Friday, December 05, 2008

Why US car companies are dying and why we should let them die

Three reasons US car companies are failing:
A few years ago I bought a used car. I did a lot of research. I was only willing to spend $3500 or less, so my options were limited. Another limitation--I'm tall enough that I don't fit in a two-door car such as a Geo Metro.
I went to Consumer Reports.
Best compact cars in my price range? The ones that don't break down?
Honda Accord, Toyota Corolla, Geo Prizm. The last year for the Prizm was 1997; I had several people tell me it was basically a Corolla, just with a different name. I found one from that year and have been happy with it.
So where are Chrysler, Ford, and GM? The American car companies?
Well, they don't exactly have a history of making quality products. Go to Consumer Reports. It's pretty obvious that their cars are less reliable.
Sure, they have style. They look good. I worked for a rental car company and would sometimes drive a Dodge Intrepid. The 2001 model looked very cool, it drove smoothly, and it felt very comfortable. The 2001 Dodge Neon also looked and drove nice (although, being a compact car, it was less comfortable). But the reliability stinks. Some people go for style, for looks, or for brand name.
More people prefer reliability. So Americans buy Toyota and Honda.
Handling their money poorly. Plenty has already been said elsewhere about how they compensate their employees. The top executives showing up in private jets to beg Congress for relief money was more of a stupid image decision than a bad financial decision, but it seems to illustrate their wasteful ways.
Size and gas mileage.
American car companies have been big into size. Get a monster truck! One that can tow a house! Look! Our SUV is bigger!
What you end up with is a bunch of little ladies and guys with Napoleon complexes driving huge vehicles around. Most of these vehicles don't get used much for towing, hauling, or off-roading. They're mainly a status symbol.
Gas prices went way up, the economy went way down, and all of a sudden these big vehicles aren't selling. They never sold much internationally (people in other countries are either too poor to afford them, or laws are to stringent to allow gas guzzlers). Now they're not selling anywhere. The companies were struggling anyway, but gas prices and the economy were the last straw.

Now, what do we do? Do we go in and save these guys? Or are they too big to fail? If we let them fail, the economy goes down more. But if we use huge amounts of money to help them out, their problems, which I mentioned above, will probably continue. Poor reliability, poor money management, big size and poor gas mileage.
I think at least one of them needs to fail. Companies, especially big companies, need to realize that they are not too big to die. I hope Congress will hold off on any help until one of these guys goes under, and then step in with loans to help the others. Let them know that they're not too big to fail. Let them know that, like all other things in a changing environment, if they don't change and adapt, they will go extinct.


Tim said...

The big irony here is that, for years, these companies fought better gas mileage requirements. They claimed stricter requirements would be too expensive, and too much of a hardship.
A year ago, they wanted Republicans to protect them from stricter gas mileage requirements. Democrats were the bad guys. Republicans protected them. Now they want Democrats to protect them from going bankrupt. The Republicans are now the bad guys. Let's hope the Democrats don't cave in too easily.

Mommy Bee said...

let me hear an AMEN!!!

yeah, I'm all about the good reliable cars, which always means not american. I had a fantastic little honda civic sedan which I sold when we got married because Dave had a geo prizm (same color as yours actually...) When we moved up here, we sold the prizm to my brother, and it continues to serve him well too. My other brother--who is a car FANATIC--bought a toyota.
Our mini van is a kia--we would have gotten a honda or toyota if we could afford them, but the kia was half the price and had comparable features and a longer warrenty, so we went for it. Still though, no american cars...we looked at some when we were shopping for the van, and yeah, foreign is the way to go.

JorgenMan said...


Brentwell said...

Agreed. For financial details on these companies see Big Three Auto Surprisingly GM actually has more market share in the US than Toyota, but GM is losing money and Toyota is making money hand over foot in the US. That is bad business! I feel bad for the employees that suffer the consequences, but in the long term bad business practices should not be rewarded.

Katrina said...

Another amen! This whole thing with not wanting to reap the consequences for bad mistakes makes me crazy. I really hope Congress doesn't give in.

Cougarg said...

I read an article that asserted that American car companies are actually putting out more reliable cars, reliability that rivals their foreign competitors. Unfortunately for them it has only been in the last couple years. Trust is easy to lose and hard to regain. Decades of shoddy reliability is hard for the financially responsible to forget. I think it will be bad news if the car companies fail, but it will be their own doing. I think that government bailout is anti-capitalist. If the car companies had listened to the market, they wouldn't be in the situation they are in. Doing so now may be too little, too late.