Bailing out the auto industry →
It has been focusing on larger and larger trucks and SUVs—apparently unaware that gas prices were likely to go up. Did a spike in gas prices surprise anybody? Or, rather, anybody who doesn’t live in Detroit? The Prius has been selling incredibly well. It’s not a particularly new car. But it still has no American competition. Apparently, somebody in Detroit looked at the huge profit margins from huge cars and decided that they should focus exclusively on the gas guzzlers.
It’s unfair to put most of that blame on the manufacturers. They made a bunch of giant gas-guzzlers because that’s what people demanded. It was consumers, not manufacturers, who irresponsibly or ignorantly chose large, inefficient vehicles. Consumers aren’t known for incredible foresight, and at the time of purchase, gas wasn’t very expensive. They demanded SUVs en masse for whatever reason — utility, image, perceived luxury — and any automaker would have been irresponsible not to offer them.
Their general failings in the econo-car market aren’t because they “focus” on SUVs. It’s because they haven’t produced a car that a lot of people wanted to buy for over a decade. That’s not because they spent all of their resources on SUVs — their SUVs suck just as much as their cars. But people who buy SUVs aren’t incredibly concerned with efficiency and value.
It’s much harder to compete in the cutthroat econo-car market if you don’t provide good efficiency, reliability, and value. And it’s damn tough to compete with Honda and Toyota here. This, truly, is where the Detroit car companies have failed miserably. Nobody buys a Mustang or a Hummer or a 300 sensibly — they buy them for the name, the image, or the experience. And when the economy suffers, people tend to be a bit more sensible and conservative with large purchases.
The Detroit companies’ response over the last few years has been to offer tons of sales and rebates to make their mediocre cars more appealing. This has had a massive impact on their finances. They also tend to lease a lot, with high sales relying on favorable lease terms, and their leasing divisions have been hurt badly by the financial-industry problems. Through various financial tricks, rather than making a better product, they just keep cutting prices.
Clearly, this is a systemic problem in Detroit. A bailout, even with terms, is likely to just fund them to effectively continue on the same path. They might need to fail.