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Detroit Bailout Proposals: Disappointing, Incomplete

Chrysler, GM offer no plans to get people to buy their cars

By Jason Farago,  Newser Staff

Posted Feb 18, 2009 10:50 AM CST
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(Newser) – GM and Chrysler now want another $22 billion from Washington—and propose to use dramatic job cuts to help right their respective ships. What both companies avoid, writes economist Susan Helper for the New Republic, is an appraisal of the real problem: Nobody wants to buy their cars. Rather than cutting labor costs, the companies need to figure out  why a typical American car sells for $2,000 less than a comparable Japanese model.

Anti-union rhetoric notwithstanding, labor constitutes less than 10% of the cost of an American car. Far more money can be saved from waste elimination, collaboration, and especially suppliers—GM spends a whopping $50 billion every year on parts from third parties. Yet while Detroit's plans are disappointing, writes Helper, the industry is still worth preserving; otherwise, states already pummeled by the recession could lose as many as 3 million jobs.

General Motors and Chrysler are seeking a further bailout from Washington.
General Motors and Chrysler are seeking a further bailout from Washington.   (AP Photo/Carlos Osorio, file)
General Motors said Tuesday, Feb. 10, 2009 it's cutting 10,000 salaried jobs, blaming the need to restructure the company amid the continued drop in new vehicle sales.
General Motors said Tuesday, Feb. 10, 2009 it's cutting 10,000 salaried jobs, blaming the need to restructure the company amid the continued drop in new vehicle sales.   (AP Photo/David Zalubowski)
The company logo shines off the top of a grille on an unsold 2008 300 sedan at a Chrysler-Jeep dealership in Golden, Colo., on Sunday, Feb. 1, 2009.
The company logo shines off the top of a grille on an unsold 2008 300 sedan at a Chrysler-Jeep dealership in Golden, Colo., on Sunday, Feb. 1, 2009.   (AP Photo/David Zalubowski)
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What's missing in both proposals is an honest, humble appraisal of why more consumers haven't wanted to buy their cars at a similar price point to their competitors—and how they intend to fix this situation. - Susan Helper, economist

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COMMENTS
Showing 1 of 1 comment
nick
Feb 18, 2009 4:09 AM CST
Step number one, fire the CEOs. Step number two, replace the Board of Directors. Why does anyone think that the very people who have engineered the downfall of the US auto industry are suddenly capable of devising a viable plan to turn it around? Best that the companies be allowed to enter bankruptcy, getting immediate relief from their creditors, and then start making changes. There is no simple answer, but keeping the same management is insane!

 
Chrysler • United Auto Workers • General Motors • Ford • labor unions • Big Three • auto bailout

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