GM made big news last week stating that they could run out of cash if government doesn’t step in and offer them some sort of package similar to what financial institutions are receiving during this crisis.  This may be true, but as a country we have to draw some sort of line as to where we stop helping businesses.

All car companies have had massive sales drops this year.  Toyota, Honda, and really just about all companies are hurting.  But there is a major difference - these companies are surviving.  The reason?  Better management and fewer expenses.  I would say one huge advantage is that they are not fighting the unions like GM.

The sad thing is that it may take something catastrophic such as the collapse of GM to get the unions and the auto makers on the right page to profitably move forward.  The auto market isn’t going anywhere.  Demand is down of course, just like home sales, but the major difference is that you don’t need a new home every 10 years.  The need for cars to enter the market is there.  Just like new homes the inventory is exceeding the demand, but cars are less durable than homes.  Homes will last practically forever.  Cars eventually need to be replaced.  It’s also a smaller expense than a home… which means it’s easier to purchase and more likely to be purchased.

What needs to be done?  A complete overhaul of the big 3.  They need to find a way to make cars for less.  They also need to make cars that people are buying today.  One way I think is to bring some of the European models into the US?  Why not?  In many cases these cars are more fuel efficient which speaks to many of today’s buyers.  And I imagine synergy of processes and using more of the same parts won’t hurt.  They also need the unions to understand that there is just no way to survive with their current model.  It would be great if we could all get pensions and huge salaries, but that’s not the way business today runs.  I don’t know the average assembly line worker’s salaries, but from the information I’ve gathered, it’s around $55-60k.  That is more than many of my college friends are making today 5 years later with degrees.  If a $50k education gets you $50k per year, I can’t see how assembly line work that requires no formal higher education can make more.  It means they are overpaying.

This won’t be a popular post among many that are in the industry, but it is the hard fact of business.  The US auto makers are behind the curve to start, so without making up some of this ground they are going to be in big trouble in the next 12 months.  Without MAJOR change, we may see one of the big 3 go under never to return.

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