I was reading Evan Newmark’s column in the Wall Street Journal called Mean Street today. The title is What Will Become of Detroit? Don’t Ask Steve Rattner. If you don’t know him you should check him out, I have been following his column for a while and if you read through the entertaining writing style you will appreciate some of the points he makes on contemporary issues. To summarize Newmark’s point in today’s article, he questions whether there was any merit to sinking $100 Billion of US taxpayer money into GM and Chrysler, and wonders if we will ever get out money back. Now the topic of bailing out the Auto Industry is subjective for many people, even emotional for some, and there can never be a consensus on whether the Bush and Obama administrations did the right thing, but Newmark makes a great point about the need for introspection, in this case by Steve Rattner, the ex-Auto Czar.
In my view it is unimportant what Steve Rattner would find on introspection, he is passé and history will judge him accordingly. However, I’m more interested in when Detroit will do a little introspection? Lets make this real to you and me. American cars are generally inferior at every level to foreign vehicles. Fact. Quality is horrendous, design is mediocre at best, performance lacks on every level, fuel efficiency is a ‘buzz word’ and safety is questionable. Broumand’s opinion. Add to this point of view that consumer confidence is basically gone due to the financial state of these companies, and the credit crunch has hurt the dealers’ ability to leverage leases and auto loans, and you are left with big corporate shells that will require big government intervention for years to come – the cash for clunkers exercise is a great example, although arguably its Toyota, Honda and Hyundai that won big. When will the people inside Detroit do a little introspection and begin the process of saving themselves?
As we grow old waiting for Detroit, we should ask ourselves about the relationship and/or experiences we have with Detroit’s auto industry – and I stress Detroit’s auto industry, not the rest of the healthy US auto industry outside of Michigan.
For me, I have two experiences that have formed my opinion of Detroit. The first was in February of 2007, when I rented a Pontiac in San Jose, California, for a two day business trip. Driving to my client on interstate 280 at 7:45am, my brand new Pontiac with less than 3,000 miles, lost control at 40 miles an hour, spinning twice from the fourth lane to the first lane, where the car stopped facing oncoming traffic, and was subsequently hit by a BMW X5 and its Chinese female driver who’s facial expression I will never forget. My car did two flips and fell to the side of the freeway. Lucky for me, my seat belt was on and my instinct was to let my body go limb, so I came out of it without a scratch. But the car was totaled, and it took Avis three weeks to let my company know that the car was faulty and hence why I lost control at 40 miles an hour.
My second experience was more recent. In July, I took a trip to San Diego to visit my family and check in on my house in Las Vegas. I had booked a compact car at Hertz through the internet for a total of $110, including all taxes, for the week. When I arrived at the Hertz facility I was impressed to see a fleet of bright yellow Corvettes. As I checked in at the counter I asked whats up with the Vettes? The attendant chuckled and said “GM went bankrupt the other week and begged us to take these babies off their hands at fire sale prices. They are fully loaded with GPS and sports package, brand new.” I asked how much they rent for and he did a quick calculation on his computer and said I could have it for an extra $10 a day, all in. So for $180 I rented a convertible Corvette ZR 1 with less than 1500 miles and set off for my 5-hour drive to Las Vegas.
Now let me tell you, the car gets looks everywhere you go, and it is fast, opening up once you reach 60 miles an hour speeds. The car is nervous, like a sports car should be, and handles fairly well. But with a price tag of $106,000 you have to ask is the car worth it? My $50,000 BMW Z4 3.0si handles much better than the Corvette. For $106,000 you can compare the Corvette ZR 1 with a Maseratti Spyder, Audi R7, or Jaguar XK, and only less than $15,000 than the Aston Martin V8 Vantage. The Corvette just does not stand up to any of these cars from a quality, design and performance standpoint. Its not value for money at over $100,000, and it lacks the class you get with German, Italian or British cars. So if this is the best Detroit has to offer then no thank you.
Which begs the question should GM stop making the majority of its mundane brands and concentrate on building profitable businesses around its core brands like the Corvette and the Cadillac? With a century of history and brand building, Corvette and Cadillac are renowned worldwide, but the quality and class just isn't there anymore. Should GM change its name to The Cadillac Corporation and make money instead of being a “general” jack of all trades, but master of none?
A little introspection is long overdue in Detroit, I’d say 20 years overdue, and as a taxpayer I don’t want to bankroll their denial anymore. If I did I would choose to buy their shares.
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From Rattner's book...makes you wonder why we bailed the out??
ReplyDeleteRattner has harsh words for both companies.
At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).
Saving Chrysler, he writes, was a tougher call.
Larded up with debt, hollowed out by years of mismanagement, Chrysler under Cerberus never had a chance. We marveled, for example, that Chrysler did not have a single car that was recommended by Consumer Reports.
The question for us -- and ultimately, the President -- was whether any restructuring could save Chrysler.