I’m going to risk alienating some of my readers today; nevertheless, I believe this to be an important discussion, worthy of a few ruffled feathers. As I write this, American auto-makers are scrambling to tap TARP funds that might keep them on life-support, and I believe their wish will be granted. I also think it’s shortsighted, disastrous and highly un-American.
Champion of the underdog
The lore of America is largely formed on the notion that everyone has the potential to rise to the top, given a good idea, hard work, and a little luck. Just consider the innovation that came from America during the 20th century. Hollywood, the silicon chip, rock and roll, the assembly line, the franchise model… No matter what criticism “Brand America” may have had in recent years, the truth is that most nations still aspire to its values, affluence and cultural landscape.
But American civilization is peculiar. It seems that in some respects it makes greater gains as a “challenger”. As an underdog, or against insurmountable odds, it seems to continually surprise and overcome. In the “champion” role, however, it becomes lumbering and complacent. My case-in-point lies with the Big Three. Certainly, there have been breakthrough products, such as Chrysler’s mini-van in the 80s; however, as each of these companies has become larger, each has eked closer to the doom they currently face.
Brand erosion, inferior quality products, a disinterest in meeting consumer needs, lack of regard for the environment, bad business practices, disproportionately powerful unions… The fact is that these companies have become too big and too slow to adapt. As much as the notion may seem interesting, we simply can’t bring back the dinosaurs.
The bailout won’t work
The bailout (albeit perhaps necessary) is tantamount to burning the American flag. It’s another nail in the coffin for innovation in America and the belief in a free market system. Allowing it to occur will tell the world that capitalism doesn’t work. The message is loud and clear: we love the notion of freedom, free-will and the entrepreneurial-spirit, but… if it doesn’t work out, and you’re big enough, taxpayers will break your fall.
Not having a safety net is what makes entrepreneurs succeed. This is my personal reality. I need to sell work. If I don’t, I lose my business, my home, and my possessions. There is no employment insurance for owners of small companies such as myself. Additionally, there will never be a bailout should our business fail to meet market demands. As such, we manage our budgets carefully, and are highly motivated to avoid bankruptcy.
For the most part, this works. It’s a clean, clear and simple model of natural selection that all free market companies operate within. Some of us do well and some of us fail, but the playing field is for the most part level. The notion of a bailout for the American auto-industry, however, says that the rules don’t apply to them.
Worse yet, it will only stave-off the inevitable. If they couldn’t keep up in the free market before, why will that change with an injection of cash? Consumer confidence is shaken beyond repair and the machine is clearly broken. (Throwing more money at your coke-head brother isn’t going to sober him up.) Given our current course, a bailout will at very best buffer how the crash comes, but it will nevertheless come.
The “Ameri-car” is a harrowing notion
One idea that I continue to hear about is that of a merger of sorts, resulting in one large, consolidated American automobile company. Isn’t it strange how this feels more like something we’d have expected of the fallen Soviet Union than of America: A single state-enabled national auto-maker. (Doesn’t that whole idea make the hair on your neck stand up a little?)
In large part, the problem we’re facing relates to how big these companies are. If one of them fails it will drag many other related companies into insolvency. This clearly illustrates how dangerous the centralization of the American auto-industry is. We can’t keep tying all of our hopes into a few large organizations. It’s the antithesis of the American way, and doing so stands in the way of competition, innovation, and entrepreneurial spirit. Consolidation is a notion that can only make things worse.
Additionally, the American automotive industry is a brand disaster.
I know that a BMW is well engineered. I believe that a Volkswagen is fun to drive. I trust that buying a Toyota is a responsible decision given their quality and value.
We don’t know what an American car stands for any longer, because they all end-up being the progeny of the same companies. What does a Pontiac stand for? How about a Buick? (Do they even make Buicks any longer?) “General Motors” says it best. They’re general. They’re utilitarian. There’s nothing there to delight or surprise. It’s just one big, fat machine with no focus or meaning. And whether the aging champions of industry want to believe it or not, the public wants to buy products that we can believe in.
Tell me this: when GM CEO Rick Wagoner was flying on his private jet, to ask Congress for a bailout, do you think he for a moment thought “Gee, I wonder how we could make the Cobalt a better car?” Of course not. GM is too big, and its management is (figuratively) way too far off the ground.
To build a better product… to build something that people care about, means that you too have to believe in it. As companies become larger, it’s highly uncharacteristic for management to care as they would in an entrepreneurial operation. Examples to the contrary might include the likes of Patagonia’s Yvon Chouinard and Apple’s Steve Jobs. (And look at how their steadfast belief has fortified their companies.)
Consider this possibility: Our governments (this is, by the way, a concern in Canada as well) grant the bailouts that are being asked for in an effort to buffer all of us from an economic landslide. This is given with a caveat: Each brand housed by the automakers must be transitioned into an autonomous business unit. In this approach, Jeep leaves Chrysler and becomes “Jeep”. Hummer leaves GM and becomes “Hummer”… and so on and so forth. Each becomes an independent company that must then fight for its survival. Those that are unsuccessful die, and those that succeed live to see another day.
It’s simple and it gives all of these companies a strong impetus to become entrepreneurial, innovative and efficient. And want to talk about belief? When your survival is on the line, you believe. You care, because the brand matters to you. Its livelihood and yours are intrinsically tied to the same fate. I’m willing to bet that we’d see some powerful brands rise out of this, instead of the watered-down crap that we’ve become accustomed to from the American automobile industry.
Some will say this is logistically impossible. I argue that in the interests of our collective fates, we need a bold and aggressive return to an entrepreneurial landscape. We can no longer allow overpaid management teams to act without consequence, when they have no “skin in the game”.
As noted at the beginning of this post, I recognize that some of you may take issue with my position. I apologize for any offense. It goes without saying that I’m speaking out of my ass; I don’t know anything about running a car company. Then of course, it seems like few in Detroit do either. ;-)
Meanwhile, I wish you happy holidays! I probably won’t post much over the next couple of weeks, as we’ll be reorganizing the office, pushing out a couple of projects, and perhaps having a drink or two. That being said, I always appreciate you taking the time to read these long and meandering posts, and for sometimes responding and sharing your perspectives.
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