How to bring back the Big 3

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Thread: How to bring back the Big 3

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    GMI Contributor Premium Member Ming's Avatar
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    How to bring back the Big 3

    How to bring back the Big 3
    Detroit's automakers may be portrayed as dinosaurs, but their survival and return to global leadership is vital to the U.S. economy.
    By Jeffrey Sachs, contributor
    February 17, 2009
    CNNMoney.com

    If the Big-3 challenge were as depicted in the press, their failure would not only be foreordained, but without much societal loss. They are widely depicted as thickheaded dinosaurs who clung to outmoded and outsized SUVs, caved to absurd union demands, denied climate change - and thereby lost, big time. Every blast has some truth, but this one is more misleading than accurate.

    The SUV era was a societal decision, not just a company decision. The American public, politicians, drivers, and companies all clung to the belief in low gasoline prices, and at a policy level, to low gasoline taxes. We twice elected an administration that denied climate change, and Congress repeatedly rejected national actions on fuel efficiency. The high-mileage breakthroughs of Toyota and others emanated from national policies in Japan and Europe that pushed high-mileage vehicles with stiff gasoline taxes for decades. And indeed abroad, GM and Ford sell their own fuel-efficient compact automobiles and do so very competitively. Their downfall was in the home market.

    We are now, necessarily, at the cusp of a new technological era in personal transport. Auto technology is being fundamentally overhauled for the first time in a century, fittingly on the 100th anniversary of the 1908 Model T, which brought inexpensive, mass-ownership, internal-combustion-based transport to the world. All over the world today, the automobile is going electric. Electrification results from the convergence of three basic forces: the need to overcome costly and insecure oil, the need to confront climate change, and the opportunity to harness the microelectronics and nanotechnology revolutions to modern transport. The hybrid technology will be the bridge, but certainly not the end-point, to electrification.

    Electrification will arrive through plug-in hybrids such as GM's forthcoming Chevy Volt, hydrogen-fuel-cell powered cars such as in GM's concept car the Chevy Equinox, and all-battery cars for small-load city driving. The main point is that such automobiles, while the cars of the coming decade, cannot make it on their own, even with the best management and engineering in the private sector.

    Plug-in hybrids and fuel-cell vehicles depend on technologies that have been proven in concept but not yet commercialized at scale with the needed high performance, reliability, low cost and consumer acceptance. The transformation from concept to commercial scale is a transition fraught with heavy costs, learning and benefits that spill over far beyond a company's product line. It is also a transformation that requires major complementary investments in infrastructure and public policy.

    The plug-in hybrid, for example, requires a new generation of high-performance batteries, presumably lithium-ion batteries in the first go of it. The scaling up of battery production to meet the demanding specifications required for a mass market will require major R&D investments by the public sector alongside industry. The power grid needed to recharge millions of automobiles each night will also require heavy new public investments of the kind included in the fiscal stimulus legislation. And the power generation to produce the electricity for a new fleet of vehicles must itself be clean, generated by wind, solar, nuclear or clean coal (with the CO2 captured and sequestered).

    The public investment demands for a fuel-cell fleet are probably even more demanding, including the R&D for the fuel-cell itself and an entire new infrastructure for hydrogen transport and filling stations in major cities and along interstate highways.

    In addition, the new cars are likely to be quite expensive at the start (perhaps $10,000 more than conventional vehicles with comparable driving performance), and of course inherently with unknown reliability over time. Later on, their costs will come down significantly, to the point where the lifetime costs of the car itself plus fuel consumption will compete with conventional vehicles.

    All of this suggests that the technological overhaul will also require public policies on the demand side - for example, targeted public procurement of the new vehicles for government fleets, tax rebates for early consumers, special credit facilities, and so forth. High gasoline taxes were the handmaiden of hybrids and other high-mileage vehicles in Europe and Japan, and we'll need similar demand-side incentives in this round of change as well.

    The fascinating thing is that GM, and perhaps the other companies as well, stand to be in the global forefront of the new technologies, on par with Toyota if not ahead, but only if the Big 3 survive the immediate crisis and have a public partner during the technological overhaul.

    The giant U.S. market will of course be a crucial advantage, as will be the massive technological capacity within the companies as well as in the U.S. economy at large. And GM is at already at the engineering forefront of ways to marry electric vehicles with a dazzling array of microelectronics, new materials, and information technologies, to produce not only clean, high-mileage automobiles, but much smarter ones as well, with vehicle-to-vehicle communications, and computer-and-GPS-based driving, parking, and collision control.

    Getting from here to there will not be easy. The companies or public sector could step on a financial landmine at any time. Public scorn and poorly thought-out regulatory demands could overwhelm the technological overhaul. And of course, the companies will need to compete vigorously with potential new entrants. The incumbents have enormous organizational, production and technological advantages, but public policy should not guarantee their incumbency.

    Last month the Obama Administration signaled that it is likely to give a go-ahead to California and other states to set state-level regulations on mileage. This is an example where policies need to be coordinated, so that state and federal regulations mesh with national strategies to bring about the needed technological changes, without imposing inadvertent costs or complications that impede rather than speed the changes. GM had it just right when it responded to the new administration policies by noting that we need "a comprehensive policy discussion that takes into account the development price of new technologies, alternative fuels, and market and economic factors."

    Indeed, we need an integrated national policy, one that helps the Big 3 to surmount the current drought of auto sales, clean up their balance sheets, and then make the decade-long investments in creating the new clean and smart electric cars of the 21st century. Obama campaigned on a pledge to have 1 million plug-in hybrids on the road by 2015, a worthy and achievable call to action. This is a new industrial policy of the highest priority, a pathway to international competitiveness, technological leadership, energy security and environmental sustainability.

    FULL Opinion: http://money.cnn.com/2009/02/17/news...ion=2009021711

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    Corvette C7 megeebee's Avatar
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    Re: How to bring back the Big 3

    At last the truth is spoken.

    Get this guy on TV and FAST.



    .
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    The best lack all conviction, while the worst are full of passionate intensity. "

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    GMI Contributor Premium Member zete's Avatar
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    Re: How to bring back the Big 3

    The SUV era was a societal decision, not just a company decision. The American public, politicians, drivers, and companies all clung to the belief in low gasoline prices, and at a policy level, to low gasoline taxes. We twice elected an administration that denied climate change, and Congress repeatedly rejected national actions on fuel efficiency. The high-mileage breakthroughs of Toyota and others emanated from national policies in Japan and Europe that pushed high-mileage vehicles with stiff gasoline taxes for decades. And indeed abroad, GM and Ford sell their own fuel-efficient compact automobiles and do so very competitively. Their downfall was in the home market.

    No way. The truth? From the media on the car industry? GM was only building vehicles consumers wanted? The consumer wanted guzzlers? Say it ain't so! The "common wisdom" indicates that GM build cars no one wanted and [I]shoved them down our throats![/B]

    Hopefully more of the media will start indicating this nugget of truth.

    But will the US have the guts to actually support their own industry the way other nations support theirs?

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    Re: How to bring back the Big 3

    I heartily concur, the US industrial base must be maintained and continued as a matter of national policy, we need to develop technological transportation solutions for the 21st century and beyond.

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    Re: How to bring back the Big 3

    Wow an atricle that is actually true and makes sense instead of the normal misconstrued perception.

    Im glad he pointed out the technological leadership this country maintains.
    Member of the: Real Truck Guys Club.

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    6.2 Liter LS9 Supercharged V8 RamJet502's Avatar
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    Re: How to bring back the Big 3

    What happens when Americans don't buy the newer smaller fuel efficient models from the Big 3 because the imports have a better reputation with those cars? How can the Big 3 cut their overhead enough to make a profit on small passenger cars?

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    6.2 Liter LS9 Supercharged V8 goblue's Avatar
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    Re: How to bring back the Big 3

    Four Prong Approach

    - Continued effort on American makers for quality. To reverse stigma, it will require going beyond just equalling the best imports. Couple this with relentless attacking of poor statistical methods used by companies like Consumer Reports and True Delta. The D3 need to quietly fund studies at prestigious universities to attack this.

    - Dominance in electric cars. Ignore the low gas prices and push forward. GM has a window here as they have momentum. People actually believe GM is leading on electric vehicles.

    - Find a way to convince people that buying foreign does have a negative effect on our economy relative to buying foreign. This is the most difficult. It needs to be led by the Democrats to be effective. When 2 cars both meet the needs of a consumer - we need to find a way to get them to default to the American - not the other way around as it is now.

    - Finally, continue the relentless pursuit of cost parity. The D3 will not recover if their costs are higher than their competitors.
    Last edited by goblue; 02-17-2009 at 12:22 PM.

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    Re: How to bring back the Big 3

    everything he said makes sense. On cnn.com no less. I hope people pay attention.

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    Re: How to bring back the Big 3

    "We twice elected an administration that denied climate change,"

    Do you mean man made climate change or do you mean summer and winter? Funny how it used to be called global warming until the globe started to cool.

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    Re: How to bring back the Big 3

    Quote Originally Posted by zete View Post
    The SUV era was a societal decision, not just a company decision. The American public, politicians, drivers, and companies all clung to the belief in low gasoline prices, and at a policy level, to low gasoline taxes. We twice elected an administration that denied climate change, and Congress repeatedly rejected national actions on fuel efficiency. The high-mileage breakthroughs of Toyota and others emanated from national policies in Japan and Europe that pushed high-mileage vehicles with stiff gasoline taxes for decades. And indeed abroad, GM and Ford sell their own fuel-efficient compact automobiles and do so very competitively. Their downfall was in the home market.

    No way. The truth? From the media on the car industry? GM was only building vehicles consumers wanted? The consumer wanted guzzlers? Say it ain't so! The "common wisdom" indicates that GM build cars no one wanted and [I]shoved them down our throats![/B]

    Hopefully more of the media will start indicating this nugget of truth.

    But will the US have the guts to actually support their own industry the way other nations support theirs?

    Single statements usually are neither all wrong nor all right.

    So, No it is not true that 'GM built vehicles that no one wanted'. Obviously from millions of units sold this is wrong. In the decade of the 90's with fuel at $1 or less for nearly 10 yrs GM built vehicles that the driving public did want...large SUVs and trucks.

    However beginning in 2001 things began to change. From 2003 through the end of 2008 the market shifted first slowly then at lightning speed which caught all the vehicle makers by surprise. GM unfortunately didn't move quick enough to get out of the way of the stampede away from BOF vehicles.

    As Ming noted the Europeans and Japanese adjusted their R&D and vehicle lineups - at governmental direction - beginning in the 90's. The Europeans did it through high taxation of fuel and engine displacement while the Japanese used engine displacement and new technological support.

    The D3 did not move as quickly because they still had a huge unbelievably profitable market to supply at home. They might be called dinosaurs because of their plodding movements but that's not completely accurate. They did see a change coming. The lambda's are an example. The first crossovers came from Toyota in 1995 ( RAV ) and then 1999 ( RX300 ). When the other makers saw these successes they implemented their own crossover lineups which in GM's case became the lambda's in the last 3 yrs. These arrived just in time before the mass defection from the BOF vehicles. So GM did see what was taking place, no question about that.

    But GM still had too many facilities dedicated to building BOF vehicles. This is one of the key problems of this type of asset-intensive industry. The lines and plants are fixed in place with massive investments dedicated to one type of product....and GM had the UAW to consider. In this regard GM was too slow and plodding to react to what they saw every month in their sales figures. The buying public was deserting from the BOF segments toward smaller lighter vehicles.

    Because it couldn't change its plants over or dismantle them due to UAW pressures coupled with strategic blunders in the 90s by the labor negotiators GM and Ford and Chrysler were stuck with
    • the Jobs Bank
    • a blank check every year for healthcare for retirees
    • plants that couldn't be downsized or switched to new products
    • a product lineup that didn't meet the new demands of the buying public
    • and increasingly heavy labor weight as volumes shrunk but labor costs did not.


    Yes in the 90s GM did build vehicles that the public wanted. It did it well.

    Yes in the 90s GM didn't plan well for the future either.

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    GMI Contributor Premium Member Ming's Avatar
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    Re: How to bring back the Big 3

    Quote Originally Posted by RamJet502 View Post
    What happens when Americans don't buy the newer smaller fuel efficient models from the Big 3 because the imports have a better reputation with those cars? How can the Big 3 cut their overhead enough to make a profit on small passenger cars?
    A. Sell more of the types of vehicle the imports have no reputation with: Cars like the Volt.

    Even Toyota's Prius is not a plug-in, at least currently (no pun intended).

    B. Don't allow currency manipulation on the part of trade partners like Japan who have been "bailing out" their automakers for the last couple of decades with sweet exchange rates that give them the equivalent of an extra 10% of profit, roughly.

    C. Continue to and further utilize companies like GM Daewoo and GM Wuling to manufacture the lowest end and smallest vehicles, but make sure they have the latest technology under the hood and can keep up with cars like the Fit. No more engineering provincialism that leaves Korean and Chinese GM cars with old hand-me-down engines.
    Last edited by Ming; 02-17-2009 at 01:03 PM.

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    Re: How to bring back the Big 3

    Quote Originally Posted by gmbow View Post
    "We twice elected an administration that denied climate change,"

    Do you mean man made climate change or do you mean summer and winter? Funny how it used to be called global warming until the globe started to cool.
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    Re: How to bring back the Big 3

    Many have urged a national "energy policy" and have looked to one or more energy sources as the solution - usually, it's wind (except where the Kennedys can see the windmills) or granola power or some such. We have an energy policy:
    Keep fuel taxes low, buy energy from abroad (except Brazilian ethanol), and never ever use our own resources.
    Special to goblue: good luck on getting the Democrats to push a "Buy American" policy. I haven't seen an Obama sticker on an American car yet.
    Cheers,
    Ed

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    Re: How to bring back the Big 3

    Quote Originally Posted by Ming View Post
    A.
    B. Don't allow currency manipulation on the part of trade partners like Japan who have been "bailing out" their automakers for the last couple of decades with sweet exchange rates that give them the equivalent of an extra 10% of profit, roughly.
    We manipulate our currency daily. We have printed money and devalued the dollar almost non-stop since the late 60s. The ONLY way to stop currency manipulation is to have a redeemable Gold dollar certificate. That's the ONLY way. So you can scratch this off the "it has to be done list" because the US can't enforce it or do ANYTHING about it with a fiat currency and the FED.

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    Re: How to bring back the Big 3

    Quote Originally Posted by Ed Arcuri View Post
    Many have urged a national "energy policy" and have looked to one or more energy sources as the solution - usually, it's wind (except where the Kennedys can see the windmills) or granola power or some such. We have an energy policy:
    Keep fuel taxes low, buy energy from abroad (except Brazilian ethanol), and never ever use our own resources.
    Special to goblue: good luck on getting the Democrats to push a "Buy American" policy. I haven't seen an Obama sticker on an American car yet.
    Cheers,
    Ed
    I had one. Seriously.

    It's a big lift to get that done - but its going to take more than good cars to reverse the trend. Toyota has smart engineers and full government support with a great reputation. We need people to understand that their most expensive purchase outside their home has consequences for our economy and default to American. Imports are helpful to keep GM on its toes - but for people who really don't care that much about cars anyway - we need to find a way to motivate.

    A tax rebate for purchasing vehicles with headquarters in the US is an appropriate way to do it. I lean left of center and I'd support it.

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