Repo Man
Now that the Chrysler yard sale is complete, we can conclusively state that the U.S. automakers are officially obsolete. Daimler handed the keys over to the most interested warm body and fled back to Germany on the next flight out of Detroit. The precipitous plummet in the value of Chrysler is even worse than what purchasers of its cars experience upon driving the car off the lot. At least car buyers can expect some residual value after a few years; Chrysler was deemed by the market to be worthless. People point to pension and health care costs as well as a crushing debt load as the key inputs in the calculus that reduced the value of a former juggernaut of the American economy to zero. Let’s not forget, however, that Chrysler’s untenable financial structure is entirely of its own doing and consistent with a history of stagnant thinking with regard to not only its own product, but labor relations as well. Chrysler, along with Ford and GM, insisted on being coddled by Washington, and, as a result, lacked the discipline to resist coddling its own workers with the most generous benefits package this side of that other fossil fuel hog, the airline industry. It’s no coincidence that the major players in both industries are insolvent.
How did Daimler’s view of Chrysler change so dramatically in less than ten years? According to Dieter Zetsche, Daimler CEO, Daimler misjudged the synergies of the two companies, and theorized that Daimler was “not able to exploit the combination of its highly engineered Mercedes-Benz luxury cars with the mass-market vehicles of Chrysler because American motorists could not, or would not, pay a premium for a Chrysler equipped with Mercedes technology.”
This type of creative reasoning, soaked up by media types who continue to fawn over the corpse of the American auto industry, is meant to obscure the reality that Daimler bought a lemon and then cynically converted it into the most aggressive purveyor of SUVs on the planet. Despite the claim that SUVs are so profitable for the automakers and should be exempt from fuel economy standards, that strategy, under which SUVs grew to comprise 80% of Chrysler’s sales, drove the company into the ground. Daimler never intended to sell premium Chryslers. The standards of American car owners have been dumbed down from years of ad campaigns emphasizing cup holders and DVD players, and the car buyers who avoided the brainwashing and retained their senses don’t buy Chryslers. This was true in 1998 when Daimler bought Chrysler, and is still true today.
The glaring irrelevance of the U.S. auto industry explains the recent appearance of backbones by the presidential hopefuls, who are talking tough about raising fuel economy standards for American cars. Barack Obama is being portrayed as some sort of hero for choosing Detroit, the lion's den, for touting his plan to reduce auto emissions. Standing up to the lion is a lot easier when the fangs and claws have been removed. The stampede to the fuel efficiency bandwagon would be simply amusing if not for one increasingly obvious fact: fuel economy standards are rapidly becoming as irrelevant as the automakers themselves in the debate over how best to reduce the harmful effects of cars. Policy prescriptions such as a gas tax, alternative fuels and toll roads, as well as new technological standards, such as hydrogen and electric powered cars, now dominate the discussion. Even casual students of sustainability understand that SUVs that use slightly less gas aren’t the solution; we need to alter decades-old patterns of car use and ultimately reduce our dependence on cars.
That politicians are only slightly ahead of auto executives in thinking that 30 miles per gallon is the holy grail is partly out of ignorance and partly due to lingering fears about messing with the auto industry. Wall Street has just confirmed that U.S. automakers are worth more dead than alive, and yet hand wringing over the impact on the auto industry still pervades the current debate over new fuel economy legislation in Congress. The slash and burn private equity types that bought Chrysler, though, may be a politician’s best friend. Once the auto industry is carved up and sold to the highest bidders, Congress can descend en masse to Detroit to declare triumphantly that they have finally passed legislation to hold the Big 3 accountable.