November 24, 2008

Apparently, It's the Government's Fault Detroit Is Bankrupt

Sometimes I think the Wall Street Journal editors are phoning it in. In a piece titled, "The Environmental Motor Company: Making Detroit a subsidiary of the Sierra Club," the Journal complained about those horrible Democrats in Congress that want to tie the $25 billion in loans to Detroit to "green retooling." I guess pushing U.S. automakers to make cars that get much higher gas mileage, and thus will sell better, is a bad idea.

The Journal also makes the ludicrous statement that the real problem for Detroit has been those awful fleet fuel-efficiency standards (the CAFE rules) "that force the companies to make cars domestically that are unprofitable." To add to the absurdity... the same day, in the same op-ed section, GM's CEO Rick Wagoner explains "why GM deserves support" and talks about the super-fuel-efficient cars GM will make with the loan. So even GM is saying it needs to make different cars.

We're seeing an amazing act of willful ignorance here. The knee-jerk response in some circles seems to be that these poor companies were just burdened by bad regulations (not to mention big bad labor). This crazy idea comes on top of the general fiction -- which Wagoner is pitching -- that Detroit is reeling because of the credit crunch and the economic downturn. But the proof on this one is in the data.

The U.S. automakers were having very serious problems months before the financial meltdown.

Let's look at May '08 sales in the United States, when high energy prices forced Detroit's hand. While the Fall has been the real Armageddon for U.S. auto sales, the spring year-over-year comparisons told a scary story. The overall car market was down 11%. But Ford was down 16%, Chrysler down 25% and GM down 28% (which in retrospect looks pretty good compared to GM's nauseating 45% drop year-over-year in October). But how did the other guys do in May? Toyota was also down after making some mistakes and trying to sell some big vehicles also, but only dropped 4%. Nissan was up 8% and Honda sales were up an astonishing 16%. Let's repeat that: Honda sold more cars this spring than the year before. If you look at total sales through October, the difference between U.S. and Japanese performance isn't quite as bad (only Suburu is up for the year). But the companies that sell smaller, more energy-efficient cars are doing ok.

My favorite media moment on this topic came on one of the 24-hour news stations yesterday. While covering the Congressional hearings with auto CEOs, one story explained that U.S. automakers spend an extra $1500 on each car (vs. competitors) to pay for pension and health care obligations. To be sure, these costs don't help Detroit. But the news anchor went on to say something like, "so Detroit is struggling because of that $1500...and the fact that it's known for making low-quality cars." Oh, just that little problem of making bad products.

The business guru Jim Collins, in his fantastic book Good to Great, focused on the importance of "Facing the Brutal Facts." Pretending that evil regulations are the primary cause of Detroit's fall does not help our automakers. Acknowledging that they were making the wrong cars at the wrong time is at least admitting we have a problem (in whatever 12 or 200 steps Detroit needs to heal).

The predicament that Detroit has found itself in is an American business tragedy. Let's not make it worse by lying to ourselves.

This post first appeared on Huffington Post.

Comments

On February 4, 2009 6:06 AM, Pam Strayer said:

I too find the WSJ editorial board position on this issue extremely odd. It seems very much out of sync with the facts on many different fronts. It's so offbase that I do think it's weakening the paper's credibility.

And to make matter worse, the journal's also featuring these editorial board members (Hennington and Jenkins) prominently in their "JER" (Journal Editorial Reviews) video on Obama and Green. Nowhere in the video does it reveal that these points of view are opinions from editorial board members. The perception for most people will be that these are reporters reporting news stories. Bad, bad, bad.

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