Can the Auto Industry Retool Itself To Build Rails?

knapper_tech writes "The scope of the auto industry troubles continues to increase in magnitude. The call to retool and develop new vehicles has been made several times already, but with all of the challenges from labor prices and foreign competition, how exactly can the industry retool itself to be more competitive? In light of superior competition facing losses, there doesn't seem to be enough room in the industry moving forward. In the context of finding a new place in the auto industry, the future isn't bright. Calls for no disorderly collapse of the cash-strapped big three and a reluctant congress can only point to an underlying lack of direction. However, consider two other standing economic challenges. The airlines have continued to struggle due to fuel prices and heightened security. Consumers backed off of SUV's due to high fuel prices, and while those prices have eased in the face of global recession, the trend will pick up again with growth in China and India leading the fight for resources. In short, things are moving less, and the industries that support the movement are in need of developing new products while consumers are in need of a cheaper method of transportation." Read on for the rest of knapper_tech's thoughts. knapper_tech continues:
"Looking abroad, it's clear the US has far less invested in local and regional rail systems. With regard to high-speed rail systems, the US is conspicuously behind. France's TGV is moving people at 574km/h. China operates the world's first commercial maglev line while the famous Japanese Shinkasen goes without mentioning. In the US there is only one line in operation between DC and Boston with a few more planned as a result of the 2008 election in California.

The traditional barrier to implementation of rail systems is the initial investment costs, but in the context of economic stimulus, such investment sinks are actually desirable. The auto industry has clearly taken note with proposals from companies like Caterpillar for huge new infrastructure projects.

A friend who recently bought a house observed that real-estate prices are on the rise nearer to city centers, where the fallout of mortgage problems and expensive, time-consuming drives from the suburbs can be avoided. Recalling the huge number of urban revitalization plans and efforts to increase the viability of older city centers, it seems as though many municipal governments would also be in line to gain from the added density of rail systems and increased activity they can support in downtown areas.

Putting it all together, it seems like now would be a good time to direct the industrial capacity of the automotive and supporting industries to developing local and regional, high-speed rail systems to provide a more efficient and effective infrastructure basis for US cities while essentially creating a new market where competition from foreign car manufacturers will not be a problem. At the same time, a huge labor force would be required. The task would call for engineers for development, factory workers for manufacturing, operators, and maintenance workers. Caterpillar still gets to sell construction equipment. The inevitable stream of stores popping up around stations would provide new commercial areas. Last-mile bus and taxi services would also have a new place. The list goes on.

Besides the savings in fuel, the US could also gain international prestige and possibly help lead China and India away from our mistakes, helping to stem the rising demand for oil globally and avoiding the attendant international tension. Climate change is yet another win in this scenario.

It seems like we're not exactly headed in that direction, and I'm curious to see what Slashdot readers think of all this. What pieces need to be in place to make the investments pay off? What are additional resources that are required? Can the industries really make such a change of direction? Do we have everything we need in the US? How would such systems work out long term? Would the initial investments be able to pick up fast enough to stimulate the economy?"

Comments

Right.

[ColdWetDog]

Industries that are based on building 2000-10000 pound widgets have no particular reason to start building things that are several orders of magnitude heavier and more expensive. The neighborhood Dodge dealer is going to start selling switching engines?

I think not. You're better off asking Caterpillar to start building rail cars.

Besides, the big problem isn't building the individual rail cars. It's building the infrastructure.

GM used to make locomotives

[LeadfootCA]

GM used to make locomotives via its Electro-Motive Division (http://en.wikipedia.org/wiki/Electro-Motive_Diesel). They sold the division back in 2005, and I don't see them reentering that market anytime soon, since General Electric now dominates it.

No, because Americans want cars, not mass transit

[unassimilatible]

You have the cart before the horse. Customers define the market, not the business. First rule of business isn't starting with a good idea, it's doing market research and seeing what people will buy (how's that world-changing Segway selling?). If GM can't sell Americans what they want at a profit (cars) how the hell can they sell them something they don't want? The Big 3 should be emulating Honda, not Amrtrak.

The solution is not a bailout, by rewarding the same failed business model, but for the Big 3 to declare bankruptcy, shed their ridiculous labor costs (and spare me UAW's FUD and disinformation campaign, already heard it), and actually start making a profit per vehicle again - like all the other "American" auto companies (Toyota, Honda) have done in states outside of UAW's thumb.

A surgeon would just cut out the cancer.

[Cordath]

The problem with the big auto companies, like GM, is that for every dollar they pay in salary to workers, they pay two for benefits and pension plans. Their labor costs are absolutely horrendous. The rest of their operations are similarly inefficient. They're going to have a real tough time competing no matter what they make.

Personally, I say let the big auto companies die. It's going to be a clusterfuck, but we can't just keep bailing them out year after year. Remember, the current dire state of affairs has come about after a decade of prosperity, and this isn't the first bunch of government cash they've asked for and gotten(in Canada at least)! The important thing is to find a way to keep workers employed and parts companies in business.

What is needed is not more of the same incompetence from the big 3. What is needed is for proven companies who know what they're doing in their respective industries to take over the auto plants. It's not very enticing though. These plants have the wrong equipment and the auto unions will probably make all sorts of trouble for them. This is where the money saved not bailing out the big 3 again and again can be used to offer incentives to lure these companies in. Likewise, parts companies that are run competently should receive short-term loans to help them transition to working with these new industries. Government intervention should be used like a surgeon's scalpel. Cut out the cancer and reroute blood to the healthy tissue.

Re:A surgeon would just cut out the cancer.

[akintayo]

Autoworkers negotiated a pay packet with their employers, which included pensions and other benefits. These obligations should have been funded by the companies when they were accrued, so the pension fund should be paying pension costs rather than the company. Likewise with health care costs for pensioners should've been funded.

Why should the pensioners pay, for what was obviously a management decision ? I don't see how you can slash the income of retired people in such a cavalier manner.

And why do the unions get all the blame, they aren't the ones who jack up the margin on the good cars that these companies make? The new Ford Thunderbird ? Was it the union selling these for above sticker ?

Re:SUVs

[Tubal-Cain]

People would be better off renting a truck for a day if they don't haul stuff around at least once a week or so.

Re:SUVs

[HangingChad]

I am saying that trucks are not only required but are also wanted. There is nothing wrong with that.

I beg to differ. What percentage of the population actually does construction? 1%? Probably less. I live in farm country and most people I know drive a truck that gets 12 mpg all the time so they can haul stuff maybe once or twice a month. And that justification gets weaker and weaker as you get closer to town. My former stock broker insisted his wife needed a giant SUV so she didn't have to bend over to lift stuff out of a trunk. Lot of people drive a 12 mpg vehicle all the time so they tow a boat to the lake five or six times over the summer, haul their 4 wheeler out in the woods so they can go hunting. I'm not saying those are bad things, but multiply those flimsy justifications across the nation and it adds up to 25% of the world's gasoline being used by 3% of the world's population. Our economy being dependent on a string of oil tankers stretching around the world and something on the order of $700 billion a year going to countries that don't like us.

So, yeah, there's a lot wrong with that. And that ignorant, short-sighted mentality is what keeps us dependent on foreign oil. That let's us think that drilling more here, not conservation, is the solution. It's a national security issue and you're on the wrong side of the equation.

And I haul lumber behind my sensible sedan that gets 33 mpg all the time. It hasn't broken yet. Once or twice a year there might be something bigger than my car can haul and I slip one my buddies a few bucks to haul it for me...with their giant pickups that get 12 mpg all the time. But I could rent a truck if that wasn't an option. If it's a big enough load of lumber I'd just have the yard deliver it.

Re:Rail, no thanks

[Thagg]

Sunking2,

If you think about it just a bit longer, you'd be surprised how much that car trip would cost. Your Jeep Liberty cost about $25,000, and let's be generous and say that you'll drive it 150,000 miles with no maintenance costs whatsoever. Then the 350 miles cost another $58 in wear and tear on the car. It probably makes sense to add in insurance costs as well, if you drive 15,000 miles per year and pay $500 in insurance, then the insurance costs were another $10. Oil changes every 5,000 miles at $30, then that's another $2 for your 350 mile trip.

When I realistically add up all the costs of driving my Prius, I get to something on the order of $0.67/mile (calculated from here.)
So, your 350 mile trip would cost me something north of $200 in direct attributable costs.

Now, it is true that if you have multiple passengers, cars start to make a whole lot more sense. And yes, it's great to have the mobility when you get there. But looking at just gas costs are not a realistic way of measuring your own costs.

Re:SUVs

[mrraven]

"It's just that I also happen to see trucks as being much better built and ultimately safer to drive."

Except in the rational world of facts you'd be wrong, people drive SUVs too fast in wet and icy conditions leading to these top top heavy vehicles rollin over or not stopping in time. SUVs also suck at accident avoidance which is half the battle due to inertia and poor steering compared to smaller more precise cars. For empirical substation of this see Malcom Gladwell's excellent article on SUVs:

http://www.gladwell.com/2004/2004_01_12_a_suv.html

And as for better built I'd say the average American V8 is very, very lucky to make it to 175,000 miles where as OHC Japanese 4 bangers OFTEN make it to 250,000 and Mercedes diesels and Volvos to 350,000. A heavier car wears out faster due to simply physics even if built to the same build quality standards which American trucks aren't.

In the long run I hope we do have the social will to switch our auto plants here in the U.S. to making hybrids, small diesels, trains, buses, and windmill parts but I am NOT holding my breath. :(

Re:Detroit isn't the problem here, folks...

[twostix]

Yes actually, the "big three" do have problems competing outside the USA, for example here in AUS, there's almost no native US cars, Chrysler is non existant here, GM is non existant here, they have a subsidary called Holden that designs and builds it's own, and Ford - we design and build our own. US designed cars are big ugly hulking piles of unreliable shit. So straight off the bat you're talking rubbish.

Oh and the poor "big three" who are so innocent and vulnerable, definately no match for those "greedy" (lol class warfare at its finest) mean nasty workers.

Big threes multi-million dollar mid and upper level "management" negotiated contracts with those workers.

If the big threes "management" offered to pay too much and offered to many benefits then it's "management" who fucked up, not the workers. It's funny that when it comes to the average man on the street, the mantra and "rules" of freemarket capitalism (greed is good!) are conveniently turned around and it becomes "oh those greedy workers! Looking out for themselves first?! Who would have thought they're so evil and bad!"

What the hell happened to the whole "personal responsibility" BS that gets thrown around here whenever it's the worker getting hamstrung by a company? If the big three don't like it then FIRE THEM AND HIRE NEW WORKERS, oh they can't survive without their labour? Well good thing we live in a freemarket system where workers are payed according to their value to the company (as we keep being told about 30 million dollar+ packages for management". Management signed contracts giving them pensions? Then TO BAD, personal responsibility BS goes both ways it doesn't just apply to the peasants. Though many around here seem to believe it does.

Class traitors; people who hate themselves and their own and have allowed the middle class which they inevitably belong to, to be decimated for 30 years.

Otherwise known as lickspittles.

Re:The solution is obvious

[QuasiEvil]

They're not, much in the same way it'll be a cold day in hell before I'm a GM customer again.

I grew up on a farm. We drove all sorts of GMC/Chevy trucks, because they were what we needed to get the job done. Sure, they broke down, but they were the best option available.

I continued being a loyal GM customer through college and into my professional life. Each one was a progressively more annoying piece of junk. Each generation found more bells and whistles added (that often broke) without going back and fixing the powertrain / steering issues that had plagued the previous generations. Basically, rather than focusing on what was really important, they kept adding crappy "features".

Finally, with my 2001 Yukon having chronic steering and transmission issues that started right after the warranty was up and costing me a grand or so in repairs every 10,000 miles, I bought a Honda. Just a little used 95 Civic as a commuter car that I bought for $3k. I was hooked - the damn thing was simple, without many of the extras to which I'd become accustomed, but it ran. And ran. And ran. It seldom ever needed maintenance, and usually when it did, it was cheap and easy to fix.

I still have it. It now is closing in on 300k miles with the original engine and transmission. I do scheduled maintenance, and it mostly just runs. I now have a CR-V and an S2000 backing it up, and you won't find a GM product around. My Yukon is gone, my Pontiac is gone, my wife's truck is gone, and I don't even look at what they're offering these days because they haven't learned to concentrate on the basics yet.

My parents, back on the farm in Iowa, have learned the same thing. The troublesome GMs and Fords are gone. In their place are Toyota trucks and Honda/Acura cars.

GM & Ford, hear this: Build a car that is first and foremost fundamentally sound, and then look at which of those "features" you really should offer.

Re:SUVs

[chill]

I chose not to respond to the "300% higher" comment because you were right, and it didn't need comment. Their wages aren't 300% higher, they're more along the lines of 30-50% higher in most cases -- NOT new hires, which are now lower than their competitors. This discrepancy has been mostly addressed.

Yes, the Big 3 have focused way too much on high profit margin, large vehicles and it is going to cost them. But keep in mind that for the longest time small trucks outsold cars in the U.S. They were building what people were buying. AND those models have higher profit margins than the smaller cars. Had the Big 3 been focusing on smaller, lower margin cars, they'd have been in this position sooner.

Yes, there is indignation in what the executives get at the Big 3, and rightfully so. But, it is hand-waving. The CxOs could work for $0 and it wouldn't make any appreciable difference to their bottom line. These companies are hemorrhaging BILLIONS, and you want to scream about a few ten millions. Yes, it needs to be addressed, but that issue is like carping about the amount of money spent on the National Endowment for the Arts in proportion to the Federal Deficit. A pittance, and a distraction from the real issue.

And I was just as vocal about the bailout for Wall Street. Feel free to check my journal, but don't put words in my mouth.

The simple fact of the matter is, according to GM's most recent 10-Q filing with the SEC (quarterly statement) is "post-retirement benefits other than pensions" and "pensions" make up the largest single chunk of their liabilities, at 26.6% -- down from 30% a year ago. "Long term debt" and "Accrued expenses", whatever the hell that is, make up another 25% each.

I'm not primarily blaming the unions, though they do shoulder some of the blame. I mostly blame GM, Ford and Chrysler who orchestrated this scheme way back when in their glory days. Their pension and benefits plan is similar to the U.S. Social Security model, where current employees pay for retiree benefits. That crap only works if "current employees > retirees". Once there are more people drawing benefits than paying into the pot, you start rapidly going into the hole. GM and Chrysler are now very deep in that hole. This is really nothing more than a legalized Ponzi Scheme. That scam only works if you have an ever increasing number of new investors (employees), which is eventually impossible. It is what gutted the U.S. steel industry and is now going to do the same to the U.S. auto industry.

I'm not targeting unions. The Big 3 made their bed and should be required to lie in it, even if it kills them. But the unions need to realize that their retirement packages ARE a big chunk of the costs. Those benefits are directly tied to the Big 3 still being in business -- unless you feel confident about the U.S. Pension Benefit Guarantee Corp taking over. It is time for the unions to deal with the reality that the Big 3 made promises they couldn't keep.

The unions share part of the blame for blindly accepting such deals. If someone promises you the moon, you have a certain responsibility to find out if they can actually deliver on those promises. "But you promised!" doesn't have any pull outside the playground.