I just read an interesting article on the Nashua Telegraph, titled: “Don’t blame the union for Big Three crisis” which at first seems rather interesting since it talks about the sources and origins of the big problem
the biggest three automakers in the U.S. are facing today. The article openly portrays what has been going on in Congress over the last few weeks, as the three big automakers made their case: “Who’s to blame for the mess they are in?” was the big cry heard from all sides. Who got most of the blame? The workers who make those cars and trucks we all buy. This is an unfortunate turn of events that the media needs to pay closer attention to.”
The interesting thing is that although at first the article appears to be touching on sensitive issues, once you finish reading the article there has actually not been any critical discussion or critical analysis of the reasons behind this all. The automakers are blaming their situation on the credit crisis like the article portrays: “The real reason the Big Three are foundering is the current credit crisis that is pervading our financial markets.”
But wait a minute, is this really not just a superficial analysis of the situation? Perhaps the Big Three automakers are in trouble because they grew to a size that was unsustainable? Maybe it is because they produced cars that were unsuitable for a long term corporate growth strategy? Or maybe their whole business model was one big joke?
Put it this way, a car company produces a car, it’s sale’s price is at $45,000. A consumer “buys” the car with a leasing contract, paying a few hundred dollars a month over a certain number of years. Once the customer signs the leasing contract, the car maker has an extra $45,000 revenue in their income statement. The problem arisisng when that customer decides to not continue paying for the car after a year and gives it back to the leasing company (in many cases a bank which is deeply intertwined with the auto industry) – in effect the car is back where it started, only the revenue has already been included in the automaker’s profit and loss account. Somewhere along the line here, something is going wrong – it is unsustainable!
Is it not time that the auto industry starts drawing up some long term, sustainable business models?
Image by mcgraths under Creative Commons
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