Supply and demand. It's that simple.
The problem with the U.S. auto industry is that they are supplying the U.S. market with massive amounts of huge gas-guzzling monstrosities. There isn't much demand for those cars. It doesn't look like they know their customers very well. That's nothing new; they have been losing market share for decades.
When I was young, people would start out with a basic Chevy. If they had a little money and wanted to look cool and buy a sports car that was still cheap to own and operate, they would buy a Mustang
or Trans Am,
or a Corvette as an expensive sports car, guys bought a tough, dependable Ford truck to work and haul stuff with, and people bought a Cadillac or Lincoln
Continental as they got older and wanted a luxury car. Back then, American companies dominated the field, and they were known for quality, durability, reliability and they were a status symbol. That has all changed over the last 3 decades. The cars that people think of as the best in each group aren't American made anymore. In many areas, American cars are at the very bottom of the list. That was then, this is now.
People working with limited finances think of a Toyota or a Honda Civic. GM killed the U.S. economy car market when it introduced a string of cars that had lifespans of less than 80,000 miles and problems from day 1, while Toyotas and Hondas are known for their long, trouble-free lifespans.
Families want cheap, reliable cars that get good gas mileage and are still large enough to fit a family of two adults and three kids. Think Toyota RAV 4.
Young adults want cool cars that won't turn off members of the opposite sex but don't cost much to own or operate, since they will have a low-level salary. Think Mitsubishi Eclipse.
Older, divorced men looking for a trophy wife want a cool sports car that the younger men want but can't afford. Think Porsche.
Older people want a nice, comfortable luxury car. Think Lexus or Mercedes.
Prestige is one of the biggest factors in buying a car. Let's face it: Your car is a status symbol. The "Wow factor" as you drive your new car to your house and show it off to your friends and neighbors is one of the biggest drivers of demand in the entire auto industry. And that pride of ownership is something that the U.S. auto industry has worked diligently for decades to destroy. In the early late 60s, a Ford Mustang or a Chevy Camaro was a great muscle car. Their owners were proud of their cars. So were the owners of Cadillacs and Lincoln Continentals. Then the car companies mortgaged their names and reputations with things like the Cadillac Cimarron, Mustangs and Camaros with 4-banger engines that were so weak that they would barely pull the car, economy cars that were designed to last less than 70,000 miles before needing major repairs, while their Japanese competitors lasted for hundreds of thousands of miles with practically no repair expenses. The lack of quality meant that people lost their sense of pride in owning a U.S. built luxury or muscle car; now, the people who are the proudest of their cars are driving a Prius, a Lexus or a Mercedes. The American brands aren't a status symbol anymore. If you bought a foreign car 30 years ago, you would be thought of as a traitor or at least a cheapskate who couldn't afford to buy American; if you bought an American car today, you would be laughed at as a fool who wastes his money on high-priced junk.
When the total demand for autos dropped over the last few months, it wasn't just the Big Three that felt the pain. However, they felt it more than the rest, because they were already on the ropes. They have been losing customers every year for decades, because they were building massive supplies of cars that people didn't want. Meanwhile, their foreign competitors were paying attention to the customers' needs and providing cheaper, more reliable, more fuel efficient cars that people could be proud to own.
Fixing the U.S. auto industry is as simple as the companies listening to their customers and making cars that their customers will be proud of, instead of ashamed of.
But that won't help in the short run; right now, the Big Three have millions of unsold monstrosities sitting at dealerships all over the country. They desperately need to cut prices and offer some really good incentives to get rid of them before they run out of cash.
It will be very painful for the GM to quit just making the same car and putting 15 different labels on it, and going back to the practice of making cheap Chevys, Pontiac sports cars, luxurious Cadillacs that are each well-designed for their target markets, instead of just sticking different names on the same car over and over again. But that is the only way that they can survive in the long run.
We need to remember that the $25 billion is just a down payment. GM already owes $60 billion more than it has in assets, and it is losing between $30 to $45 billion PER YEAR. It will take at least $120 billion just to fix the problems that the numbskulls at GM have managed to create, probably much more. And Mr. Wagner thinks that the best way to spend the bailout money is just to continue "business as usual". The U.S. government should require the resignations of ALL top management and install some people who can fix the problems before approving the bailout. Each installment should require that the new management meets certain goals, like trimming the offerings to a reasonable number, consolidating divisions, technological innovation. And the government debt should be given first priority over all other debts, if GM still can't survive, which will be a real possibility, even if we shell out $100 billion plus. We, the taxpayers, should have first priority to get our money back before Wall Street.
I have singled out GM because it is in worse shape than Ford, and Chrysler was taken private by Cerberus, so we really don't know how badly it is doing. But all three are in pretty bad shape, for all of the same reasons.