(Don't) Pity the Car Companies

As previously mentioned, I'm a huge nerd for Planet Money. So much so that I listened to it on my way to work today in an effort to catch up with back episodes. And yet, it was the newest one that caught my attention. It wasn't until hours after the fact that the little nudging feeling at the back of my brain actually morphed into a real, relatable sentiment. My problem stemmed from an interview/discussion Laura Conaway did with Frank Langfitt:

Frank Langfitt: Now, what the government says it what they always say: "We don't want to run this company, we want auto execs to do it". At the same time, let's take a look at that Fiat deal. One of the things they said to Fiat is, "If you want another five percent of a stake in Chrysler, you gotta deliver a 40 mile per gallon engine in the United States".

Laura Conaway: So the Obama Administration is directly saying to Fiat that "You can have some more of Chrysler, but you gotta give us a car that does like this on the road".

Frank Langfitt: Exactly. So you can say publicly, as the president has, "We're not going to dictate policy". But you already have the White House saying, "If you want X, you have to deliver Y". And "Y" is a very fuel efficient engine, which is what the government's policy is towards oil. It's part of its energy policy, part of its automotive policy. So, it's very hard to divide this up when you have a government that has other political agendas that are related to the car industry.

Up through here, I'm totally with them. I don't really want the government in my auto industry, just like I don't particularly like my auto industry in my government. I see the conflict of interest. I see the issues that may arise. 

Laura Conaway: And let's talk for a second about those agendas, because government comes with one set of goals - more fuel efficient cars, as you've talked about, certainly maintaining the employment rate, or trying to get the unemployment rate down in places like Michigan and Ohio. Nobody wants to see - in those places - the American auto industry go away. A profit making company like Chrysler comes at things with a very different set of goals. First and foremost among Chrysler's goals has to be - by law - maximizing profit.

Frank Langfitt: Absolutely.

Laura Conaway: How do you reconcile that?

Frank Langfitt: Well, I think it's going to be fascinating. This is going to be kind of one of the big meta stories of-of what's happening in the auto industry because if you talk to people in Michigan, they will say a lot of people in the auto industry, they smile. And when Mr. Obama says anything, they just nod their heads. They say, "Sure, boss, we'll do whatever you want". But they say that it has been traditionally very difficult traditionally for those companies to make much money on small cars. The profit margins are very narrow, people percieve - rightly - that Toyota and Honda are better at making them.

Here's where Frank Langfitt - and the American auto industry as a whole - loses me. Now, here's a couple of important points. I'm not a car person. I'm not a professional economist, or even an amature economist. I don't know much about business, or business models. I was a lit major, so I pretty much shunned anything businessy related - aside from Business Ethics, but that was simply because one of my favorite professors taught the course and I love philosophy. But -

But even with all of that, I can look at what has happened to the American auto industry in the past decade - or more - and tell that maybe, just maybe, their business model of making huge, cumbersome fuel inefficient cars really doesn't work as well as they think it does. Sure, there will probably always be some schmuck buying Hummers. But there is a reason the American auto industry is in the crapper. It is pretty much the same reason the newspaper industry is in the crapper, and yet it also manages to share some similarities with what ails the financial industry. The American auto industry not only thought it didn't need to innovate, but it was arrogant enough and short-sighted enough to focus on what cars were selling best in the moment, instead of developing cars that would fare well in future trends. There is a reason Chrysler and GM need government bailouts. There is a reason why Honda and Toyota are seen as more reliable cars. It is because of a bullheadedness on the part of the American auto industry and a refusal to take into account the fact that people actually (a) like spending their money other places than the gas station, and (b) like reliable things.

So, I don't want to hear about how smaller cars have narrower profit margins. Because if Chrysler or GM had any profit margin to speak of, they wouldn't need a bailout, they wouldn't be either in or nearing bankruptcy, and they wouldn't be closing down dealerships and auto plants. The fact of the matter is, changing the way the American auto industry does business will be painful. It would have been difficult at any point in time, but it will be more painful now when there is almost no revenue coming in to keep the companies afloat. That doesn't mean we should pity them, or worry about how they could possibly survive with the demand for a 40 mile per gallon car. If the American auto industry wants to prove it should be saved, that it can be a viable industry, then it is going to have to make some fundamental corrections, corrections that should have and could have been made while the companies were solvent. And it can start with making smaller cars that are more fuel efficient, that are reliable, and that - ideally - have ceilings that don't fall down after a couple of years.

No more whining about how Toyota and Honda do it better. They haven't always done it better. And it is so uncouth to give up without a fight. It makes the American auto industry look like it was never supposed to be on top at all.