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.

Yesterday GM’s stock dropped over 30% to close at a level never seen before in my lifetime.  In fact, if you’re not at least 58 years old, you haven’t seen it either (and let’s be real, if you have to be at least, lets say, 20 years old to pay attention to the stock market, you would be 78 or older to remember GM at this price).   So it’s safe to say we are in unchartered territory for GM as a company if you are reading today.  So what’s a US automaker to do?  And how did this happen in the first place?

I have a friend that is certain that the fall of the SUV is GM’s root issue.  While Honda and Toyota are busy making gas sipping vehicles, GM is pushing out Yukon’s and Sierra’s as fast as they can.  While I believe it is true that more people are buying these smaller vehicles today, it’s far from the whole issue.

GM has had the 2nd best selling vehicle for a while, the Chevy Silverado  This year it won’t be the case, but I think gas is only part of it.  I think a major reason trucks aren’t being purchased anymore is that construction has taken a huge nose dive.  People that build houses need trucks.  Houses aren’t being built, so trucks aren’t sold.

Still though, GM has had a bigger issue of profitability even before today.  They had loss upon loss even when their truck sales were strong.  Cobalt and Impala are also strong sellers, yet the company can’t make a buck.  I don’t know all of what’s ailing GM, but it’s much more than gas prices.  Gas, and this recent credit crises, are the straw that broke the camel’s back.

What’s in store for GM?  Who knows.  I wouldn’t be surprised that they either get dismantled or taken private, or both, similar to Chrysler.  There is a lot more pain to go before they will move forward as a company.  Perhaps if they can make Volt profitable and a good seller, there is hope for GM.

Image Courtesy Wikipedia

I love the idea of the Chevy Volt on a lot of levels.  I think first it’s about time a major American car company gets towards the front of the idea curve.  I also like the concept that this car runs on electricity primarily.  Hybrids can be great, for example my last post on the VW 1L, but at the end of the day, even some gas is not no gas.  Finally the car was originally designed to be practical, yet edgy, to appeal to a younger crowd.  The kind of crowd that can really push a movement such as this.

Unfortunately what’s good in theory isn’t always the same in practice.

Before I continue… I am not saying the Volt is not a good first step.  I think this car is great in getting the American mindset in a place where conservation is a good thing.  I’m just pointing out that GM may have nto gone far enough in some regards.

The first issue is the distance the Volt can go on a charge - 40 miles.  This is not a practical distance.  Commuters, the people in most desparate need for a break on fuel consumption, typically drive 40 miles or more in most cases.  So you’re stuck relying on gas for some of your journey.  The car does get good fuel mileage after the charge is out, estimated at 50 mpg, but still, it starts to defeat the purpose if you have a long commute and your goal is to not use gas.   So you’re thinking “Andy, even if you drive 65 miles / day, you are using half a gallon of gas only”.  Well, not really, since 50mpg is I’m sure at the top end.  But that’s not the point.  Many people will not have the ability to recharge every day.  Sure, someone who owns a house and has a garage wired for electricity probably won’t have much of a problem, but the people that are geared to buy this, younger, potentially apartment-dwelling individuals, may only be able to charge once a week.  The Tesla roadster, in comparison, can go 200 miles on a charge.  Granted the car is around $100k and has no gas tank, but hey, I didn’t ask the Volt to get me to 60 miles an hour faster than 99% of production vehicles out there either.

My second issue is in vehicle design… the prototype was cool, edgy, something the young generation wants to drive.  The young generation, a very influential group.  These are the people that are hungry for change, or want to be different, and make their mark.  This is the group that will change the mindset of fuel economy and sources in the years to come.  However the image of the prototype didn’t last, and the Volt has been scaled back to a slightly better designed Civic.  I think the car is still good looking, but it’s not making a statement anymore.  It doesn’t stand out from the crowd like it should.  It makes it less different.  That’s one reason people got a Prius, you know that crazy looking thing is not a normal car, and you’re like “Oh, he’s got a Prius”.

Finally the pricepoint is something I wish could have been lowered.  $30k base buys you a lot of car, and I think is a bit high for it to make a huge impact on our roads.  If it could have started around $22k, I think that puts it in a lot more people’s budget, making the impact huge, especially younger people.

So again, I’m quite happy to see GM come out with something different, a breath of fresh air.  I think the idea is incredible.  But I think as they developed it they may have lost sight of what the mission should have been.  Where really good is good enough.  I hope really good will be good enough for this to catch on.  If not, the whole effort will be wasted.