Guilty, By Reason of Insanity or Stupidity

It is often said that the definition of insanity is “doing the same thing over and over again, and expecting different results.” With that in mind, I suppose that the Big Three are pleading not guilty by reason of insanity to the fallout of the American auto business.

For years now, the Big Three (Ford, General Motors, and Chrysler) have apparently operated under the presumption that the American consumer is not very bright, since they continued to base their business models on the production of SUV’s and Trucks.  These have a higher profit margin than do their smaller counterparts, but do not perform as well in the fuel efficiency category.

Set oil prices at $120 per barrel and cheaper, more fuel efficient, foreign vehicles, and watch the Big Three exec’s run for the nearest bathroom; then watch them come a-running (or a-private-jetting) to Washington like aged, dim-witted Oliver’s, asking “Please, sir, I’d like some more.”

The primary concern with the auto bailout – or any government bailout – is that it offers no disincentive, no punitive measure for simply making bad business decisions. The Big Three knew that their products were simply not competitive in the auto market – which may be why they pushed for those high protective tariffs against Japanese cars in the mid-1990’s.

While these tariffs were in effect, Ford continued production of the “Bronco” until 1995, with the larger “Explorer” starting in 1991, massive “Expedition” in 1997, and the gargantuan “Excursion” in 2001 (which, thankfully, has been discontinued)…and that’s just Ford vehicles.  Never mind the millions of Durango’s, Jimmy’s, Yukon Denali’s, Envoy’s, Tahoe’s, Trailblazer’s, and Escalade’s, all chugging down gallon after gallon of precious, non-renewable fossil fuels.

Of course, gas was cheap, so building gas-guzzling miniature Sherman tanks with three rows of seating was a great way to increase profits; production costs were higher, and the American consumer bought them. As the scale of these vehicles went up, so did the ticket price.

All of a sudden, right around the time George W. Bush took office, gas prices started to increase (they suddenly dropped around the 2004 election, but that’s an article in itself).  All of a sudden, the Big Three found themselves in a pickle: the cost of a tank of gas was getting too high, especially given those high ticket prices. Foreign cars have been and continue to be cheaper to purchase and more fuel efficient – the American consumer saw a need for a change, and made it, and now the Big Three are hurting.

The unfortunate presumption by the Federal Government is that the Big Three represent a larger share of the domestic market than it actually does. Sales by the U.S. companies account for only 47% of domestic sales this year, down from 70% a decade ago. The Big Three only employ about 350,000 workers, a number that is steadily decreasing. Wal-Mart, on the other hand, employs 1.1 million (would we bail them out, too?).

Keep in mind, of course, that very few of the parts for these vehicles are being made here in America.  The engine for the Chevy Equinox, one of GM’s smaller SUV’s, is made in China.  A sticker on a new Lincoln MKZ shows that the engine was built in the US, but the transmission came from Japan, and parts from Mexico make up 40% of the car – understandable, because it says that’s where the car was finally assembled. “Foreign” auto companies like Nissan and Saab, manufacture their parts and autos here, avoiding tariffs and supplying America with manufacturing jobs with good benefits. The Big Three are as American as they are financially stable, and it’s time they learned from their mistakes.

The government needs to throw the book at the Big Three by forcing them to play by the rules.  Only by allowing these companies to declare bankruptcy can we ensure that these companies restructure themselves appropriately for the future and start putting out products that Americans can afford to buy and upkeep. It’s insane to think that the American taxpayer would stand for losing billions of hard-earned dollars to let these companies continue the status quo. Unfortunately, pleading insanity won’t work in America when all the evidence points to your ignorance and indignation, and not to your insanity – a lesson that the Big Three need to learn, and learn quickly.