Bail out the car industry? I don’t think so. But…

We may be on the verge of throwing money down the rat hole of the car industry.  I hope not.  As it is, money will merely delay the collapse of these non-competitive anachronisms.  Currently, Chrysler, Ford and GM are not structured to succeed.

A big problem is the cost of maintaining huge inventories on dealers’ lots.  This afternoon, on our local public radio station, KPBS, I heard a really intelligent idea: Convert the industry to a build-to-order mode the way Dell computers are very successfully sold.  Automotive manufacturing methods already set up so that a complete set of options can be specified at the beginning, and the manufacturing line operates so that all the parts come to the assembly line when they need to for that car.  Years ago I bought a car that way, and it was very satisfying to get exactly what I ordered relatively quickly.  The way cars are priced and sold today, a buyer is almost forced to buy a car off the lot, not getting the exact car they want.

As we all know, automobile workers are highly paid thanks to the strength of the unions and the weakness of the people that deal with them.  Here’s a graph comparing US and overseas wages:

US and Japanese Automotive Hourly Wages

US and Japanese Automotive Hourly Wages

Forbes data from Mark J. Wright

It is obvious that this situation cannot persist.  Every company needs to be competitive. The workers are going to have to be part of the solution, suck it up, and accept large pay reductions.  Incomes are going down everywhere there is no reason automotive workers should be immune.

How could this be done?  By having current management negotiate with the automotive unions?  Fugedaboutit.  New management needs to be brought in.  There would be no significant loss of technical expertise.  Engineers and other folks in the trenches handle that.  Current management has displayed no particular expertise at its level, and needs to be replaced.

It’s beginning to sound like we need a reorganization under a special kind of receivership.  Or maybe a conventional receivership.  We would need to protect the creditors of these companies to a greater extent than would be typical.   Under receivership, the emotional, political issue of current executive salary levels and golden parachutes would disappear.

The main thing is that we cannot pour money into failing companies with a “business as usual” attitude, and no new strategy.  If we do, it will soon be no business at all.

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