I'm proud of you guys! A lot of good issues raised here and no one's started any personal attacks!
I think this is a real love triangle of failures for the US car industry, taking D-C out because they are really a German company and no longer led by Americans. The "merger of equals" was really a buy-out by Daimler of Chrysler, anyways. And the market reacted that way when it happened. The interesting thing is that Chrysler has seen all of the benefits of the deal in terms of profits, market share, product, and customers (reflected in a turn to a more youthful customer compared to GM and Ford). Mercedes on the other hand has seen a drop in market share and a series of product lines with very low or negative profitability. In addition, their US manufacturing plants have taken twice as long to manage and monitor than anyone thought. It took Mercedes 3 years (1998-2001) to fix major gremlins on the ML SUV, when critics say those gremlins would have never appeared in a German plant. And as for producing "gas guzzling HEMI's" the technology used to shut down 4 cylinders on the Chrysler HEMI engine is a step in the right direction, and it works far better than the Cadillac variant from the late 80's.
In terms of controlling costs across the board, GM and Ford are suffering from many angles. Foreign companies are building plants here because our labor is cheaper than labor in Western Europe and Japan. and even with unions, it is much harder to fire employees in EU or Japan than it is here. So, even with an employee lifetime cost, i'm not sure the US is much more expensive, comparatively, than EU or Japanese companies. I think the real problem with costs is GM and Ford cutting costs at the expense of the product. When the product suffers, no amount of goodwill or marketing will make people buy the product. I also think that GM and Ford lack a certain amount of loyalty with their suppliers, something inherent in the Japanese Keiretsu system. In this system, the conglomerate takes care of every company in the value chain, from raw materials to financing. Vertical integration and loyalty, combined with a favorable government and banking structure, give Japanese companies a lower cost of capital than US companies. This allows them to take more risks in the long run.
Some have theorized that the Keiretsu would stall competition and reduce efficiencies, but this is only when the system is taken for granted or taken out of context. In Japan it is a way of life and a serious way of doing business. transaction costs are lower for every decision because the "red tape" and negotiations are far shorter and more efficient than in the US. Are you a product manager at Toyota and you want Y100 million for a new product? just call Toyota's bank and they'll hook you up. they know the structure of the company and won't waste your time with due diligence processes that suck up money that could be used to create opportunities. In the US we'd call them oligarchs and encourage regulatory agencies to watch over these companies. In Japan Keiretsu is the building block of their commercial society from cars to copying machines.
I personally think that US car makers are in a serious bind. The "Mediocre 2" (GM and Ford) have been on a slippery slope with only small portions of their sales portfolios or financing operations keeping them afloat. But what happens when automotive losses outweigh gains from financing? What happens when the NPV from 5+ years of 0-3% consumer financing deals is negative and can't support these companies' expensive operations? I think one of three things will happen:
1) The government will intervene and pump billions of dollars into the industry, something which we criticize France for with regards to Airbus. Ford and GM will either wake up and produce things people want or the money will disappear and they'll need another infusion of taxpayer capital in 10 more years.
2) One or both of these companies will be bought by a foreign investor. Could be a global holding company, could be a rival, could be a supplier. But someone will see the underutilized potential in these 2 companies, trim the fat, renegotiate union contracts, install new management, and get on with profitability. This path will surely be painful and lengthy, but might be the jolt these companies need to get on the right track. Who could pull this off? A large financial services syndicate would be my guess. One with a global reach and less sensitivity to the US union system.
3) One or both of these companies will consolidate some of their operations, sell off non-strategic business units, or scale down production in favor of a corporate restructure that focuses on quality and product development over cost control. This one will take the most guts from these companies and would require leadership to admit defeat. But it would probably be the fastest path to a sustainable business strategy for both companies.
