Revival of the three auto makers

Nov 18, 2008

The total job losses will be:
Automakers: 239,000
Dealers: 975,000
Other industries (finance, advertising etc): 1.7 million
Roughly 2.5 to 3.0 million job losses are expected. If we assume the average income earned by each of these jobs to be ~ $40,000 a year (and we have to factor in the pension losses by the already retired – which I haven’t!) – then the hit on the economy per annum will be around $100 billion!!

There is a big issue currently being discussed in the US in the wake of the financial bail-outs – the bailout of the Automakers – Chrysler, Ford and GM. Should the government – with tax-payers’ money – bail them out with a $25 billion handout.

The main issue with the automakers is that they cannot survive given the benefits they have for their employees – current and retired. It is a fact that while the pension benefits add $200 to Toyota’s vehicle cost, the cost to GM is $1600! That essentially kills it right away!

Also important, and actually the main thing is that the automakers themselves have not redeemed themselves well. They have concentrated on useless and cheap gimmicks and not really looked at anything worthwhile to add to their cars! The other day I was in this GM car – and it is a common feature in most such cars – when I switch off my ignition and before I open my car door, the radio keeps playing. Yes, for those few seconds it was kinda nice to listen to the interview that was going on, but it did not make me want to sit in the car for longer than that!! Toyota doesn’t care for such a feature. It, on the other hand, goes for better cars and better performance… giving consumers cars that essentially run the heck out of their lives.

The very mentality of car making is not condusive to long term survival and thriving. It is as if people live on the short term satisfaction of ego – the utility be damned! No wonder these automakers have lost out.

I have never bought an American car – its always been Japanese cars and the only other cars I would go for other than these are from Germany and some day probably the Korean ones. Rest of them I try out as rental cars and be done away with them.

I sincerely think that given the history and the expectations, there is no reason why and how these $25 bn can save these automakers.. these will essentially go to the executives and to Union members’ pockets. On the other hand, the hit on the economy if these companies close shop will be HUGE – around 3 million unemployed. Not to say that all those retired who until now have been earning their pensions will lose out completely on them.

So it is indeed a tough decision. What do you think?

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