Nobody wants to see these companies fail, but their CEOs have not explained or answered their structural disadvantages. And this diary excludes discussion of their labor costs which seemed to have been extensively restructured.
Sure government subsidized healthcare would help but this is currently besides the point.
The point is that in yesterday's hearings the 3 CEOs seemed woefully unprepared to answer questions regarding their medium-term solvency:
- GM wants $10-12B, Chrysler 47-8B and Ford $7B
None of the 3 CEOs could explain with facts how they reached these figures.
The GM CEO never explained whether or when he will run out of money, the Chrysler CEO said end of 2009, while the Ford CEO said they will have enough liquidity if the market remains as is and does not slow down further.
Neither I nor any senator from what I could tell understood why they are asking money now and ask for the specific amount of money.
- Can the US market sustain 3 independent car manufacturing companies?
None of these CEOs gave answers or best or worst case scenarios. The GM CEO seemed to indicate that unless the market gets better they will need further plant and dealership closings and further restructuring.
- If big cars make money how will they ever produce a efficient fleet?
According to the 3 CEOs the profitability margins for small cars are much smaller. They reason they were forcing trucks and SUVs down our throats was that it was their only way to remain solvent. Like it or not they will soon be forced to reach high efficiency standards of 40 and 50mpg. Using current technology it is completely impossible to manufacture a large car (with a large profit margin) at these efficiency standards.
So if they are forced to produce small and efficient cars, how will they ever become solvent?
Meanwhile Toyota is about to stop selling or developing it's "sports sedan" the Solara, because they think that the market for the "fun sedan" is diminishing...
- The Volt is shaping up to be the biggest bribe in history.
The Volt is rumored to be for sale at an $35k MSRP. The only way they will make the Volt affordable is by offering huge tax rebates. The current 2004 Toyota Prius is being sold at about $23k and that incurs a loss to Toyota in the American market.
How will the Volt, which will likely be a beta version of a product just like the 2001 Prius was, ***SAVE*** GM? Particularly given that so many manufacturers are now offering hybrids and the new plug-in Prius will come out in a few months?
- Why are all these companies making losses in the US only?
I did not hear an explanation about why their European and Asian operations are profitable but they only lose money in the US.
Could it be that competition is driving prices down like crazy and Asian companies can hold up better because they re making more money abroad?
- Model line-up
GM is responsible for 60 models, Chrysler for 22 and the Ford CEO didn't say how many. Does anyone here really think that the American market can hold so many separate models made by the these 3 auto companies?
Finally, even the most liberal economists, Krugman included, have suggested that these 3 companies should not be allowed to failed in this circumstance because of the tremendous unemployment it would result in while the country is in a recession. But even he has clearly said they should be allowed to fail and that their future is bleak even if the economy starts heading North.
Maybe some of these issues are not the manufacturers' fault. Maybe they have taken the best steps available. But how will these guys not come back for another $25B next year? Does anyone really think that foreclosures will stop, employment and GDP will rise so sharply that easy credit will be available anytime soon?
What sort of healthy financial capitalism is this when large corporations team up together form a monopoly and blackmail the government?