What to Do About the Big Three?

I'm concerned, as I know you must be, that Barak Obama's first quasi-executive act was to ask George W. Bush to consider a bailout of the auto industry. Indeed Nancy Pelosi vowed to make it her top legislative priority for a news cycle or two. It would seem that many representing the rust belt states and most of the economists, journalists, and industry analysts who cover the auto industry still labor under the old idea that "As goes GM, so goes the nation." I suspect that hasn't been true for years, but is rather the last desperate attempt to salvage the nation's last, great self-sustaining industrial complex.

As a designer, Let me be the first to say that the Big Three should be put out of their misery. Even before the folly of the SUV, the Big Three have pursued a shotgun approach, producing a conucopia of mediocre cars for a captive market. Even as the auto press prattles on about improved quality, the Big Three can not produce a car that people love, so they produce dozens of cars that people tolerate, reducing their product to a mere commodity. Sure there are exceptions in their lineup, but those exceptions have been stupid, gas guzzling vanity projects like the Dodge Viper, the Ford Mustang, the Cadillac Escallade and of course the Hummer.

Meanwhile the Japanese and Germans have been making affordable cars that people actually want to buy. They've been doing this while also innovating universal platforms design that allows them to update designs across their entire fleet much faster than the Big Three can. So when a new innovation like the glass roof is developed, Nissan and Scion can deploy it in two years, while it takes Chevrolet five years to implement it in the Volt.

The Volt, like its gasoline powered predecessors, is an insipid, lowest common denominator design. It would be a terrific design if only Nissan hadn't already done it. . . in 2003. This lag in production might be understandable if that extra time resulted in higher quality, but more often than not, the quality of the Big Three's product is lower than its competition.

If GM were serious about innovation they would install Elon Musk as CEO and start producing ONE car, the Tesla Roadster at scale and at half the price. The world would beat a path to Detroit. Then they should take this success an develop it as a universal platform for a compact, midsize, and station wagon models. Four terrific cars would make up the entire GM lineup.

The bottom line is that we already have the right ideas to make great cars in this country. But the Big Three have proven incredibly efficient at stifling them. What the Big Three need is not an infusion of cash, but an infusion of ideas.

BUT consider what would happen if the Big Three disappeared tomorrow. Much of the heavy machinery--a large fraction of the nation's remaining industrial infrastructure--would be crated up and shipped, lock, stock and barrel to China and India. Even in the era of automation, heavy machinery has a surprisingly long functional lifespan as computers and software can be easily updated.

You've heard the adage that farmland lost is farmland lost forever. It isn't just because the farmland itself is paved over, but also the human knowledge of farming is not passed on as farmers find other jobs and agricultural infrastructure is pushed out by a service economy. Industry is exactly the same.

Assuming that we will become an energy technology economy under an Obama administration, it would be a terrible mistake to throw away America's industrial infrastructure and human capital that runs it. If we have no way to manufacture the next generation energy technology at scale, we won't be able to test our innovations and reverse-engineer them for the next-next-generation. The Chinese would be happy to take on this role for us with our own machines no less, but obviously they'll also keep the profits from doing so.

The Chinese may still be decades away from equaling our culture of innovation, or instituting the rule of law to protect innovation, but with a monopoly on production, the whole world would suffer from China's perverse disincentive against innovation as long as it can supply the world with inexpensive, last generation technology.

What perfect symmetry it would be to see GE purchase GM and use the machinery and know-how to catapult the US into domination of the global wind or water turbine production. Or perhaps GM remains a car company, but under the ownership of GE, jettisons the internal combustion engine altogether, bringing an electric car to market at scale.

If the government is to get involved with any of the Big Three, they should demand the strictest terms including new management, from outside the auto industry and higher economy standards than the competition. And if these goals cannot be met, the factories should be repurposed for a technological war that we have a chance of winning, a war that we must win: namely the production of clean energy.

Hard to see GM to solve this problem, there are many taboos on its way.

Rick Wagoner makes over 10million dollars every year, if stock options are to be included, where as salaries of presidents from toyota and honda may not reach a million dollars.Unions of automobile companies has gotten too strong that cutting wages seems impossible.
As a result, these people are still making SUVs but not a single hybrid.

Its been a long time since Peter Druger wrote a book about this company, and its hard to find the good traditon still in place.

ok, i haven't read it all but the big three should produce what the market is calling for. if that's hybrids, plug-ins, nitrogen fuel cell battery that's fine. Yes, management at the Big 3 leave much to be desired. All their cars look like each other, foreign or domestic. it used to be a big deal when the new models came out years ago. Now, nobody knows this year from last year. Styling still has an impact. Most importantly, the Big 3 mgmt has never stood up to the outlandish, over expensive union contracts. They roll over and play dead. This is no longer just domestic competition, its global with comepetitors making better cars to cheaper costs. they had to make and sell all those gas hogs because they had to to keep paying their bills. Why no one ever mentions that is beyond me. I'm all for a fair wage for a day's work but they have clearly gone over the top and the mgmt powers that be in Detroit are losing their shirts because of that and cars that most buyers just don't want. if i can a better car at a cheaper price from a foreign car maker in today's economy i'd do it in a heartbeat. They have no one to blame but themselves, the whole lot of them.

Giving the big three even $.01 from the gov't is a bad idea. Why? They have made their decisions over the years regarding what sort of product vision they were going to have, now they should be allowed to live with it. Yes, high fuel prices followed by the economy falling apart is a tough double whammy, but I don't see the other companies who make cars in this country asking for handouts. Perhaps we don't need so many companies making cars no one really wants. Did the USA fall apart when Studebaker went out of business? No. It will not fall apart if GM declares bankruptcy either. GM will have to re-organize and transform itself into a leaner, meaner, more efficient company that creates appealing products. I simply cannot fathom why the gov't should reward GM (or any car company) with money for cashing in for years on the truck and SUV craze and never getting serious about building good quality fuel efficient cars.

GM actually did start to move in the right direction back in the 90's with the EV1, then, for reasons unknown, cancelled the car. Why the heck didn't they continue to develop it? If they needed money for further R&D, that would be one thing, but to just give them money to survive is just throwing money on a carcass that died long ago.

Lastly, we supposed to be living in a capitalist country where healthy companies survive and prosper, and badly run companies go away to make room for more efficient companies to take their place. Giving these companies money is like giving in to terrorist demands, once you start, Pandora's box is open, where do you draw the line?

Dear Mr. Friedman,

It is with great interest that I read your books, columns, and watch your appearances on tv. I have tried unsuccessfully to get some of the UAW leadership to visit the Aspen Institute and cite your works with I speak to college classes about the changing nature of work in a global economy. However, I would like to offer another point to view about the demise of the Detroit 3.

To say that "these companies haven't been innovative or competitive in the marketplace in a generation or more" is painting the picture with too broad a brush. You can go to the GM Tech Center in Warren, Michigan and ride around in a hydrogen powered vehicle or a plug-in hybrid. You could visit the Lansing Delta Township assembly plant that won the LEEDS designation as a green facility and was the first assembly plant in the United States to do so.

As far as being competitive, GM stills sells more vehicles in the United States than any other competitor. As the world has become flat, GM has spent large sums building assembly plants in emerging markets such China, Thailand, Argentina, Brazil, Poland, and just this week opened a new plant in Russia. GM would be the number one seller of vehicles world-wide if it could compete in Japan where Toyota thoroughly dominates the less than free market.

The problem of the Detroit 3 is bigger than the transportation industry (I will not address the cost of health care). Where we live and how live in the United States will have to be addressed if we truly want to solve our environmental and energy problems that directly confront us now. We need a well defined energy policy that would give the companies a clear direction on what to produce. We have to decide on fuels we are going to use to power our fleet. We could also use different materials to lighten vehicles that would increase their energy efficiency. Until we have a comprehensive policy, we will make little progress on conversing resources and slowing global climate change.

We are truly are at a watershed moment in history. If GM and Chrysler do not receive government aid, they will be forced to declare bankruptcy. Numerous surveys suggest that bankruptcy will be the beginning of the end as 80% of people surveyed have indicated they would not purchase a vehicle from a bankrupt company. The opportunity that we would lose would be the ability to direct the companies in a more positive direction as a condition of receiving financial aid from the government.

Walter Reuther spoke about the ability to auto plants to produce other products that could benefit society. Ironically, Toyota uses the Toyota Production System to produce pre-fab housing in Japan. A vision that Reuther had during the 1950's. We should not throw away our design, engineering, and manufacturing expertise that resides in these companies. Excess auto capacity could be redirected to make the blades, batteries, and rails for the future green economy. However, if we do not act immediately the factories could be abandoned and resemble parts of Detroit, Flint, and other industrial graveyards. Places where our society has disintegrated.

The environment and economy are linked, so it's time to link the policies related to them. If we must help the auto industry, fund it through a tax on the sale of gasoline. Ensure that the tax is high enough to drive consumers to STRONGLY consider fuel efficiency, and also leaves some money on the table to support incentives for development of alternative energy, and public transit. Tie any supports for individual auto companies to projects that will move them into more efficient transportation (not just cars).

Instead of $25 Billion to The Big Three, how about $2.5 Billion* each to the top 10 most promising new vehicles? Yes, they already exist. And they are awe inspiring. Why aren't they in production? See the film "Car of the Future" available for free viewing on Netflix; available for purchase through NPR. (the film was produced by NPR's hosts of Car Talk).
*Loan or purchase of preferred stock.

I think this needs to be a "hybrid deal". Some smaller dollar amount should be provided to help the Big Three come around. But I think there should be benchmarks set: 1/2 of all productions must be hybrid or better in 5-10 years, etc. Plus, as American institutions, there need to be some ownership incentive for taxpaerys...agreed upon dividends, etc. to help shore up retirement accounts and payback for bailout funds.

Second, I think the government should broker a deal with either Toyota or Honda (or similar) to take over certain plants. This would, in effect, take down the big three in influence and make Toyota or Honda the major players. But, lets be honest, GM / Ford / Chrysler are on their way out anyway. This would at least offer them the opportunity to re-tool the companies AND save American jobs.

Japanese auto makers are the BIGGEST investors on auto-sector jobs in the US. They could prove very worthy allies.

Greetings Mr. Friedman:

The Big Three.

I’ll try my best to keep this as short as possible.

I’m a 71-year-old retired guy now living in Joshua Tree California in the middle of the Mojave Desert. Over the past 56 years of driving southern California’s roadways and parking on so-called freeways during my working years, I have never ever been involved in a vehicular accident and my last traffic citation for an "improper right turn" was thrown out of court for lack of evidence in 1973. Enough said.

The essence of the following “solutions” have been sent to a variety of news media over the past couple years but none have ever mentioned the “idea”. You sir, today (Nov. 13, 2008) on CNBC spoke with great passion similar sentiments. Now then, to my point:

To my knowledge, there is but one single section of an Interstate highway located somewhere in western Texas where the posted speed limit is 80 mph. The rest of the USA posts speed limits of 70 mph and downward from there.

Solving the “GM” or the big-three situation would provide several benefits, provided the USA limits speed limits to 55 mph. Doing so would first of all save about 5,000 lives per year due almost entirely to “the need for speed”.

Getting from A to B at 80 miles per hour saves just 4 minutes of lifetime where one only needs to start out 4 minutes earlier and travel at 55 mph to get there at the same time.

One only has to “pay attention” to explicit visual advertising of today’s automobiles. Burning rubber, sliding around, faster than a speeding bullet --- all about “speed” enticing the viewer that “speed” is the requisite key to owning the vehicle. That kind of advertising must cease to exist.

Prohibit the manufacture, importation and sale of vehicles that can exceed speeds of 80 mph excluding emergency public service and law enforcement vehicles.

Now to “the big-three”.
Allow “bailout” funding PROVIDED the manufacturers kill the union strangle hold and outlandish wages for robot button pushers. Stop the production of “everyday” vehicles capable of speeds in the range of 120 to 250 mph.

Since speeds would be limited as mentioned, there is absolutely no “need for speed”, therefore there’s no need for 300 to 500 horsepower engines that can get from zero to 70 in a mere few seconds. Kill much of the luxury items factored into these vehicles. Produce these “transportation” and “commuter” vehicles at half the retail price tag of $30 to $50 thousand dollars yet keep the overall size of the vehicle relatively the same as current passenger cars.

The results would provide more buyers of these vehicles given the reduced retail prices. Manufacturers benefit from greater sales to a larger buying public. The quantity of autoworkers would not significantly be affected. In fact, there may be greater need for workers due to increased sales.

Reduction in speeds to 55 mph would save millions of gallons of fuel, thereby reducing our “dependence on foreign oil”.

These mandates certainly would help out the auto industry’s current dilemma. Let them go belly up but do not force tax payers to foot the bill simply to give them money to continue their currently failing concepts of doing business.

While producing 80 mph vehicles, manufacturers will then have the necessary time ahead to continue to research and “invent” cleaner, mileage sensitive, alternative propulsion types of vehicles as technology advances. We cannot expect Detroit to produce advanced technology vehicles today. It takes time. Time is not on our side. So, give Detroit “time” to invent, then produce.

Of course, in order to provide these benefits, laws at the federal and state levels would be required to severely punish those who violate the speed limits. Such as, but not limited to, confiscation and destruction of the offending vehicle, severe monetary fines, even jail time. Allow present older vehicles to “disappear” by attrition. For legal racing vehicles, provide laws that prohibit that vehicle from being operated on a public roadway and restricted only to certified and licensed racetracks and so operated by certified racing operators. Prohibit such racing vehicles from being sold to persons not licensed and certified racing entities or persons so licensed. All emergency and law enforcement vehicles must have their engines destroyed upon retirement from public service.

Certified or otherwise verified antique and other “car collections” would be “allowed” on public roadways but would be confiscated without compensation should that vehicle be found to have violated specific laws pertaining to speed on a third citable event.

Of course, the foregoing legislative issues are more complex and must take into consideration alternative and more in-depth regulatory measures to ensure uniform compliance across the entire nation. One should not be so punished for minor infractions unless such infractions are found to have exceeded reasonable frequency of violation. Such laws must be made in a manner that lawyers cannot usurp the laws by merely interpreting the word “if” differently than commonly understood.

The bottom line:
Loan the auto industry the funds to continue in business only on the condition they retool and produce “common sense” vehicles the majority of citizens can afford and that save lives, fuel and that cannot exceed speeds of 80 mph under any circumstances. There are no roadways in this nation that are designed, maintained or where 120 to 250 miles per hour are permitted.

Bill Ford
Joshua Tree California

To say that GM is not innovative is just plain wrong. They have patents and models on all of the new innovations in the auto world. Their problem began with the Japanese car industry (Which, by the way, received financial help for years until they had the volume to compete on their own.) and their ablility to inspect everything 100% with low cost human robots. They knew they had to produce superior quality and they had the discipline and the low cost labor to do it. (Is this what we want Americans to do?)Then with the news media time after time year after year extolling the superior quality of the Japanese cars Americans began to feel like fools for helping the American economy by buying American cars because everyone says they are inferior.
"What about Japanese cars made in the U. S.," you ask. The reliablility is in the components which are still made in where the labor costs are low and each piece at each step in production can be inspected 100%. U. S. automakers tried to do the same thing with automation, unfortunately they ignored their workers and gave them no responsibility. This made the workers unconcerned and quality suffered.
These new start-up manufacturers will have no impact on the industry. You must be large with the economies of volume to sell to the average car buyer.
What I think we need in this country is specified goals and ideals that are learned in grade school and be recited by all. Then everyone will know who is working with those goals and ideals in mind. We have the bill of rights but I am thinking more about practical issues like are we trying to be the most wealthy nation; is it our goal to have the highest standard of living. What about education, is it a national goal to have the best educated children at every grade level? Take drugs for instance, it is against the law to use illegal drugs and we spend a lot of time and money enforcing that law here and there. But if it was a nationally recognized goal to eliminate drug use in this country comedians on TV would not smirk at drug use and we would get it done.
Being American was once like joining a religion and that is what it takes to be successful.

Dear Mr. Freidman,

I just finished watching you on CNBC, and couldn't agree more with your points. Frankly I think the American public has been screwed long enough by the big three who've already had the technology available to sell us more fuel efficient cars, and you're right, they are certainly not the only ones able to make "good" cars (if you can call them that), as the foreign competitors have already proven. If taxpayers are going to be doling out more cash then spread it around to the next generation of innovative entrepreneurs who understand the needs and care about safe, efficient transportation which won't continue to destroy our planet. Enough of throwing more money into pockets full of holes!

Mr. Friedman,

Thanks for writing your books in a way so that they are received by a broad audience. We must make this information palatable and understandable to all.

As to the auto manufacturers, that is their problem. They are perceived (and think of themselves) to be auto manufacturers, not transportation companies. They need to re-cast their vision as to what they do. They have an opportunity to become, again, the vanguard in the transportation space. We (the US) have the opportunity to be a vanguard in sustainable development. I hope we can rise to the challenge.

Step 1: Put in place a $5.00 gallon gas tax and then, increase the earned income credit to pay for the tax - as we saw this summer, gas prices do more to change driving and buying habits than anything regulation Congress wants to enact (e.g., CAFE).

Step 2: Put the D-3 through a "pre-planned" bankruptcy with everyone involved taking a "haircut," (existing workers, retirees, creditors).

Step 3: The Government makes a ONE-TIME assumption of the unfunded (and now, reduced benefits) the severance packages, and the retraining costs.

Step 4: The Government "breaks-ups" the Auto "Trust" (much like AT&T or, in an earlier era, the Oil Trusts), and auctions off the right to produce Chevys, Pontiacs, etc. THe Government will match (on a one-time basis) the capital contributions for the right to manufacture and produce these brands in the U.S. This allows new blood to enter the auto industry with new contracts for all parties concerned.

I believe that the U.S. taxpayer understands the importance of the auto industry - but they also detest the current structure. Thus, in exchange for a one-time payment to get rid of the old structure, I believe this would be the best compromise solution.

Thank you for asking.

Dear Thomas Friedman!

Thank you for the call of ideas, it is very interesting to read the postings:

Here is what I think:

No bail out of auto makers! They all, the CEOs as well as the regular workers, should start thinking. For example about:

The time people spend working for the money to buy and for maintaining a car might be longer than the time needed to walk the distances. That includes the second important point: regionally produced regional goods for the regional need. Then the globe's recources will last for a few more generations.

Summery: Regionalization is "greener" than globalization. Big distances and high speed kills human interactions. The "cleanest economy" is the one with your next door neighbour.

I know, Henry David Thoreau's idea to simplify and reduce is today as hard as it was then.

Bandi
(Andy in Hungarian, from Vienna Austria, surviving easily without a drivers licence and a car)

First, UAW and the politicians who are promoting bailout focus on 2million plus jobs all of a sudden going away if the Big 3 go into bankruptcy is absolutely not true. The Big 3 can gain efficiencies by selling assets and making cuts. The problem is the UAW, which was very instrumental in swing states and publicly putting the Dems and Obama on notice, and their push for a zero sums game. It is NOT coincidental the Big 3 and UAW started to say the sky was falling for them only after Nov 4th and people like Speaker Pelosi demanding that we must bailout the Big 3. Did the Big 3 suddenly become insolvent on their balance sheets in a week? So Mr. Friedman, you are correct, the politicians in MI need to be cleaned up, but that would also entail president-select Obama and Congress people who are paying back the UAW for their swing state votes. I'm disappointed, because I like Obama, because there was so much talk about changing old Washington politics and not kowtowing to lobbyists. The reality is, the solution doesn't have to be the zero sum game of bailout or bankruptcy. The bailout discussion shouldn't be about being green and increased CAFE standards, it should be about looking at the Big 3 balance sheets and gaining efficiencies first. However, you have UAW talking about any inclusion of concessions in a bailout proposal being met with UAW forcing strikes. Again, zero sum versus reality.

Second, the problem is NOT the Big 3 not being green, because there would have been plenty of people still buying SUVs and trucks at a reduced price compared to the price premium of hybrids while gas prices spiked. The credit markets froze and there was an initial hype of hybrids during the gas spike which was leveling off, though, as people started to analyze costs.

Third, back to UAW being the problem and why the Big 3 bailout is a UAW bailout, because the Big 3 already make very fuel efficient vehicles and up to high environmental standard--can you say Opel, GM Europe, and Ford Europe?; however, UAW leverage prevents the Big 3 from importing those cars. I simply do not understand why all the talk is focused so much on fuel efficiency and research into fuel efficient vehicles, when the Big 3 already make them and made them. Did the Big 3 suddenly forget about the 1980s when they were building fuel efficient cars? The Big 3 were able to weather and retool their lines in response to the 70's oil crisis, which was a far greater problem than the oil spike of last year. Why are the taxpayers being called to pay for the Big 3 to do research on fuel efficiency, pay to retool, and then pay more for fuel efficient cars?

Fourth, people talk about a Steve Jobs type coming in to innovate the Big 3. This is ridiculous, because Steve Jobs does not have to contend with the UAW. Moreover, if you cannot innovate or compete in tech, you fall to the waste side. This is far different from the protectionist policies that keep the Big 3 going. The Japanese, Koreans, and Germans are making attractive cars people like, they are making fuel efficient cars people like, are making reliable cars people like, and are not re-badging the same car. This is why the Big 3 are doing bad. The Big 3 have too many cars using the same platform under different badges--Get rid of the redundancy first, and then we can talk about bailout.

Fifth, 4-5% increase per year in mpg is absolutely ridiculous if you are serious about getting the Big 3 to make more fuel efficient cars. The existing technology is not incremental in this way. Plus, you have to ensure you close the loop on excluded vehicles or having two CAFE standards for cars and for SUVs, pickups, and minivans.