How About Some Creative Destruction?

Why is such a tremendous portion of the economy dependent on so few decision makers? So many great ideas, huge sums of capital, and tremendous skill and talent are concentrated in the hands of 3 giant companies.

Here's the problem. Automobile manufacturers control the pace of innovation because other than regulatory issues and whether the market will buy their products, they have the final say on everything in between: Engineering, manufacturing, distribution - the whole ball of wax.

What's more, senior management makes the decisions. Everything is funneled through the auto companies, and all the major decisions are funneled through to top management. If the people at the top are not good managers, and history indicates they haven't fared very well, then it doesn't matter how good their suppliers, their partners, and their employees are. Stuff just isn't going to get done right. And everyone down the line is affected, not just in those companies but among a much larger ecosystem of employee families, suppliers, dealers, and communities across the country.

The best way forward is to break GM and Chrysler up or let them fail. Remove the gatekeepers. The sum of the parts is worth more than the whole. Invest in new technologies and processes being developed by new companies.

Let investment flow to a more granular level. Rather than spending tens of billions of dollars trying to prolong the inevitable collapse, it would be more productive to create a new marketplace or exchange that would enable investors to put money into emerging green and safety concepts and technologies, lower the barriers to entry, and bring in new blood to the industry.

If cars were developed from more common building blocks rather than blocks unique to one company, ultimately there would be more and better vehicles to choose from, produced by more competitive companies, and greatly reduce the likelihood of having to rescue another one that is too big to fail.

Detroit Bailout

The American economy appears to be bracing to take a big hit if/when one or more of the Detroit 3 collapse. Millions of jobs, thousands of suppliers and the psychological impact on top of the financial impact will be a devastating loss.

If the government “lends” the companies tens of billions of dollars it will effectively amount to a grant if the companies fail. Not only that, it will shrink the tax base causing even more pain.

Such a loss would also be a drag on the pace of innovation and reduce consumer choice as overcapacity is reduced and supply is brought more in line with demand. The remaining companies will be stronger in the long term. This blog is supposed to be about automotive technology, but the financial events of late have had a serious impact on future direction and developments.

It likely isn’t whether or not one or more of the Detroit 3 will fail. It’s when one or more will. Chrysler and GM are likely to run out of cash. Ford may be in a slightly less precarious position due to having exercised their credit lines prior to the crisis.

So the real issue before Congress is not how the companies will repay any government “loan”. It’s how long they can survive until they fail, and will that be after an economic recovery of sorts so that the economy can better absorb the failure rather than further compound our present banking crisis.

It mostly depends on how prolonged and how deep of a recession we have.

Too Big To Fail?

Not to be too much of a cynic but see what I meant last week? There's no business case for a GM/Chrysler merger but.... maybe taxpayers will foot the bill.