Auto Bailout

There has been many things posted about how there will be nothing short of Armageddon and the collapse of the universe itself when the big 3 automakers fail. If it helps any here are a few things you might find interesting and helpful to calm your nerves if you are concerned about this happening.

First, let’s agree the frequency that you purchase a vehicle is not determined by how many car vendors there are, with a few exceptions. It is determined by other factors such as reliability of your current vehicle, financial status, and family status. As such, if GMC stops making vehicles you are not more or less likely to purchase a vehicle in the future when your current car’s engine block blows. You may not be able to buy a GMC, but perhaps you purchase a Dodge instead.

Second, please be aware that many “foreign” cars are made in America and many of the Big 3 car manufactures produce vehicles outside of the U.S. I am still looking into research on this but 20% of Fords are made in Mexico and Canada, 50% of Toyotas are made here in America

Also remember that parts are sold and services are performed here in the states. Further remember that many parts are manufactured here as well for foreign and domestic cars alike. What this means is if you sell Chrysler parts and Chrysler goes under, another car manufacturer will have the demand for parts and service increase giving you the opportunity to transition over to be a vendor for that company.

On that note, just because no more new cars are coming out of Detroit doesn’t mean that the current ones on the road will never need parts or service. This allows vendors of this nature a lengthy transition time (5 – 10+ years) to change their business to a car manufacturer that is still in business. Those that do not want to transition have the opportunity to have a niche market similar to those that restore older cars and have used car parts. Junk yards could also see increased revenue based on car manufacturers closing.

The history of the big three in Detroit has been one of placing non competitive vehicles on the road compared to their foreign counter parts. According to Consumer Reports Ford recently has finally caught up with Toyota as far as quality is concerned. GM and the others still lag behind, making gains in quality but so far not being able to replicate the other manufacturers. The big 3 have lagged behind in quality and ingenuity for over 30 years.

Some might make a bunch of excuses about this, cheaper labor overseas, etc. But let’s compare these a little more closely. The Toyota Tundra, truck of the year and one of the most highly reliable trucks on the market, is built here in the United States. How do the big 3 in Detroit argue that they can not make as reliable as a vehicle when a company is using the same labor force, same part manufacturers, same pay rate (The hourly rate at the Toyota plant is .25 less than that at Detroit), and is able to deliver a truck far superior to theirs?

Partly we have the UAW to blame. Living in the northern states for awhile I noticed the culture of entitlement that dominates there. Employees believe they are doing the company a favor by working for them. This creates a lack of quality in work, a lack of concern for the fate of the company until the company is bankrupt, and an overall attitude of disgust for the very employer that is putting food on the table of these Americans. Lawsuits, pension plans, company paid health care after you retire, and much more has crippled the big 3. How many jobs do you know where you could work there 25 years, pay 50,000 into a health care account, then receive free health care for over 25 years and spend any amount of money you need? Anyone can see where that could be an issue.

These things are not in place at American plants that produce so called foreign cars. They have learned from the mistakes of labor agreements and have more traditional benefits packages like thousands of other corporations have here in the states. You want some retirement? Then invest in a 401K, the company will match your contribution up to x%.

Most importantly, the big picture is that there just be a redistribution of wealth when and if the big 3 close. The lack of quality and innovation, coupled with unrealistic labor agreements and managerial practices have caused the company to be in the position they are in now. These same deficiencies will continue as indicated by their 30 year lag in quality control with or without bailout money. John Adam’s invisible hand needs to be allowed to roam here.