The Business Brickyard

The bailout du jour is the US auto industry.  What is different, they want you think, is that it is not their fault.  Events conspired against them to put them where they are.  It is not that competitors are putting out better products that match what people want to buy. Of course not.  If they only had more time and more money everything would be ok.  Why could that possibly be true?  How many years have they fought against their competitors and lost? Can anyone remember a time in the last 20 years when US automobiles (other than pick up trucks) were deeply desired by the public?

A guest on CNBC this week said the most basic statement that sums it all up:  "First they need to make cars that people want to buy."

Is that not their perfect basic? 

Thomas Friedman hits the ball out of the park in his op-ed piece this morning:

"Last September, I was in a hotel room watching CNBC early one morning. They were interviewing Bob Nardelli, the C.E.O. of Chrysler, and he was explaining why the auto industry, at that time, needed $25 billion in loan guarantees. It wasn’t a bailout, he said. It was a way to enable the car companies to retool for innovation. I could not help but shout back at the TV screen: “We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?” If we give you another $25 billion, will you also do accounting"

Every automaker is feeling the pain as the world economy hits the brakes to some degree. But they all did not catch this particular cold because the economy is simply accelerating things to where the US auto industry was headed anyway.

It does look like the Government will bail them out in some way.  I imagine they will do it in a way that forces them to make changes that they think are the answer.  And so they will sell their souls, make decisions based on what, essentially, their new "bank" tells them to do and trudge along without any real purpose.  That may be the biggest shame of it all.

Related post: Fred Wilson has some great thoughts on this topic as well in this post: "Bustup Not Bailout".

"Scale and complexity is the enemy of innovation and what ails most of the large businesses in this country, auto in particular, is a structural lack of innovation in the industry architecture."

This opinion piece by David Brooks is a worthy addition to this post:

If ever the market has rendered a just verdict, it is the one rendered on G.M. and Chrysler. These companies are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. Some experts mention the management blunders, some the union contracts and the legacy costs, some the years of poor car design and some the entrenched corporate cultures.

There seems to be no one who believes the companies are viable without radical change. A federal cash infusion will not infuse wisdom into management. It will not reduce labor costs. It will not attract talented new employees. As Megan McArdle of The Atlantic wittily put it, “Working for the Big Three magically combines vast corporate bureaucracy and job insecurity in one completely unattractive package.”