The new automobile bailout deal: Too tiny and probably too late
Posted by: in Companies Competitive StrategyFiled under: Industry, Consumer experience, Competitive strategy, Ford Motor (F), General Motors (GM), Toyota Motor Corp. (TM)
Congress has passed it and the President has approved it — a new package giving Detroit’s Large Three loan guarantees to cover $25 billion for upgrading their plants. This should allow them to move production to more fuel-efficient cars.
If the move had come two years ago, it might have worked. According to The Wall Street Journal, “The auto loans can’t come soon enough,” stated Kip Penniman, automotive analyst at KDP investment Advisors. Soon enough was a long time ago.
Ford (NYSE: F), GM (NYSE: GM) and Chrysler do not just suffer from having vehicles that are not fuel-efficient. They also have cars that are still perceived as not being as “good” as many models from Japan and Europe. Toyota (NYSE: TM) and Honda (NYSE: HMC) have not only posted superior quality numbers in most industry surveys, they also have a tremendous lead in new technologies including hybrid engines.
By the time Detroit has new plants in place, the Japanese will be two or three years ahead with the next generation of technology for saving energy costs and building vehicles with few defects.
Detroit now has to face a tough credit market in which consumers find it harder to get car loans. It has to face a recession in which vehicle buyers can’t afford new cars at all. It already faces a Japanese industry that’s well-financed and well ahead in critical technology.
Getting $25 billion is not enough. Something along the lines of $100 billion might be more enjoy it.
Douglas A. McIntyre is an editor at 247wallst.com.
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