America's Big Three Automakers - Research Paper Example

America's Big Three Automakers Rebuilding a Company, Resurrecting an Industry For the better part of a century the US economy has been pinned to the health, wealth, and performance of the big three automobile makers of Chrysler, Ford, and General Motors. The 'Big Three' have set the pace for production, the principles of fair labor, and the assembly line worker's take home pay has become a symbol of the standard of living for the average American worker. As the economic body of America begins to age, the industrial backbone is bent by the weight of health insurance, credit, waste, and foreign competition. The Big Three is a legacy of all that has been right with America's ability to invent and produce, and a symbol of all that is wrong with corporate America. Chrysler, Ford, and General Motors are in need of a makeover from the showroom to the board room, and from the assembly line workers to the shareholders that are willing to discard the past in exchange for the hope of a brighter future. The goal is really quite simple; Regain the market share that has been lost to foreign competition in the last 50 years. The purpose of this paper is to examine the Big Three to discover what can be salvaged and saved, and what needs to be reconstructed in their financing, engineering, and product lines in an effort to save the floundering businesses from going any farther down the road to bankruptcy. The American taxpayer has loaned the automakers a significant amount of money, while critics have advocated bankruptcy as the next most logical business process. Opponents of bankruptcy contend that sales would plummet as consumer advocates argue that the process would render warranties and service unobtainable. More importantly, bankruptcy would, in all likelihood, lead to an eventual collapse of the companies. During bankruptcy proceedings the corporations would be incapable of functioning, as "management would be unable to undertake major new initiatives to improve technology, fuel efficiency, or productivity, since their attention would be engaged by legal conflicts over finances" (Maloney, n.d., p.3). The business activities of redesign and modernization are exactly the key components that the Big Three need to overcome the foreign competition. Bankruptcy would literally tie their hands during the most critical phase when innovation is not a luxury, but a necessity of survival. Standard bankruptcy proceedings may be unrealistic for the automakers, but there is a need for some form of creative restructuring of the firms' finances. Free market economics will not allow the open ended taxpayer support of a corporation that does not show a profit, and does not have a business plan that projects one. During the hastily proclaimed 'emergency' atmosphere that enveloped the crisis, bankruptcy options were never fully addressed. Reorganization, including Chapter 11, or mergers may be a more appropriate avenue for all three, as Chrysler has demonstrated by making the first move in that direction (Roe, 2009). Acquisitions could also maintain the auto business, while lines are retooled and products are redesigned. Any one of the Big Three could be disassembled and the unprofitable parts sold to innovators that could find ways to profit from the Big Three's failure. Today's insidious problems date back to the 1980s when American markets became flooded with foreign imports, and the US manufacturers were forced to survive on the sales of trucks and vans (Galbraith, 2008, p.77). The Big Three made no fundamental changes to deal with the changing market, while the government took the attitude of laissez faire, opposing any interference beyond the minimum necessary to maintain peace and property rights (Galbraith, 2008, p.194; Laissez-faire, 2009). Government subsidies could be awarded to the automakers for the purposes of invention and innovation, and not simply for treading the same water that they have been unable to stay afloat in for the last 30 years. In addition to the restructuring required to manage their present and future debt, is the issue of cutting overhead costs. This will involve cutting the major expenses of labor and healthcare. Through a series of plant closings, employee lay-offs, and buyout incentives, Ford and General Motors have reduced their labor cost to approximately $55 per hour for production workers, well within reach of the $50 hourly compensation of the Japanese transplants of Toyota and Honda, long considered the gold standard of fair labor compensation (Sherk, 2008; Bunkley, 2009). Any further changes of significance to this hourly compensation will have to come in the form of lowered health care costs. Until recently, any discussion of health care reform, such as universal coverage, had been labeled as a political orphan and was a victim of the conservative's Cold War policy on social programs (Stromquist, 2008, p.147). This reluctance to confront the rising costs of health care in the auto industry has thawed in the recent months, and a realistic re-evaluation of the need to compete might be instrumental in passing a health care policy that is more affordable to the industry and more favorable to the auto industry workers. The timing might be ideal for cutting the cost of labor in concert with innovative new products, and a creative next generation branding that could build confidence in the minds of the consuming public. A new branding and innovative products will need to have savings as the central theme. They will need to save energy, money, and natural resources. Are there any technologies on the horizon that the Big Three can develop and exploit in an effort to claim a market segment that they can call their own? In regards to energy there is the status quo of the fossil fuel driven internal combustion engine. This existing technology will need to be greatly improved and offer a cleaner product with more miles per gallon (MPG). However, this technology has developed to the point that any additional savings, either in MPG or environmental toxins, will only come as a result of cutting power and speed. The American consumer will not quickly adapt to an automobile too far removed from the muscle cars that they have been used to. In addition, developing a greener fossil fuel will almost certainly require government legislation and subsidies. Automobiles will be taken together as part of an overall energy strategy, and as long as gasoline prices continue to stay below the highs of last summer, green energy will slip farther down the list of government priorities (Wagman, 2008, p.4). The industry's lack of dedication to green technology is evidenced by Ford, that liquidated the electric 'Think' as soon as California diluted its zero-emission-vehicle requirements in 2003, after sinking $123 million into the design (Maynard, 2002). At the time, it was Ford's only electric project. It will be even more difficult to persuade the Big Three to try a radical design concept when they are facing economic failure. An alternative design for the private automobile will probably be based on one of the technologies currently under development. This will mean hydrogen, compressed natural gas (CNG), fuel cells, bio-fuels, or electricity. While all these are promising forms of automobile energy, they also have their specific drawbacks. Currently all three automakers market a hybrid gas-electric car, with the Chevy Volt being the only entry able to run forty miles without the aid of gasoline. They are all challenged by a lack of batteries that are long-lasting, powerful, light-weight, and environmentally friendly. Once again, it will require massive government subsidies especially earmarked for this technology. The current billions that have been loaned to the automakers has simply had the goal of saving jobs. The hydrogen fuel cell has attracted a significant amount of media attention, but has yet to provide the consumer with a marketable product. In 2008, Chrysler announced the EcoVoyager, a four-passenger car that has a fuel cell and 16Kwh of lithium ion batteries. The batteries are sufficient for a 40 mile range between recharges, identical to Chevy's Volt (Kaho, 2008). Ford is considerably ahead in this technology and has developed the Focus Fuel Cell Vehicle (FCV) that gets an equivalent 67 miles per gallon and a 400 mile range. However, the vehicle is still in the development stage and Vice President Richard Parry-Jones stated that "it will be a decade at least before the fuel-cell car becomes viable for some customers and probably two decades for a significant number" (cited in Birch, 2009). Public financing will not endure a ten or twenty year period of research and development. According to Carle, Axhausen, Wokaun, and Keller (2005) "Although the fuel cell is, in principle, an ideal energy source without local carbon dioxide emission, substitution goods such as further developed gasoline and diesel engines, hybrid and compressed natural gas vehicles will have medium-term competitive advantages" (p.739). Even though the Focus FCV has a lot of promise for the future, the Big Three will be tied to existing fuels and technologies for years to come, and unable to reach beyond the already proven horizon due to financial realities. In all likelihood, the company that can develop compressed natural gas (CNG) as the primary fuel will be the company that has the greatest market advantage. The advantages of CNG are its abundance, low environmental impact, and relatively easy conversion from the existing gasoline based fuel systems. Once again, the Big Three have been reluctant to take a chance and have only experimented with hybrid 'Bi' vehicles, capable of burning both gasoline and CNG. Even with compression, natural gas is bulky and a nominally sized gas tank holds the equivalent of eight gallons. In addition, the energy required to compress the gas into a liquid state must come from some source, such as fossil fuels. However, its availability and cleanliness are hard to resist. California has implemented a significant program to spur the development and use of CNG, and has dedicated $4 million to cost share the construction of refueling stations (Compressed natural gas, 2006). However, the competition is also robust and the Big Three will have some catching up to do. Honda has recently introduced the Civic GX, which may be the prototype of the cars that dominate the next two decades. This will be an automobile that the Big Three can afford to compete with. They also have the technology needed to get the product to market in a reasonable amount of time. The CNG technology delivers 36 MPG highway at a cost of just sixty three cents per gallon. (Cornell, 2008). A conventional gasoline powered car that delivers 22 MPG would have a fuel cost of about $135 for a 1000 mile trip. The CNG automobile would make the same 1000-mile trip for about $17.50. For the consumer that drives 20,000 miles in a year, that is a savings of $2350. That could well make the payments in an economy that is cost conscious and a consumer base that has become more savings oriented. A CNG powered vehicle may be the car that saves the consumer money, natural resources, and the environment. In conclusion, the private automobile is not yet poised to make a quantum leap into exotic fuels or radical new power sources. The Big Three, facing financial hardships, will need to restructure their firms before inching forward. The most reasonable approach will be through mergers or creative restructuring that sheds their losing units, while maintaining their profitable divisions. Labor costs have been trimmed and health care reform should additionally benefit them in the coming year. However, radical redesign and experimental power sources are much too costly and have too far of a profit horizon to be realistic. Compressed natural gas (CNG) is the only alternative that has sufficient promise to become a reality. It can utilize much of the existing infrastructure and current design. In addition, it fits the consumer's need to save. It saves money, the environment, and the supply is plentiful. While Honda has a leading position in CNG, the Big Three could catch up with a minimum amount of government support to build refueling stations, while offering substantial consumer rebates or tax credits on new CNG automobiles. With this realistic plan the Big Three could survive, the workers could save their jobs, and the consumers could save their money and the environment. References Birch, S. (2009). Ford's focus on the fuel cell. Automotive Engineering. Retrieved May 13, 2009, http://www.aerospaceengineeringmagazine.sae.org/automag/features/fordfc/ Bunkley, N. (2009, March 11). U.A.W. deal With Ford cuts hourly rate to $55. The New York Times. Carle, G., Axhausen, K. W., Wokaun, A., & Keller, P. (2005). Opportunities and risks during the introduction of fuel cell cars. Transport Reviews, 25(6), 739-760. Compressed natural gas (CNG) as a transportation fuel (2006). Retrieved May 13, 2009, http://www.consumerenergycenter.org/transportation/afvs/cng.html Cornell, C. (2008). The Cleanest Cars on Earth?: Honda Civic GX and Other Natural Gas Vehicles (NGVs). Retrieved May 13, 2009, http://gas2.org/2008/05/05/the-cleanest-cars-on-earth-honda-civic-gx-and-other-natural-gas-vehicles-ngvs/ Galbraith, J. K. (2008). The predator state: How conservatives abandoned the free market and why liberals should too. New York, NY: Simon and Schuster. Kaho, T. (2008). Chrysler EcoVoyager electric car uses hydrogen fuel cell. Retrieved May 13, 2009, http://www.greencar.com/articles/chrysler-ecovoyager-electric-car-uses-hydrogen-fuel-cell.php Laissez-faire (2009). Retrieved May 12, 2009, http://mw1.m-w.com/dictionary/laissez-faire Maloney, C. B. (n.d.). The ripple effect: Why failure of the big three is not an option. Washington, DC: Office of US Representative Carolyn B Maloney. Maynard, M. (2002, August 31). Ford abandons venture in making electric cars. The New York Times. Roe, M. J. (2009, May 1). A Chrysler bankruptcy won't be quick. Wall Street Journal. Retrieved May 12, 2009, http://online.wsj.com/article/SB124113528027275219.html Sherk, J. (2008, December 8). UAW workers actually cost the Big Three automakers $70 an hour. Retrieved May 12, 2009, http://www.heritage.org/research/economy/wm2162.cfm Stromquist, S. (2008). Labor's cold war: Local politics in a global context. Springfield, IL: University of Illinois Board of Trustees. Wagman, D. (2008, November). Economy trumps climate change. Power Engineering, 4. Read More