Motor City Madness.

Let’s get one thing straight. I love American cars. My wife and I both drive Jeeps. While Mrs. Digital has, on occasion, driven a rice-burner, I have never owned anything but an American automobile. On the other hand, I think that American automobile manufacturers management is clueless, the Unions are parasitical, their boards of directors are derelict in their duties, and the whole thing needs to have one giant hycolonic, so it can be reformed into something that is once-again a shining example of American know-how and productivity.

Lord knows, it’s miles away from that today.

Allow me to peel back the sheet metal, and offer a look into what’s REALLY wrong with Detroit. (HINT: throwing money at this problem is the WORST thing we can do for it.)

• The Big Three automotive manufacturers have top-heavy management suffering from a corporate culture that rewards mediocrity, punishes creativity and initiative, and is dedicated to perpetuating the status quo. Case in point: The guy that reinvented the Mustang, and made it Ford’s biggest seller behind the F-150 truck? Ford marginalized him and forced him out, because he refused to follow the Ford rule book for how to design a new vehicle – which, if he’d followed them, would have resulted in a vehicle nobody would have wanted – or bought.
• The United Auto Workers union bosses are unwilling to make any real concessions that would keep the Big Three afloat. For instance, when a reporter remarked that the Big Three white collar employees do not have the 100% coverage and free drugs that the blue collar workers enjoy, the UAW chief replied “hey…if they wanna give the white collar guys the same benefits we get, I won’t complain.”
• The boards of GM and Ford (and the new corporate honchos a Chrysler’s parent Cerberus) have done nothing to force the kind of wholesale changes needed in companies that are saddled with bloated union contracts, oversupply of vehicles, front office mistakes, and products that nobody wants. Corporate oversight is the job of the board of directors. They are not doing their jobs.
• Union contracts force the big three to support unsustainable pension and health plans. As a result, it costs GM and Ford about $1500 more to build a car than Toyota, Nissan, or Honda. That means they have to sell it for $1500 more, or lose money on each sale.
• Unions have forced the Big Three to pay workers even when they don’t work. The only alternative is to have them build vehicles that nobody buys, which either languish in huge storage lots in Michigan, or to sell the unwanted units to car rental companies – thus driving down the resale value of all vehicles in a Big Three brand.
• Each of the Big Three make too many models in a brand lineup. GM has way too many nameplates. Too many models/brands means an oversupply – and an under-demand.
• State laws protect the dealer networks – which are bloated and need culling. There are typically two or more dealers for a Big Three brand compared to one for a Japanese nameplate in any given area. Too many dealers = too much competition for the customer’s dollar = lower profit margins.

The solution to this mess is NOT to give the Big Three big bucks from our wallets. (That’s rather like having to PAY for their cars, even when not buying one.) The answer is to allow the Big Three to go into bankruptcy. That would solve most of the problems they face:

• The union contracts would go away, and the Big Three would be able to rework them, unburdened by the onerous health care, pension, and featherbedding provisions of the current contracts. In fact, they could do in Detroit what the Japanese firms have done in the South – go non-union. Non-union factories have employees that are happy, well-paid, and productive. While union workers’ salaries are higher, so are their costs of living. Their productivity is well below non-union factories’ rates.
• The (mis)management teams would be forcibly removed, and replaced – presumably with people that are willing to make the hard decisions and listen to their customers.
• The companies would be free to ditch brands that aren’t viable (Buick, Hummer, GMC, Saab, Pontiac, Mercury, and maybe even Chrysler. What would be left? Chevrolet, Cadillac, Ford, Lincoln, Dodge and Jeep.
• The formerly Big Three would be free to cut models that don’t sell, and refocus each brand to do one thing – and do it well. Of the surviving brands mentioned above, only Jeep has a (relatively) clear-cut image and consistent message. Cadillac comes the closest to coming in second on the consistent brand race.
• The Big Three could ditch one-half to two-thirds of their bloated dealer networks, resulting in less competition for their products among their own.
• The Big Three could shutter plants they don’t need, and build only what they can sell.

Sound reasonable? Well, we know that giving the idiots that are running that circus is a bad idea. And it only delays the inevitable. Bankruptcy will be painful for everybody – but it’s a necessary, albeit painful, pill to swallow.

We need to show Detroit some tough love, go through bankruptcy, and come out on the other side, stronger, leaner and more competitive. That’s the solution. Throwing money at the problem is not.