Friday, December 05, 2008

Road Hogs

The Three Families of Detroit continue to threaten the US with economic catastrophe unless Taxpayers cough up at least $34 Billion NOW. And maybe more next year. Do they believe they are making an offer Taxpayers cannot refuse? If so, they had better adjust their thinking. Do they believe that America will collapse without them? If they do, then threatening the country with economic collapse if $34 billion is not forthcoming sounds worse than criminal extortion to me. It sounds like treason.

Why do the Auto Companies believe they deserve special consideration? Are the Big Three unaware of corporate history in this country? The answer must be Yes. It seems Chrysler CEO Nardelli has forgotten that it took over American Motors a couple of decades ago because the company was in collapse. What did Chrysler get? Jeep. Probably Chrysler's best line. Where did all the Ramblers go? Into the corporate history books. To business school case studies. Gone, and mostly forgotten.

The list of failed US car companies is long. But this time it's different. The heads of Detroit's Three Families refuse to do what managements are hired to do -- run profitable operations. Instead, they now want to acquire money from an alternative source -- the government. More accurately, the Taxpayers. What does this show? It shows that the auto companies have become the biggest rent-seekers in history. They refuse to be capitalists when it counts. They want to be socialists. Actually, it's worse. They're looking like communists.

According to the current plan, the government will acquire ownership of the means of production. Obama has said he wants to appoint a Car Czar. Central Planning, here we come!! Do we need a bureaucracy to tell us the number of cars to be built during the next 5-year plan?

Let's try this: Let's end the eternal struggle between Labor and Capital. If the Auto Companies want money, let the Taxpayers buy GM at its current market price of less than $3 billion and GIVE the stock to the UAW. Let the United Auto Workers own GM and let them take full charge of the company and make it work. I'll bet they'll find a way before Christmas.

The Auto Industry seems to have missed the business news during the last few decades. Probably because the main venue for getting that news is disappearing.

The Newspaper Industry is vanishing. Print media jobs have been disappearing for years. Now the Print Media itself is disappearing. Some newspapers are shutting down. Others are cutting back, becoming weeklies instead of dailies.That's just a gambit to slow the the pace of decline.

Is anyone crying over the loss of the Newspaper Industry? How about the Shoe Industry? We once made most of our own shoes here in America. Today we import 99%. Textiles. Similar story. Check your shirt collar. The label probably reads Made in Pakistan. By the way, has the loss of shoe manufacturing led to barefootedness among Americans? Or do we have so many shoe choices at so many price points that it's tough to decide which shoes to buy? How about shoe repair shops? They're everywhere.

So too are automotive repair shops. Transmission shops, Muffler Shops, Brake Shops, Oil Change facilities. Is there any part of a car that is left unserviced? No. Do people buy cars that lack comprehensive warranties? Yes. Millions of them every year. Used cars. They're cheaper than new cars, and the lack of warranty coverage is a big reason.

By the way, what's included in a warranty? Of course, the obvious. But GM loses about $1,500 per car. As we all know, warranties are a big source of profits. When a product is well built, the warranty is often a losing proposition for the buyer. Of course, if you have one of the few defective cars, then the warranty is a blessing. But given the higher quality of Detroit's vehicles, how much of the warranty price is actually absorbed by repair work?

The answer? Not much. The warranty is an overpriced insurance policy that is wildly profitable. But Detroit's labor & benefit costs are so high that even with a huge boost from warranty revenue, the companies cannot earn a profit.

Walmart is selling big flat-panel TVs. Why go to Walmart when you can get a better price on the same TV at Best Buy? Here it is: The Warranty. Walmart sells TVs for a little more than Best Buy. But it beats BB by a mile on the price of the warranty. Thus, the total price at Walmart is better than the total at Best Buy.

Maybe Walmart should get into the car dealership business. And maybe Toyota and Honda should teach Detroit how to make cars AND profits in the US.

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