Column: No Bailout For Stagnant Automakers
This story was written by Justin Huggins, Arizona Daily Wildcat
The news for the nation's Big Three automakers is bleak these days. Ford lost $3 billion last quarter, baseball cards are trading higher than GM's stock, and Chrysler has announced major plant closings and job cuts.
Enter Congress and the proposed bailout. The legislature convened for a special lame-duck session this week specifically seeking to tackle this issue. CNN reports that Sen. Carl Levin, D-Mich., is "drafting legislation to throw a lifeline to Detroit, Michigan - home of the Big Three companies. The lifeline could include up to $25 billion in loans carved out of the (Troubled Assets Relief Plan)."
However these auto companies aren't victims of a cutthroat, unrelenting economic downturn. The Big Three are eating dirt because they have failed to embrace technology and manufacture desirable and efficient vehicles for the modern world. Because of this, the Big Three deserve no part of a proposed financial bailout. These companies have earned their dire fates - which seems harsh, but it's true. These companies are simply stuck in reverse while technology continues to cruise full-speed ahead.
In 1908 Ford began production of the Model T, which had a fuel economy of 13 to 21 miles per gallon (although, some estimates place it closer to 25 mpg). The 2008 Ford Mustang, on the other hand, got anywhere from 14 to 26 mpg. See the problem? The fuel economy of Ford vehicles has remained virtually unchanged for 100 years. In many cases, the fuel efficiency of modern cars has actually decreased in that time. Should the federal government reward Ford for 100 years of stagnant innovations?
But that's history, you say. They're working hard to bolster fuel efficiency in this era of carbon footprints and global warming, right? Uh, kind of.
GM just launched its 2009 Cadillac Escalade Hybrid, which I imagine is like a cigarette that prevents lung cancer. It's a nice idea, but it falls flat in practice. Ezra Dyer, who reviewed the Escalade Hybrid for the New York Times, writes, "Therein lies the dilemma of this truck: its mileage is great compared with a regular Escalade's, but that's like saying the American economy is great compared with Zimbabwe's." Should Congress bail out GM, who opted to design a terribly inefficient luxury hybrid that appeals to only a handful of people?
The Escalade Hybrid gets about 20 mpg, which means my gas-only Honda from 1999 gets better gas mileage than this monstrosity, which brings me to my next point: foreign automakers. Simply put, foreign automakers manufacture more fuel-efficient and more reliable vehicles that appeal to cash-strapped consumers. These foreign companies don't waste time and resources developing unnecessary and unwanted vehicles like the Escalade Hybrid. In fact, Toyota's wildly popular Prius Hybrid may top out at 94 mpg for the 2009 model. In a world where gas prices can climb to $4 a gallon or more, I imagine the Prius has a leg up on Hummers, Navigators, Explorers and the like.
Ford, GM and Chrysler have failed to find a winning formula that can survive the ups and downs of the economy. In spite of its recent financial woes, Ford seems reluctant to change its priorities. In an interview on CNN's "American Morning" Ford CEO Alan Mulally said, "Our No. 1 priority is to improve the internal combustion engine, and that's why the turbocharging, the direct fuel injection"
After 100 years, I would think that all the tinkering with the internal combustion engine would be complete. While there have been significant improvements, fuel economy has failed to improve significantly across the board. After all, the internal combustion engine is only as efficient as its underlying chemical reaction. The simple truth is that consumers want hybrids and lots of them.
br>The Big Three's lack of foresight and insufficient innovation has landed them in this precarious situation. This is an issue about capitalism. Ford, GM and Chrysler have carved out an unsuccessful niche in a competitive world. Instead of adapting in order to survive, they have continued down the wrong path, choosing to gamble with gas-guzzling SUVs and pseudo-luxury cars.
A federal bailout for the Big Three fails to address the central issue that plagues these companies. It would pardon decades of stagnant technology and enable the Big Three to continue to provide more of the same. Because this is an issue of capitalism, these companies should declare bankruptcy and reorganize their priorities and philosophies. Major changes must occur at these companies in order for them to compete in an evolving world.