Congress has passed it and the President has approved it -- a new package giving Detroit's Big Three loan guarantees to cover $25 billion for upgrading their plants. This should allow them to move production to more fuel-efficient cars.
If the move had come two years ago, it might have worked. According to The Wall Street Journal, "The auto loans can't come soon enough," said Kip Penniman, automotive analyst at KDP investment Advisors. Soon enough was a long time ago.
Ford (NYSE: F), GM (NYSE: GM) and Chrysler do not just suffer from having cars that are not fuel-efficient. They also have cars that are still perceived as not being as "good" as many models from Japan and Europe. Toyota (NYSE: TM) and Honda (NYSE: HMC) have not only posted better quality numbers in most industry surveys, they also have a tremendous lead in new technologies including hybrid engines.
By the time Detroit has new plants in place, the Japanese will be two or three years ahead with the next generation of technology for saving energy costs and building cars with few defects.
Detroit now has to face a tough credit market in which consumers find it harder to get car loans. It has to face a recession in which car buyers cannot afford new cars at all. It already faces a Japanese industry that is well-financed and well ahead in critical technology.
Getting $25 billion is not enough. Something along the lines of $100 billion might be more like it.
Douglas A. McIntyre is an editor at 247wallst.com.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
10-01-2008 @ 4:40PM
Sean said...
These companies were busy building SUVs over the last ten years and cashing in on the profits with little consideration for the environment. The leadership was so short sighted, any amount of money will not fix the real problem. We need innovations from smaller auto companies that more flexible. I would rather see the money go to these smaller companies that change the game.
10-07-2008 @ 9:47AM
bob joes said...
They were building what the people WANTED!
Keep buying those Jap. cars America....your job is next. hope those Jap cars are as nice as they say.....you will be living in them soon !