Amidst news that the U.S. auto industry will, predictably, require another $14 or so billion in loans to stay afloat, Susan Helper, a professor of economics and management at Case Western Reserve University, examines their restructuring plans. She grades them incomplete. " What's missing in both proposals," she says, "is an honest, humble appraisal of why more consumers haven't wanted to buy their cars at a similar price point to their competitors--and a demonstration of how they intend to fix this situation. Or, to put it another way, why do Detroit Three's cars sell for $2,000 less than comparable Japanese models? This is the key issue--not labor costs, which including the legacy costs account for less than 10 percent of the cost of a car." I'm don't have half Ms. Helper's expertise, but I might gently suggest that Detroit doesn't know how to fix this situation. Indeed, it's probably the case that Detroit can't fix this situation. This was true five years ago, when consumers understood that Detroit's quality lagged Toyota's metronome-like reliability, and it's truer now, when Detroit's stability threatens their very survival. Put another way, I don't care how detailed the restructuring plan proves: I'm buying the car from the company that a) is reputed to make better cars and b) is likeliest to exist next year. Sadly, Detroit is now caught in a very deadly spiral: Low consumer confidence means low profits means little financial stability which gets reported and further depresses consumer confidence leading to lower profits ensuring less financial stability which in turn staunches profits and so on. It's not clear that there's any way for them to pull out.
