• Nov 20, 2008
There have been so many different arguments for why The Detroit 3 should or shouldn't get a bailout that we could make a casserole out of them. One argument against a bailout -- or at least, a reason for the futility of a bailout -- that we don't recall hearing yet is "vehicle density."

The argument is put forth by Anthony Mirhaydari at MSN Finance. Basically, he says that with 981 cars per 1,000 people of driving age in America and new cars being sold faster than used ones are taken out of service, there simply isn't enough room for U.S. auto makers to sustain the volume of sales necessary to avoid factory closures and layoffs.

As an argument against the bailout, though, we find it tenuous. No one is saying that Ford, GM and Chrysler won't need to cut a lot of fat whether or not they get bailed out. But the bailout is to aid the survival of the companies at all, not to prevent layoffs and shuttered factories, which, again, will happen with our without money. According to Mirhaydari, Detroit's only option is to go forth and colonize other markets. Well, except for Chrysler, because "Chrysler as we know it will cease to exist very soon."

[Source: MSN]


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  • 71 Comments
      • 6 Years Ago
      Always interesting to hear opinions from outside the auto industry. Usually, like this, they are uneducated opinions.
      • 6 Years Ago
      Pretty tough to expand into other markets when so many of them are protectionist.
        • 6 Years Ago
        "They all have major restrictions on access to their markets that benefit their home grown companies. So companies like Hyundai get the extra cushion of having their Home Market virtually to themselves."

        Which begs the question: Why do we allow Hyundai to sell cars in the United States?
        • 6 Years Ago
        As if CAFTA or NAFTA make any difference. Mexico and Canada's markets are open to the Big 3. Central America's market is tiny but Free Trade opens their market too.

        Any American President who reopens NAFTA will be greeted with big smiles in Ottawa. Our government gave away access to our oil and resources in NAFTA. We also lost jobs as plants moved South to Mexico.

        The closed markets that would make a difference to the Big 3 are Japan, China and Korea. They all have major restrictions on access to their markets that benefit their home grown companies. So companies like Hyundai get the extra cushion of having their Home Market virtually to themselves. If the North American Market was as protectionist our Automakers would never have had any trouble. Not that I think that is the way to go. Choice is better for everyone. But if countries like Korea or China are not willing to play fair then the same rules they apply to imports in their country should apply to anything they put on a boat and send here. Any government who had the guts to do that would see those markets open up pretty quickly.
      • 6 Years Ago
      Every industry eventually outgrows its market. With capitalism, a company must strive to grow every year and increase their market share. When you have several companies all doing that at the same time, eventually supply will surpass demand. I think that is what is happening to the auto industry. Look at ALL the car companies sales...they are all in decline, even the Japs. The smart thing the Japs did was have lots of CASH to sustain themselves during the hard times. How much CASH does Toyota have? I heard its in the 10's of billions.
        • 6 Years Ago
        Jap is not a racial slur

        it may have been a long time ago in your country

        but that was in the past. and things are different everywhere else
        • 6 Years Ago
        well, at least you capitalized the racial slur.
        • 6 Years Ago
        Actually Penguin, if you take a group of people, put them on an island for a few thousand years with very little incoming immigration, you get some genetic distinctions = race.

        Therefore, it is a slur.

        • 6 Years Ago
        Toyota has their own city in Japan - re: last week's Top Gear. So that says something.
        • 6 Years Ago
        True it may be disrespectful but "Jap" is not a racial slur for many reasons, most of which because Japanese is not a race, wiki entries be damned.
        • 6 Years Ago
        Well then, by that definition, "'mercian", as so many left, liberal advocates of political correctness are so fond of using against Americans, is also a slur.
      • 6 Years Ago
      Chrysler would be the cheapest to save. GM and Ford are the one's that have a tremendous overhead that's killing them as we speak.
        • 6 Years Ago
        You have got it backwards. The elephant in the room at the the congressional hearings is the fact that if Chrysler were gone the industry would alleviate all the unnecessary capacity in the market necessary to make Ford and GM, to a lesser extent, viable companies. Chrysler is the culprit in driving prices down for both Ford and GM since none of the Chryco offereings have any natural demand. They have to discount or fleet dump almost every vehicle they sell. Even the Ram, which is the closest thing to being in demand sells with extreme discounts that hurt the pricinig power of everyone. This doesn't effect the top tier Asian manufacturers as much due to the fact that Chrysler's subpar quality and low grade interior components the customers of the better Asian brands don't cross-shop Chrysler. That leaves GM and Ford to be cross-shopped along with low tier Asian brands like Hyundai, Kia, Suzuki, and Mitsubishi. In short, with Chrysler gone two years ago there wouldn't have been any need for congressional hearings today. Hopefully, the market will take care of this by Cerberus chopping up Chrysler and getting some moronic company to buy the Jeep brand with it's circa 1970 grade components and circa 1970 fuel mileage numbers and the market can come back into equilibrium. Another outcome of this near bottom in the auto industry might be the moving up of the UAW wage structure that is currently scheduled to come online in 2010. Don't get me wrong even if Chrysler were to go away today I'm not so certain GM could survive, as is, due to the fact that the damage has been done. Of course, GM does need to cut more excess capacity anyway but until they get past their egos and realize that they currently don't deserve a domesic marketshare north of 20% they will never be able to improve their pricing power to the point of continuous profitibility. Ford appears to have downsized the closest to where they need to be once they get the Minneapolis plant shutdown and sold. I do believe they do still need to build the Ranger or something equivalent to it since it is the only pickup in the U.S. market that meets the need of the majority of the non work-related consumers. With MPG numbers approaching 30 mpg for commuting and just enough towing capacity to handle the trip to Lowe's or Home Depot it is the only player in the sub-compact truck market.
      • 6 Years Ago
      Had the same kind of restrictions and requirements been put on the financial industry as on the auto industry we would not be in this situation. Because Government never controlled that industry now we are in a depressed-recession(?). The herrings for the auto industry seemed like a chance for the Congress to have a "fall guy" for their big mistakes.

      A second thought is that all of the Big 3 may not be in the same situation. Chrysler has been saved at least three times, Govn't, MB, and Cerberus (how many more times?). If I remember correctly in 1979 Ford was in worse financial shape than Chrysler and they survived. GM has never had to face a hardship until now with Cerberus’ help cutting off financing from co-owned GMAC (see any connection?). Maybe we should look at each one separately.

      Last, it is always easy to beat up on the home team. Game over, home team lost and we all win?????
        • 6 Years Ago
        Dumbler Benz "saved" Chrysler by stealing their $10 billion cash reserve, canning the executives who made it the most profitable automaker on the planet and made them buy Mercedes parts and "consulting" services while charging exorbitant royalties and fees. Other than that I guess it was all good.
      • 6 Years Ago
      perhaps no one saw the Wall Street Journal article yesterday about all the imports (you know, the cars "everyone wants", unlike those icky domestics) piling up on the docks in Long Beach. you name it; Nissans, Toyotas, Mercedes, BMWs, Audis. there are so many vehicles there, the manufacturers are having to lease acres more space to just get them off the ships...and more are on the way. so undesirable that dealers are turning away Toyota shipments when the transport trucks show up at dealerships. could have only been two years ago that everyone was trashing Chrysler for their Daimler-induced "sales bank" of unordered cars?

      for those unaware of how the system works, let me give you a small lesson. for the sake of saving space, I'll assign code letters; for imports, it's "S" ("smarties") and domestics, "I" (idiots). in the S system, the manufacturers build a whole bunch of vehicles to THEIR (manufacturers') specification. they fill up the lots around the factories. who needs imput from dealers? we know what they want!! then the S's call their dealers, and tell them what they will be receiving. this is a really great time for any of the manufacturer's rep to get back at dealers they don't like, by really overloading them with really undesirable inventory the factory can't get rid of. asking for a special order for a customer is the equivalent of the old days at McDonald's, if you ordered something different than the one way they made it. they would yell "grill", and the machine ground to a complete stop. don't believe it? go down to your local Toyota dealer (or Nissan, Honda, you name it) and try.

      on the other hand, the "I" manufacturers use the quaint, inefficient method of allowing their dealers to actually order what they want, taking into consideration their own unique market needs. is that stupid, or what? letting dealers actually order vehicles they are paying for? no wonder they are hurting!!

      although is always humorous to read all the high-school-level comments here on Autoblog, they rarely have any connection with reality. many hate GM because Grandpa's rusty '78 Nova used to stall, or because their first high school car, that '83 Cavalier there Dad got for 200 bucks from that guy at work, didn't hold up for long under the rigors of speed shifting the tired transmission by a 16 year old. LET GM DIE!!! uh-huh.

      the cold and ONLY reality here is there is NO money for financing. there are many folks and companies out there in desperate need of new vehicles; the real issue is there is NO money. this has put ALL manufacturers in dire straits, not just the US companies. the real difference is all other countries outside the US realize how important their domestic automakers are (regardless of where they come from), and subsidize them accordingly.

      all the big 'to do' yesterday about the Big 3 CEOs coming in on private jets. the reality here (we don't need reality here on Autoblog, do we?) is that many corporate insurers WILL NOT allow CEOs to travel by commercial jet for security reasons. and for the really stupid idea that they should "travel together"; was anyone here around (or born yet) in 1979?

      1979 was the year that changed everything. that year, a DC-10 crashed on takeoff from Chicago O'Hare, killing everyone on board. among the casualties were everyone from the board of directors from Playboy Magazine.

      now, let's take that tradegy, and multiply it by 3. enough to make an insurance actuary tear his (or her) hair out.

      before I go, I must say I really enjoy the comments about there are "just too many vehicles". love all the quotes and numbers; they mean absolutely nothing. what's most interesting is that the posters here are obviously much smarter than all those corporate sales forecasters that all manufacturers pay millions of dollars to. vehicles worldwide generally sell at a certain rate, unless sudden outside factors influence that, like all the specualtors in the oil market who drove prices to artifically high levels this past summer? where have all those "experts" gone that told us in July that oil would be $250 per barrel by Labor Day? back working at Hot-Dog-On-A-Stick, or Madame Zelda's fortune telling shack?

      vehicles would be selling right now if there was money available for financing; that is the only issue, nothing else.

      AZMike
        • 6 Years Ago
        I agree with a lot of what you said. Yes the lack of money to lend right now is a problem but when money was available to lend, the consumers, manufacturers, and the lending institutions abused it.

        The consumers abused it by wanting to run out every two years (or less) and trade for a new vehicle, even if they really didn't need it or there was nothing wrong with their previous one.

        The lending institutions participated by constantly re-financing these people into new loans thus getting them deeper and deeper into debt on a car that was worth thousands less than what they owed on it.

        When the lending institutions pulled back a little then the manufacturers stepped in with 0% financing along with huge rebates to pick up where the banks left off. The manufacturers didn't care what kind of financial hole they were putting these people in just as long as they were moving vehicles.

        So to me putting the blame for this crisis solely on the manufacturers is a little misplaced. I think there is plenty of blame to be passed around once you step back and look at the big picture.

        • 6 Years Ago
        Mike,

        If you can afford the payments then there is nothing wrong with trading for a new vehicle every two years. But the key word there is IF. What I was saying is that there were plenty of people coming into dealerships that were already so upside down in what they had, get re-financed into something else raising their payments even further. Then when the payments got too much to afford, they would try to trade down to lower their payments but couldn't their negative equity was too high. That scenario was (and still is) a ticking time bomb.
        • 6 Years Ago
        Thanks for those points. Now watch your comment be buried with low rankings. The bias around here is rampant.

        One thing: Could you please post some links to support your claims? I believe you but it would be nice to have something to solidify your arguments.
        • 6 Years Ago
        Brad,

        I can't necessarily agree. is there something wrong with buying a new car every two years if you make your payments on time? hell, no!

        I currently have six open car loans myself, and I'm a single guy. I've owed money on six vehicles at a time at least since 1986 (I own five more that are free and clear). perhaps a lender should look at me not by the fact that all are "paid satis" (in credit terms), but by the fact that I don't "need them".

        "need" is a subjective term, and trying to tell others what they need only leads down very ugly roads. if you have the track record that you pay, and have the means to do it, that should be as far as any interest should go.

        of course, I'm greatly penalized by every credit bureau; all these open loans only drive down my credit score. I'm lucky if I can ever get to 680; not one late payment, ever. and because ALL credit bureaus just dropped everyone's AUTO and real estate scores about three weeks ago (my AUTO score dropped 90 points for no reason whatsoever) I'll be completely out of the market until credit restrictions ease up.

        it should be as easy as possible for anyone to buy a new vehicle. the only requirements are a track record of payment, and the means to do so. nothing else matters.

        AZMike
        • 6 Years Ago
        nice post.
        so it appears that the S's have more marketing and product development prowess if their fewer varieties are being bought by more people. Hyundai is case in point, their brand equity has built up incredibly over the last 10 years...all in the old fashioned way.

        Another comment, while "money" is indeed a root problem at this point, it is an abstraction of the details of the problems. and there are almost as many types of problems as there are types of business relationships in the industry. people have to understand that "money" is given and taken as a measure of how convenient something more tangible actually is, such as a car. if there is a vehicle sitting in your parking lot, it is "money" to someone. its just that with the shortage of money, u cant quickly get its full value. its a catch 22 for the person who could have paid u full value for it, since he/she needs the vehicle to earn the money to pay for it. i know its basic economics, but unless car makers and anyone else in the business of the economy cannot find a way to get that car to that person, nothing will move (literally!) making it easier for that person to get that car is like injecting liquidity into the market. im sure lots of "bailout money" ends up getting used for programs like this, but as long as we're talking "money", we're not thinking "value" and often only uncovering perceived greed.
      • 6 Years Ago
      A better and more accurate term would be "market saturation". This happened with the pc market a few years ago and the housing market more recently. With housing, people were building new homes before selling their existing homes. There is now quite an oversupply. Unfortunately, very few people in the various industries have the intelligence or intuition to know when that is going to happen.

      The result will absolutely be a thinning out of capacity. Manufacturers like Chrysler with a very narrow product range (i.e. 4 door sedans and 3 row SUVs) will probably not survive.

      • 6 Years Ago
      Lets assume the Big 3 stop making cars, Toyota, Honda, Nissan and all foreign manufacturers will still keep producing cars. Thus they would need to reduce their production as well.
      • 6 Years Ago
      I'm doing my part to help as I currently own 3 running and registered cars (as well as 2 motorcycles).
        • 6 Years Ago
        the fact remains that when I walk in a parking lot, I see hondas,toyotas,nissan, ect, i rarely see any fords. I do see some a bit of chevy cobalts and ford trucks.
      • 6 Years Ago
      Frylock cost of living in Japan is the same or higher than the US and they still pay their employees less then what their american counterpart would make.
      • 6 Years Ago
      Classic! The picture shows a bunch of Hyundai's at the dock.
        • 6 Years Ago
        HAHAHA! Too funny!

        Autoblog editing = fail.
      • 6 Years Ago
      He's right about one thing. Chrysler.
        • 6 Years Ago
        And.. So will GM.
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