Detroit Automakers and Bush Legacy - A Bad Mix

According to the WSJ, "Throwing a lifeline to Detroit's ailing automakers, the White House reversed course Friday and said it would consider using the $700 billion financial-rescue plan to avert a bankruptcy of the Big Three that could deepen the U.S. recession. The announcement came hours after negotiations collapsed in Congress over a compromise bailout plan fiercely opposed by Senate Republicans. That package would have set up $14 billion in loans to the companies and a government-run restructuring process. The loans to be offered could be more limited than the $14 billion that Congress was contemplating -- perhaps closer to $8 billion, one person familiar with the situation said. General Motors Corp. would be a recipient, this person said. GM is hoping President George W. Bush will come through with about $10 billion to keep the company going. It warned Congress it needed at least $4 billion by the end of the month. It wasn't clear whether loans would be made available to Chrysler LLC, which is controlled by private equity firm Cerberus Capital Management. Cerberus came in for heavy criticism during the recent debate for not bailing out its own company. Ford Motor Co. has said all along it doesn't need a short-term lifeline, but could need help if one of its peers keeled over. The White House's intervention showed how heavily the question of the president's legacy is weighing over his last few weeks in office. White House officials worried that the collapse of one or more domestic auto company, perhaps the last crisis Mr. Bush will confront as president, could cause a surge in job losses, worsening the current recession."

The guy is now worried about his legacy?

Over a couple of decades, the U.S. automakers have funneled money to managers and shareholders and short-changed investment into new products. Lack of a desirable product mix is Detroit's main problem.

Currently, Toyota, Honda, VW, and other automakers are all reporting double digit declines (year over year) in auto sales. Once demand levels off, the fundamental questions are- what is the level, and the mix? Detroit has shown that it cannot produce innovative, low price, low cost, high quality autos. Customers are going to migrate towards these types of vehicles, and are also going to keep their vehicles longer. The bailout money really does not address these fundamental issues. Certainly executives of GM and other firms will make away with their loot, some employees will get paid, but these firms will most likely restructure and either go away or reappear in a very different form. Product mix is the problem- something short term money will not solve.

Bush Legacy? The worst President of all time, and he graduated from Yale and got an MBA from Harvard!