By Martin H. Bosworth
ConsumerAffairs.com
December 5, 2005
Having painted themselves into a corner, executives from General Motors and Ford are petitioning Congress for a boatload of subsidies and favors while strenuously insisting it's anything but a bailout.
The news that America's two major auto companies are seeking government welfare comes on the heels of more depressing reports from the industry. GM and Ford both reported sales declines for Nov. 2005, a drop of 11 and 15 percent from 2004, respectively.
The Big Two have announced major job cuts and plant closings to "streamline their operations." Ford is closing more than eight of its North American operating plants, while General Motors is shuttering 12 facilities and cutting 30,000 jobs through 2008. The companies' combined losses for 2005 total over $5 billion.
Even deep price reductions such as GM's "employee discount" program have failed to kickstart sales of American cars. The chief demand for GM's cars wasn't from individual consumers over the past few months, but from corporate and rental-car fleets instead.
Although the fuel economy of hybrid cars such as the Toyota Prius is not what it's cracked up to be, their popularity has never been greater. More than half of American car buyers are planning to buy a hybrid in the near future, according to several recent polls and studies.
Gas prices are still a key factor in the current auto market. The price of gas is hovering around $2.13 a gallon, about 20 cents higher than the average price in Dec. 2004. In response to consumer demand for more accurate fuel economy ratings, the EPA is revising its testing standards for the first time in twenty years.
All of this points to continued bad news for the Big Two as long as they continue to focus on overpriced SUV's and sedans to carry their markets.
As writer Matthew Yglesias recently pointed out, "The problem, according to everybody, is that American cars . . . don't work and require constant repairs. It's easy to see how a reputation for making stuff that doesn't function reliably would hurt your bottom line, and dare I say this issue probably swamps whatever one may want to say about health care and pension obligations."
