Should we bother to save GM and brands like Holden and SAAB? #cars #meltdown

What will it take to save these giant auto-manufacturing dinosaurs, and should we bother?

GM, like Ford, has been on the brink for years, selling off assets to stave off the inevitable. Bad bets on dumb cars made in the face of rising fuel and resource prices have only compounded the problem - and now the financial crisis is hitting hard, forcing GM to consider bankruptcy and break-up. If the US government stumps up enough cash, it can be saved - but why? As an unemployment relief scheme, or as a going concern? Can it be a going concern again? Will saving it only preserve the bad investments and poor management that got it where it is today?

It's worthwhile to look at the overall industry. It's past mature, it's commoditizing. Relatively fresh, new brands from Asia are pumping out cheap cars that match - perhaps even better - what the old guard has been offering. These new brands are agile, and they are better prepared to adapt to new fuels and new ways. But these are game-changing times and competive threats will come from unexpected places as new players, armed with new ideas, attempt to leverage the chaos.

This is not a new problem and hardly a surprise. Manufacturing has largely shifted out of the developed world, and services dominate those economies. Big auto companies do represent prestige as well as jobs, though, and nations are reluctant to let them go. Politicians, in defence of subsidies for these doddering corporations often rely on a combination of prestige and the old-world thought of preserving these 'seeds' from which a war machine could be built. 'If we let go of this capability we may not be able to defend ourselves', goes the argument. However we need more than just heavy manufacturing to 'defend ourselves' these days. It's an argument that needs to be answered carefully, but the thought strikes immediately that we probably need diplomacy, trade and strong, positive relations with other nations as much - or more - than we need an auto industry. If you really believe that an auto industry is an essential building block that can't be lost, then you'd have to believe that of all industries - from clothing to agriculture, from electronics to aircraft manufacture - and seek to preserve all of them. But of course we don't, do we? In the end we are pragmatic, and seek to trade with other nations that are better suited to making these things. And instead turn to our own strengths.

Now GM is really a cluster of brands, rather than a brand of its own - which works to the good in a break up. It's not hard to imagine a fire-sale where the best bits are taken over by competitors. Whilst that may happen with Vauxhall and SAAB, less attractive is the Aussie GM brand, Holden. It's outdated, reliant upon subsidies and a long way from other markets. It could possibly be shrunk down to focus on some key competency, if you could determine which competency that may be. As I established some time ago, it's way off the mark in terms of competively manufacturing cars, even the "big Aussie cars" it claims as its heritage:

I have to tell you I was somewhat surprised at the estimated factory cost of the Alfa Brera. It must be wrong, surely? Somewhere my assumptions have gone awry, because seemingly the prestige European sports luxury car has a lower base cost per vehicle than the locally built sedan. But then I wondered if the still-somewhat protected nature of the small Aussie car manufacturing industry may have distorted the real cost of manufacture.

I'm not the only one to crunch the numbers, either: "The Australian government can throw $6 billion or $600 billion at these car plants, but they still won't be economically feasible," he said.

So if Holden goes on the market, who will buy it? The obvious choices will be the extant manufacturers in Australia, namely Ford or Toyota. Ford has its own problems of course, but buying out its traditional foe would surely be tempting, if only to close it down. After all, we don't need - and probably can't afford - 3 manufacturers in Australia. But Toyota is a more logical choice. But why should either bother? If no buyer can be found and Holden closes, the problem is solved. If anything's to be bought here at a decent price it will be brand name itself.

Which leads to a more efficient local industry - 2 manufacturers plus importers. Jobs will still be shed and many tears as well - the Holden name will not rest easily on the shoulders of either Toyota or Ford, after all. But will that be enough to prompt the Rudd federal government to dive in and "save" the company? For the sake of the nation let's hope not. Instead let's seize the day, support the workers in more practical ways and take action that improves the efficiency and sustainability of the industry. Before its all too late.