News came out today that GM and Chrysler seek an additional $22 billion in aid from the government. That's in addition to the $17.4 billion already committed. I just can't see throwing good money at a poorly run business. It's one thing to bail out banks because credit markets affect a lot of people. However, bailing out an automaker that continually makes poor decisions and even poorer cars is crazy. As a condition of any bailout money, I would request that all the CEOs and upper management be fired. I applaud what Ford has done in not requesting bailout money. Of the three US auto manufacturers, I'd most likely buy a car from them. Isn't it telling that the car maker that churns out the better products is the one that least needs help?
News came out last week from the Detroit Auto Show that Toyota and Ford will be looking to release pure electric vehicles (not range extending fakers like the Chevy Volt) in the near future - about 2012. It seems to be a theme at this year's show, as all other automakers were releasing some sort of hybrid version of something. The big question is whether next year's show will still have the same focus. As oil prices decline (I paid $1.89 per gallon the other day!), there will be less pressure for consumers to buy fuel efficient cars thus less incentive for automakers to develop new technologies. Do you think a company like Tesla Motors could have been built and funded in an era where gasoline costs $1.25 per gallon? Perhaps, but it wouldn't get as much attention as it does (and deservedly so, the Tesla Roadster is amazing). When you think about it rationally, there are many reasons to want to get a fuel efficient car, the least of which should be to save money. The environment and national security should be the top reasons but often times we only see what's directly affecting our wallets.
UPDATE: As a point of clarification, I don't mean to say that people shouldn't be cost conscious in these difficult times. My point is that not buying a hybrid because it may cost more initially is not a good argument. The cost of buying a hybrid versus a non-hybrid compact or mid-size car is not that great plus the savings in gas over time will minimize that gap even further. If you don't want to buy a hybrid because you need to haul kids, groceries, lumber, etc. that's fine. However, if you're waffling over whether to get a Corolla, Focus, or Jetta, buying a Prius or a Civic Hybrid isn't much of a stretch. Trust me, you'll make that money back in about 4-5 years.
I woke up this morning to the radio airing the news that the auto bailout has passed. I'm glad a lot of people won't be losing their jobs but I think we're only delaying the inevitable. The $17.4 billion bailout has provisions that require, among other things, the automakers to "prove they can restructure sufficiently" or those loans would be called back. My question is, can the automakers really turn it around? It's like a gambling addict who just needs some seed money to win back all the losses his accumulated over the years. Chances are, it's just not going to happen. And what if they don't sufficiently restructure? Would they really care if the loans are called back? They'd be in the same position they were before the bailout except now with three months of salaries paid. And actually, I don't think Congress would have the guts to actually do it. The old cry of "we can't let the US auto industry fail" will be heard again.
If the government really wanted to make a difference, they should have asked for the resignation of all top level executives from any company that asked for a loan. The way it's setup now, these automakers will come back to Congress in March and either ask for more money or time to prove they are restructuring (probably both). Why would anyone give money to a group of people who have a history of failure? This is in stark contrast to a company like Toyota who hasn't had an annual corporate loss in 71 years (they expect to end the current fiscal year with a loss). In fact their profits in 2007 alone were $14.9 billion - almost the same size as the current bailout. With a cushion like that, who needs a handout?
The Business section of the NYTimes.com site has an article about Tesla Motors, the Silicon Valley electric car start-up backed primarily by Elon Musk and a list of other high profile investors (including the Google guys). The article centers around Tesla's recent request for a low interest loan of $400 million from the US Government as part of a fund whose goal is to improve US automakers' fuel efficiency. Randall Stross, the reporter who wrote the article, has a very clear message as it relates to Tesla. His argument is that Tesla is not a truly viable company and that tax payers shouldn't pony up for what he amounts to a boutique automaker that caters to the rich. Tesla is behind schedule on its delivery of the $100K+ Roadster and even farther behind schedule on its plans for the more affordable $60K Model S sedan. However, the bigger question to me, as a tax payer, is whether I think the future of America's auto industry is in the Big Three US automakers or somewhere else... say Silicon Valley?
When our family immigrated to the US in the 70's, the first car we owned was an old Mustang. After a short trist with a VW Beetle and VW Vanagan (they were cheap), we next owned a Buick Skylark Wagon and a Ford Taurus. My first car was a Dodge Colt. From the Taurus my parents went to a Nissan Sentra, then a Honda Accord, and finally a Toyota Camry and Corolla. After my Dodge Colt (I totalled it, but that's another story), my wife and I inherited a Maxima and a Camry. Our first new car purchase ever was a Toyota Prius. I remember the pride my dad had in being able to buy the Taurus which was considered at the time to be one of the better quality cars available. However, since those days of the 80's and early 90's, the quality of American made cars has slowly declined while that of foreign brands from Japan and Europe have continued to increase. It wasn't necessarily for lack of features/power/design but more for lack of reliability that forced us to move away from American made cars to Japanese. Today, American cars have the perception of unreliability, whether true or not. Given the issues that the Big Three face, I don't have much confidence that they'll be able to turn that around nor keep up with innovative companies like Tesla to deliver us the next generation of automobiles. For that reason, I choose to cast my vote with the new unknown than the old unreliable.
UPDATE: Jason Calacanis writes a very good response to Randall Stross' article. It's posted on the Huffington post.
I'm reading the details of the Big 3 automaker's recent request for a $25 billion bailout. Specifically, I'm referring to high salaries for executives in the midst of multi-billion dollar losses. It's not the amount of the pay that bothers me. CEOs and executives of multi-billion dollar companies are entitled to compensation above and beyond what normal folk should get. What really gets my goat is that the domestic automobile industry has been lagging behind foreign players for years now yet none of these CEOs really seemed to care. Instead of innovating, they decided to ask for a handout. And I'm afraid that the government will give them this bailout for fear that tens of thousands of rank and file employees will lose their jobs. The problem is that it will continue to perpetuate a philosophy of mediocrity amoung the employees of the automakers. Do you think if Yahoo was given a bailout that Jerry Yang would have stepped aside? It took the dramatic act of Yang leaving Yahoo for that company to finally move forward. I doubt any of these CEOs would do the same.
On a side note, Toyota's chief makes about $1 million a year and his company generated close to $15 billion in profits last year. I guess I should be a little upset.