the union, and the government.
The upper echelon of the Big 3 take first place in the "Arrogance" catagory!
The UAW takes first place in "Greed!"
The Federal Government takes first in "Ineptitude!"

If the Optimist is interested, there are several short blogs that could be written by me about each.