Car Lust Blog, where I am a sporadic contributor, threw down the Bailout Challenge:

So, assuming you could present a list of take-it-or-leave-it conditions to the automakers, what would they be? Silly, serious, semi-serious–it doesn’t matter, I want to hear your suggestions

This led to me expounding on why I thought Detroit got into this mess, which is a point I want to focus on tonight:

Now, as for the root fundamental causes that led to them getting into this mess in the first place, well… let’s take a look at things from Detroit’s position about five years ago or so:

You are an American car maker. By the late ’90s, your cars were close enough in reliability and price where you were becoming a credible alternative to the Japanese. People were actually thinking of buying your cars again. However, there are a couple of problems. First, the Japanese economy is starting to improve enough where Honda and Toyota are putting money into R&D and facilities improvements again, which means you’re pretty much done playing catch-up. Second, due to some well-deserved perception issues, even if you do build cars that are as good as the Japanese, you’ll still have to sell them at a $1,000+ discount for the better part of a decade before people will legitimately believe that you can actually make a decent automobile. This means that, even if your labor and productivity were in-line with your Japanese rivals, you’d still be fighting a losing battle.

Fortunately, there’s some good news. People are starting to buy SUVs and trucks. Unlike passenger cars, which you can barely sell for cost + distribution, you can actually get $4,000+ in pure profit for each SUV and truck that you push out the door. Of course, you’ll need to resort to some clever marketing in order to convince people to buy YOUR truck, instead of your fellow domestic’s truck, but that’s where tow ratings, horsepower, and all that good stuff comes into play. Better yet, the Japanese barely have a presence in these markets and the Europeans are virtually non-existent here. Best of all, SUVs and trucks belong to the one market where people still trust your craftsmanship, meaning that you can charge full price for these things and not get humiliated in the process.

Then the price of gas skyrockets. Everyone complains that you didn’t put any money into marketing or developing a decent car. The politicians are breathing down your neck. Your bottom line is evaporating faster than a pool of water in Death Valley. The only question everyone has for you is, “Why?! Did you learn nothing from the ’70s?!”

Of course you did. Trouble is, at least for you, there is NO future in passenger cars. None. Like we established, not only would you have to produce better cars than Toyota and Honda, you’d have to do it for less. Basically, you’d have to become Hyundai, and there’s no way in heck the UAW or anyone else is going to let you do that. You’d have to junk most of your legacy factories while Korea and Japan invest in brand-spanking-new ones. You’d have to cut floor compensation to near-Walmart levels, which the UAW certainly won’t fly with. You’d have to increase labor flexibility, allowing people to do whatever happens to need to be done, which, again, UAW work rules will shoot down faster than a Spitfire facing a FW-190 over the cliffs of Dover. So, you try to fake it and hope it works. You buy a Korean manufacturer or two (Daewoo?). You buy some European brands. You hope that somewhere in that is enough car know-how, enough labor flexibility, and enough modern tech in the factories to let you crank out some cars and rebadge them as American.

Detroit has learned that their hopes were in vain. Daimler nuked Chrysler’s stake in Mitsubishi and Europe, which is why they’re done. GM is discovering that people in the US still don’t want rebadged Opels or Daewoos. Ford is trying desperately to figure out how to get its excellent Ford Europe cars over to the US before their bank account breathes its last breath. Is it unfortunate that Detroit didn’t put more money and effort into passenger cars? Sure. Did they have much of a choice? Not really.

So here we are.

Of course, there were a fair number of people that felt that Detroit could have avoided this by simply investing their money into cars that people would want in the future - smaller cars, higher quality mid-sizes (think Malibu/Taurus/Avenger, only decent), and other vehicles that would hold interest if gas ever began to cost more than $2 per gallon.  There’s probably some truth to that, and I think the Big 3 knew it - that’s why GM and Ford both went on an acquisition spree, buying Volvo, Saab, Jaguar, and so forth.  Chrysler, meanwhile, went a slightly different direction - they instead targeted themselves to be part of an acquisition spree, which was certainly more realistic considering their size of the time.  Either way, the overall strategy was going to be the same - sell SUVs and other high-margin, low-efficiency vehicles in North America and use the European and Asian subsidiaries to bail them out if gas prices rise.  This, to be fair, is the exact same strategy that got Detroit through the ’80s - if it wasn’t for Mazda, for example, we would never have experienced the ubiquitous Ford Taurus, or its smaller cousin, the Tempo.  Mitsubishi not only gave Chrysler numerous captive imports, such as the Colt, they also gave them a manufacturing plant.  Geo never would have happened at all were it not for GM’s acquisitions of Suzuki and Isuzu.  At each point in history, the strategy was the same - use the inefficient UAW plants to build the larger iron that could command a heftier profit margin and use the foreign subsidiaries to carry Detroit through when times were bad.  For nearly 30 years, it was a moderately successful strategy - a heck of a lot more successful, at least, than Detroit’s abortive efforts at trying to satisfy the small car market themselves.

So, what happened?

Detroit got stupid greedy.  They got it in their heads that it wasn’t enough for the American nameplates to crank out SUVs - they tried to get their subsidiaries into the act, with ill-fated ideas like the Saab 9-7X and the Volvo XC-90.  GM was the worst about this; Ford at least had the sense to let Ford Europe continue to make world-class cars, even if they still can’t seem to grasp that people in the United States might be interested in buying them.  Chrysler, meanwhile, was stripped bare, thanks in no small part to Daimler’s gross mismanagement, which eventually led to Daimler selling off all of Chrysler’s former overseas subsidiaries (including most of their stake in Mitsubishi).  Consequently, the Big 3 were barely viable when times were good - now that 40% of their primary market just vanished without a trace and what’s left of it has little interest in any of their higher margin SUVs and trucks, Detroit is completely and totally screwed.

The worst part about it, at least from where I’m sitting, is I’m not entirely sure what Detroit could have done differently.  As I said, they were barely viable when they were printing money with 15 MPG lifted station wagons, which is all a modern SUV really is these days.  In order to think long term, they had to do what they could to last through the short term, and it’s not any of them were recording record profits going into the past few years.

Detroit has three big handicaps going against it:

1. An overwhelmingly complex and largely duplicitous dealer network that’s protected by a tangled web of state and local laws that prevent effective divesture.
2. A labor union in a semi-monopoly position that can effectively shut down the entire business whenever a more efficient technology or a new factory is deployed.
3. A monolithic, inflexible, bureaucratic management that’s based in an area that believes that domestic automakers have no real competition (Detroit).

In short, there isn’t a single part of any American automaker that’s designed to function correctly, if at all.  At design, production, and distribution, there are so many barnacles attached to each automaker that it’s nothing short of miraculous that the whole lot of them took this long to sink.  Now, the barnacles are upset - they see that the ship is sinking, but nobody knows how to let go.  So, they’re asking all of us to prop the ship up so they can continue feeding just a little longer.  Unfortunately, in order to save any of the automakers, we’re going to have to chip off a lot of the barnacles, which means changing state laws and wiping out dealers (or just indemnifying the automakers from dealer closures - a lot easier during a bankruptcy, I suspect), renegotiating the parasitic labor contracts that the UAW strongarmed Detroit into, and jettisoning as much of the old management staff as humanly possible while still possessing some sort of fetal corporate structure.

This isn’t going to be quick, this isn’t going to be easy, and it’s going to take a heck of a lot more than $50 billion to pull it off.  Question is, will it be worth it in the end?

It looks like we may well find out…

Last week was busy - it was my last week at my old job, so there was a fair amount of unfinished business to take care of.  Sadly, this cut deeply into my blogging time.  That said, it wasn’t a complete black hole of creativity.  Observe:

I posted a Car Lust article on the Yugo GV.  It was good enough to be Instalanched.  On the quantity vs. quality scale, I’m doing pretty well.

That’s right - another one thrown into the hopper.  Enjoy!

I’ve got another Car Lust up, folks.  Behold - my words are being read by thousands!

Today’s special:  The Suzuki Samurai.

I’m hoping that my schedule becomes more sane next week, which will help alleviate the dearth of decent posts around here.  It took effort to throw together a Car Lust post for the week, and it’s not like they need to be terribly long or frequent.

My first Car Lust posting has finally been approved and published.  Enjoy it - Chris Hafner didn’t edit much of it.

No, this one doesn’t have to do with the kid.

I’ve been accepted as a guest blogger for Amazon’s Car Lust Blog.  This means that the readership for my writings will go from a dozen or so people a day to more like thousands upon thousands of people a day.  Needless to say, I’m absolutely thrilled.

For today, and hopefully today only, this blog is going to suffer as a result.  No post beyond this for today, for I have to go cut my teeth on my new home.  I’m still going to have regular new content here, though, so don’t panic… and, yes, as my posts get approved and submitted at Car Lust, I’ll have links to them here, too.

Victory is mine!