Perhaps I am being too optimistic, but I think the government bailout of the Detroit 3 is a foregone conclusion. In the interest of the entire country and the national economy, the government simply can’t let the automakers fail. There is no denying the business model is broken, but hopefully steps will be taken to change that.

So what does the future of the American automobile industry look like? Will all three survive, or will GM absorb Chrysler? No one knows for sure. But one thing is evident: drastic changes must be made. Continuing as is, and keeping the status quo, will surely result in each of the automakers being on the brink again in a few years. And if that occurs, there is no way the government can save them again. Chrysler lining up for a handout twice in 30 years is bad, but GM and Ford holding out their hands twice in a few years is unacceptable (at their current monthly burn rate, even the bailout money won’t last long).

So what changes can be made, and made quickly to save the companies? Here are a few that would make significant impacts.

1. Trim the fat. There is no need for GM to have eight divisions and 76 different models. By comparison, Toyota (TM) has three divisions and 32 different models.
2. Close plants and eliminate jobs through consolidation. This would take serious concessions from the UAW since it violates agreements, but paying the costs to get it done now will save the rest of the jobs. After all, if GM goes out of business, all plants would close and all those jobs would be gone.
3. Eliminate the job bank. Talks are underway to get rid of this dinosaur. It basically guarantees laid off workers full compensation and benefits for not working.
4. Eliminate dealerships. Again, there are costs involved with this, but it is necessary. There are over 15,000 domestic car dealers, outnumbering import dealers 3 to 1. Some of this may be handled through attrition this year, but buyouts are needed.

Will this cure what ails the Detroit 3? Not entirely. There are many other battles to be fought, such as with the UAW. But to continue to operate as they are now only guarantees failure again.

There’s no reason that the companies can’t rebound after the bailout and become leaders once again.  When Chrysler was bailed out by the government in 1979, they made great initial strides. The K car saved the company, and they also created the minivan segment.

Innovation brought Chrysler back from the brink, and the Detroit 3 need to innovate to survive this. Electric cars or alternative fuel vehicles could lead them into the future, and establish them as real players again. GM has their “Flex Fuel” vehicles which can run on E85 (still a debatable solution), the Volt is an electric hybrid, and Dodge (Chrysler) has shown electric vehicle concepts (Dodge EV). More innovation is needed, but at least they are moving in that direction. I would hope that with their backs against the wall, they break archaic processes and really stretch their creative minds. Bland econo-boxes just aren’t going to bring buyers back.

I also find it interesting that Chrysler created the minivan, which saved the company after the bailout. The minivan morphed into the SUV, which the Detroit 3 relied on so heavily for profits, and has proven to be what may kill them. So what once saved them has almost become what kills them.

Source: After the Bailout, The Detroit 3 Still Have Work To Do