America’s Two Auto Industries

Fantastic article in the WSJ today about the pending bailout plan to GM, Ford and Chrysler.

America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent — Toyota uses three brands in the U.S. to GM’s eight — and they have cars designed for the competitive global market that exists today.

What are the differences between the two? Read on:

Honda Motor Co. sells one basic Civic world-wide. Ford sells two different versions of its rival Focus compact car. Ford is engineering one Focus to take advantage of global economies of scale, but the new car won’t hit the U.S. market until 2010.

The New American auto industry employs about 113,000 people, according to a recent study by the Center for Automotive Research. The economic slump is hammering sales and profits for these manufacturers, too. But they aren’t looking for subsidies, and probably wouldn’t get any since the rules governing the auto industry aid proposals to date effectively exclude them.

So this debate is strictly about the Old American auto industry, represented by the “Big Three” of Detroit. The Detroit Three employ more than 200,000 people directly, and sustain nearly 3 million more indirectly, according to the CAR study. Diminished as they are, the Detroit Three still account for about 4% of U.S. gross domestic product. They also represent a way of doing business that has run its course. GM’s plea for a federal bailout makes that official.

Whatever bailout we give to the “old” auto industry is unlikely to do much beyond delaying the inevitable. Unless Detroit somehow manages to shed its obligations.

The only way to do that? Offer the Unions a piece of the company in exchange for giving uo  some fo the health care and pension benefits.

Otherwise, a bankruptcy reorg would make a whole lot more sense than merely pumping another $50 billion into them . . .


Originally published on November 10, 2008 at The Big Picture blog and reproduced here with the author’s permission.

54 Responses to "America’s Two Auto Industries"

  1. Guest   November 11, 2008 at 8:10 pm

    “Honda Motor Co. sells one basic Civic world-wide. “that is just simply not true, europe has the hatch, and US has sedan/coupe. You can’t buy the other body style in the wrong region.

  2. PacificGatePost   November 11, 2008 at 9:28 pm

    ONLY VERY DRASTIC ACTION WILL SAVE DETROITCongress: Here is a radical, but common sense and workable plan -http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.htmlIt’s this, or bankruptcy. The American Auto industry should be saved but under new conditions.Do not leave it to the likes of Paulson or Congress to come up with a creative plan resembling interest in taxpayers’ wellbeing.

  3. TheEdge   November 12, 2008 at 10:12 am

    The WSJ has it right. The Domestic Two (GM and Ford) need a drastic change in their business plan. Only Chapter 11 can provide the ability to do this relatively quickly. The powers that be are playing with fire otherwise. We all stand to get burned, only to what degree is left to be seen.

  4. Anonymous   November 14, 2008 at 8:52 am

    very good artible below: http://dows.com/documents/MarketLetter_Fall2008.pdf http://www.dows.com/articles.htm

    • Guest   November 14, 2008 at 9:42 am

      I would agree with you but in Japan the government along with China artificially devalue there currencies (causing pricing advantages). In the Japanese auto sector this gives Toyota, Honda, etc a $3000 to $12000 advantage on their cars over American automotive producers and I still prefer my dodge pickup with over 200,000 mile to any overseas manufacturers pickup. It’s not about bailout its about helping another major sector get low interest loans to stay afloat during a sever market downturn.

  5. Roxanne   December 8, 2008 at 3:45 pm

    A bailout would certainly put off bankruptcy but as you say it would only be temporary. Maybe the way out is creativity. What if Exxon were to invest in GM a form a corporate mash-up without taking taxpayers money? http://jonsherrington.blogware.com/blog/_archives/2008/11/21/3988390.html). The new company would have the unique ability to balance the profit equation of car value to fuel efficiency, help regulate demand for (and price of) gasoline: a customer-centric utopia. Exxon has the financial resources to reinvest, with a more commanding management team. This blog entry has three parts; Two that deal with this specific suggestion and another that stresses the power of corporate mash-ups in a recession. Take a look.