Bailing out the auto industry

Thirty-four billion dollars. That’s how much money the heads of Ford Motor Company, Chrysler LLC and General Motors, also known as the Big Three, have asked the government for to bail them out of their dire financial straits. Seems like a good idea. It worked for the banks, so it should work for the auto manufacturers too since they are another victim in the economic crisis, right? Wrong. Despite what the CEOs are saying, the Big Three were not pushed into this hole by the economy. No, they dug this hole themselves, and all a $34 billion bailout is going to do is buy them a bigger shovel.

As I said, the Big Three’s problems did not start with the credit crisis. No, their problem goes back to the early 1970s. First, insurance rates drastically increased, making it more expensive to insure the large, powerful cars that Detroit was pumping out at that point. Then the OPEC embargo in 1973 happened, causing gas prices to skyrocket. Two years later, Congress enacted the Corporate Average Fuel Economy standards, regulating automobile fuel efficiency for the first time. Suddenly, Americans did not want their big gas-guzzling muscle cars anymore. Now they wanted smaller, more reliable, more fuel efficient automobiles. Japanese automakers quickly answered, giving American buyers exactly what they wanted. The Big Three gave us small, fuel-efficient cars as well, only they gave us cheaply-made econoboxes that lacked any semblance of power under the hood. Horsepower and torque ratings may have slowly increased over the last 30 years, and prices may have risen as well; but compare any Big Three automobile to an equivalent European or Japanese model, and you’ll find the American’s overall quality to be severely lacking.

Another part of the problem is the Big Three’s adamant refusal to adjust to market demands. After fuel prices began to skyrocket following Hurricanes Katrina and Rita, Americans realized that they could not easily afford to fill the gas tanks of their SUVs and pickup trucks any more. At the climax of the high gas prices, when a gallon of regular cost upwards of four dollars, it cost me over $40.00 to fill up my Honda. As a result, Americans once again turned away from their gas-guzzling trucks toward smaller cars. Hybrid sales began to take off as a result. What did Detroit do? They kept pushing their big, gas-guzzling SUVs and pickup trucks and then wondered why they could not sell any of their old ones.

Yet another strike against the Big Three is the way they have dealt with financial troubles in the past. Every time they fall into the red, management lays off a few thousand blue-collar workers, maybe closes an assembly plant, and then awards themselves billion-dollar bonuses for solving their money problems.

In the end, it seems bankruptcy will force the automakers to change their ways. It will force them to build cars that are fuel efficient and well made; it will force them to actually negotiate with the unions instead of simply bending to their every whim, and it will force them to change the way they deal with future financial crises. Ultimately, bankruptcy will force the Big Three automakers to pull themselves out of the hole they have spent the past three decades digging themselves into.