In response to: "Your arguments are always well thought out, Chris. But answer me this; if the Big Three were all making sound business decisions for years, then why are they about to go belly-up when the foreign car companies, (i.e., Toyota) are flourishing? Even before the world-wide economic collapse, Toyota was gaining ground on the Big Three. Just last year it passed Ford, and became the #2 auto manufacturer in the world, and they are closing in rapidly on the #1 spot, if they haven't already obtained it.
Toyota is in the same markets and fighting for the same consumer dollars as is GM, Chrysler and Ford. So, how come Toyota is doing well, while GM, Chrysler and Ford are falling apart?
I contend the answer is that Toyota was much more far-sighted than the Big Three, and much less into short-term profits."

That answer is so easy it almost sounds like a conspiracy theory.

When Toyota and Honda first broke into the American market 40 years ago or so their marketing campaign was simple. They built smaller, cheaper, more reliable cars. Cars that would last people for 30 years, compared to the average life-span of 7 for an American car.

I'll say this plainly, EVERYTHING ABOUT A JAPANESE CAR HAS BEEN DONE IN AN AMERICAN CAR. There is NOTHING innovative, new, unknown, or secret in how those cars are built. They are not built with better materials, in better factories, or by smarter workers.

No. Their genius was in how long they were willing to wait before making a real profit. They weren't looking to compete with the big 3, they were looking to dominate the industry. And they knew they could not do that inside of 20 years. So for 5 years, Toyota and Honda sold nearly all of their vehicles in America a just a couple of points above cost. They made almost no profit. Why? They were positioning.

They created this perception that their cars were cheaper and they lasted longer, as long as you treated them right. Neglected by American auto makers was the response that EVERY car on the road will last practically a lifetime if you treat it like your baby and keep it maintained.

After Toyota and Honda had their foot in the door and they were gaining a percentage on the market, their prices started to come up. Slowly, but on the rise higher than inflation. It wasn't until the mid 80's that they actually hit the same profit percentages as the Big 3, and coincidentally, that is EXACTLY when they started to gain real ground on taking over the market. Now, they had the best of everything. They were making the same amount of money as the Americans, AND they had more than 20 years of an ingrained perception that they cars were better and cheaper, even though they weren't. But if you've been taught that your entire life, that's what you believe to be fact. You'll even hear some MECHANICS repeat that to you, even though if you question them on the differences between Toyota's, Honda's and American cars they will simply NOT be able to tell you what the difference is between them.

So hear we are today, and the highest selling Japanese cars are MORE expensive, not less, than their American counterparts. And the perception the American consumer has is, "Wow! This car must REALLY be great, because everyone KNOWS that Japanese cars are better and cheaper." That information is now hereditary. Fathers will pass it on to their cons when they go to buy their first car, and Toyota and Honda did their job.

I did not say that the American car industry were making sound business decisions, just that they responded to supply and demand. For a lot of years the SUV took the country by storm. And with gas prices being with 70 cents of what they were in 1980, it didn't matter that they had no mpg. What mattered is everyone wanted one, the next one, the bigger one, the longer one. The Big 3 put hybrids and compacts on the back burner to explore different versions, sizes and shapes of SUV's. And you got 3 different sizes of the same automobile (See Explorer, Expedition, and Excusion). Then you got the 'Sport' versions, which were smaller than the originals. The 'Track' versions with a small bed instead of a trunk.

So no, putting all your eggs in one basket is NEVER a sound business decision, but there was no possible way that the gas price explosion could have been predicted. And by the time the Big 3 responded to it, it was too late. Toyota and Honda were already in that space.

By the way, need verification on what I said here? See the Kia marketing strategy. They are trying to do to Toyota and Honda what they did to the Big 3, 40 years ago. How can they build cars which are virtually identical, some even built in the same factories, yet charge 20 percent less? It's the EXACT same thing, but we are forgetting what we already knew.

The problem with unions has nothing to do with how much money they make. The problem with unions is that they have such a disproportionate amount of power that there is no longer any accountability. I've seen firsthand what a union can do once the power shift is that large. One of the mechanics in the X-garage (Ford speak for Experimental Vehicles) was robbing banks DURING HIS LUNCH HOUR. He hit 4 banks and was actually caught on film at two of them. He was identified by a ton of eye witnesses, he was arrested, spent 3 days in jail and was out on bail. The company fired him. 4 days later he was back on the job.

He had filed a grievance with the union and according to their bylaws, that wasn't enough cause for termination because he didn't take more than an hour for his lunch, which was the only rule he could have broken as far as the company goes.

That kind of power is ridiculous.

50 years ago, there was a real need for unions. Management was terrible and they were driving the American worker into the ground. But the only thing the unions managed to prove is that whoever is actually IN power is going to exploit it.

Unlike most people in this neck of the woods, I actually WORKED at Ford for about 8 years.

I talk about this with folks here at work a whole lot. And one of the guys from Minnesota said something pretty interesting.

It’s a given that people are going to be upset that their tax dollars are going to bail out any companies that are failing. The basis of the free market system is survival of the fittest. So why not tell them that they can stop grumbling about spending their tax money on the American Auto industry, and instead just BUY AN AMERICAN CAR. Don’t give people 5,000 dollars to buy one, just get them to buy one when it’s time for a new vehicle.

The idea that foreign cars are superior is propaganda. It’s good advertising combined with the fact that the American auto industry built tanks for people when gas prices were low and everyone WANTED to drive a tank. That isn’t being irresponsible, that’s responding to a demand. The mistake they made was not bolstering their compact and high mileage product lines so when the gas prices went up, they could compete. So now they are faced with being two years behind Toyota and Honda when it comes to hybrids and compacts, and are trying to fight the 30 year advertising campaign that foreign cars are better, cheaper, more reliable, and longer lasting. NONE of which are really true.

Prius’s are selling now because of their hybrid status and because of the mpg’s. But if you do the math, a Prius will save you between 4,000 and 7,000 dollars over the life of the car in gasoline. Compare that with the average cost being 6,000 higher than a Ford Focus.

Also, letting two of the big three fail, or all three of them is not an option. Between the three companies there are more than 500,000 employees that would be put out of work. This economy (PARTICULARLY in my home state of Michigan) cannot handle that big of an influx of unemployment. You’re talking about a new depression. Not a recession, a full on DEPRESSION. Because once that happens, the problem spirals down into consumer costs, housing markets, and credit markets. Once the first big bank fails, people will be trying to operate on a cash only basis, much like I am now.

I find it hilarious that the same people who debate this as being unfeasible are a lot of the people who supported Obama whose mantra and plan is to put everyone with any sort of claim on Medicaid and welfare. With him in office, (according to his promises) the newly unemployed shouldn’t have to worry because the government will take care of all their needs, destroying everyone who actually has a job with higher tax rates. They are even talking about a higher tax BRACKET being implemented.

This is not like AIG, Fannie and Freddie. They failed because they took a calculated risk to make money and get everyone in the country on a mortgage regardless of whether or not they could afford it. The Big 3 were victims of an economy and oil prices that could not have possibly been predicted ten years ago. Their actions were appropriate for the time, and it wasn’t even a lack of foresight on their part.

But where do I stand on the bailout? As a proponent of the free market system, I am opposed to it. But I’m smart enough to know that there is a difference between letting the strongest company survive, and watching the collapse of the entire American auto industry. This country’s life blood is still oil. Like it or not.

I DO think that the whole American auto industry needs to get itself an enema. It may need to be destroyed and rebuilt. But you can’t do that with foreign automakers poised to take over the whole market. The U.S. auto industry is now a dinosaur, but it only took two years for it to get that way. Toyota and Honda are also dinosaurs, they just run a little faster. We need to take a real look at the UAW and what the future focus of our automobiles should REALLY be. They need to stop worrying about concepts and trying to build space-shuttles-on-wheels, and get themselves back to basics. Form follows function. And the American consumer is going to need a car with a really high mpg, and will make all the greenies like you happy.

It’s the only way we won’t find ourselves back in this position in another 5 years.

What a sad mess. Thankfully, Congress sent the three Amigos packing. Now, we'll wait and see. Good analysis, Jim.

I am disgusted by bailouts for these HUGE ineffectively run companies while the average Americans are loosing their jobs and homes.

No need to add anything here, you all have said it already

It did sound to me as if the auto industry (and other companies) were cutting their own throats. They really have to take some of the blame. They expect special treatment because they must be "special" people. I don't think so. As for the unions, it seems that in order for anyone to keep up with their lives, they need to have an entity to stick up for them. Well...

Very good points. Our entire economy is in the toilet because of corporate greed. It's too bad that more companies don't follow the Ben and Jerry's principle, where the highest paid employee makes no more than than four times the lowest paid employee.

Will Congress actually be smart for a change and refuse the auto bailout? Force the greedy SOBs to restructure and rethink their operations! Like one member said...we don't want to hand out our last tourniquet to a dead guy!

*shock* are you telling me that trickle down economics is still not working

well - I do agree that the big wigs need to get their hands out of the pot and spread the wealth in order to make it work, but I also think that the average auto worker is truly praying for this bail out in order to continue to feed his or her family... it's a tough one!

I still think the best suggestion is to let the oil companies bail them out!!