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Why We Must Save GM
01/29/2009 11:00 am EST
Jon Markman of MSN Money explains why it’s critical to save the US auto industry, despite all the failures of the Detroit Three.
The foundation and icon of American industrial life is not the motion picture, the financial derivative, the computer, the politician, or the retail store. It is the automobile.
No one will miss a random bank, a couple of brokerages, a few dozen thrifts, or a retail electronics chain. But let General Motors (NYSE: GM) go down the tubes and a symbol of all we stand for—the open road, the scent of gasoline, the wistful vibe of a crackling radio, and the industrial beauty of chrome and steel—will forever be erased.
We know that GM, Ford (NYSE: F), and Chrysler squandered more than $100 billion in profits generated in the 1980s on two subsequent decades of inefficient processes, juvenile marketing, rich union contracts, and fat executive deals. The industry has been more of a value destroyer than a value creator in the past ten years.
US automakers were churning out 14 million vehicles a year at their peak, and now production is down to half that and still dropping. More than 12% of car purchases in the peak year of 2007 were fueled with home equity loans, and banks aren't making many of those anymore.
Yet more than one billion cars, trucks, and motorcycles roam the Earth today, and over the next two decades, that number is expected to double. America needs to keep its share of this vital, dynamic business. More than 85% of personal travel in the US happens in a car or truck. This is what we do and who we are. Twenty percent of all US retail sales are focused on the auto industry.
Remaking the US industry must involve cheaper, lighter, safer cars that demand less—or no—fossil fuel. Cars for the next century would have electric drives and electric motors, would be controlled by electric sensors, and would be aware of each other in an unprecedented way. GM has these vehicles ready to go now, with Chevrolet's new Volt, an electric car, and its Equinox, powered by fuel cells.
Hydrogen fuel cells are a well-understood technology, and for less than the cost of a new Alaska oil pipeline, conveniently located service stations could be deployed in the 100 largest US cities and every 25 miles on interstates, putting hydrogen within reach for 70% of the population.
If the government [helps] bridge the auto industry into this new world, the use of up to $1 trillion in funds would be well worth the cost. So, let's stop beating ourselves up with what has gone wrong in the past and start building toward the next 100 years.
These companies are like prodigal children. We cannot kick them out into the street in their time of need, because it's our time of need, too. We need to encourage them to transform, retool, get big, and sell us our dreams again.
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