This entire financial crisis is getting much worse and is far from over. In the last few weeks there is an increasing discussion that the U.S. needs to bailout the big three U.S. auto manufactures; GM, Ford, Chrysler. According to reports, the U.S. auto industry involves 1 out of 10 workers and that more than 3 million jobs will be jeopardy if these corporations are out of business.
Here is the issue, while these companies are responsible for so many jobs, they are doing an awful job at running their businesses and this potential bailout will not solve their core problem of inefficiency, poor performance, poor prouct quality, lack of new technology adoption/creation. These car companies have been failing for several years now, so this is not a new challenge, but a challenge that has been significantly enhanced in the last few months. You could argue that we are bailing out banks and other financial industries, so we should do the same with the big three. The big difference is that the financial institutions are in an industry that was growing, have well educated and experience employees, and have mostly been acquired by other institutions. The bailout of the financial services is really a correction for lack of federal oversight of mortgage backed securities and very loose mortgage underwriting guidelines; these two items can be corrected in the very near future.
If there is bailout of the big three auto companies, the big question is how are they going to fix the broader more complex issues? There has to be a strategic plan that is provided to the fed indicating a drastically new approach to a long term sustainability of their companies. They need to focus on how they are going to be investing significant funds in new technology (hybrid, fuel cell, biofuel, electic, etc). Specifically, they need to provide a game plan on how they are going to compete with Toyota, Honda, Nissan, Japanese auto manufactures, who are continue to increase their market share in the U.S. Based on an event I recently attended, Shai Agassi CEO and Founder of Better Place, indicated that he provided an opportunity to several U.S. auto manufactures to be involved in his company and these unnamed companies declined to participate and Nissan/Renault made the commitment and looking really smart for doing so.
I don’t believe the management teams of the big three have the vision and aptitude to turn their companies in a new direction in a short amount of time. If we do bailout these companies, it will certainly help our current financial condition by providing a bandage, but will not solve the multitude of problem these auto companies face and the money they might receive will certainly not solve their main challenges.
A long term solution for the more than 3 million auto employees: bailout funds need to fund training for the soon to be laid off auto employees to translate their current skill set to other manufacturing positions in other industries, specifically, solar (panels), wind (turbines), and electric utilities (new smart/automated grid).
Declining U.S. market share and increasing foreign market share:
U.S. Market Share by Manufacturer
|May 2007||May 2008|
|BMW (includes Mini)||2.0||2.3|
|Volkswagen (includes Audi)||2.0||2.2|
|Mercedes (includes Smart)||1.4||1.8|