Home / Markets

Tuesday, December 02, 2008

The Final Score

A Socialist 'Business Model'

By David Asman

FOXBusiness

Members of Congress love to blame Detroit's money problems on big gas guzzlers.

As Sen. Charles Schumer (D-N.Y.) said recently, "A business model based on gas -- a gas-guzzling past -- is unacceptable."

But before oil spiked, Detroit was selling SUVs and mini vans at a huge profit margin. Making and selling something at a huge profit is a great business model. The problem is that Detroit's Big 3 car makers couldn't change their product line quickly enough when oil spiked.

Of course, it takes a lot of time and money to retool a big assembly line. But the main reason these companies -- General Motors (GM), Ford Motor (F) and Chrysler -- aren't flexible is because contracts with unions and dealers are based on old business models that haven't worked for years, and have become too expensive to service.

Sen. Schumer says Detroit's new business model should be based on the hybrid. "We need a business model based on cars of the future…the plug-in hybrid electric car."

But that business model won't necessarily make the Big 3 profitable.

Toyota (TM) still hasn't found a way to sell the Prius hybrid for a profit; the company is said to lose money with every Prius it sells. So if the strings attached to Detroit's bailout are tied around Sen. Schumer's business model, expect this bailout to be the first of many.

A business model based on a federal subsidy with no profit is not a business plan at all. It's a socialist, industrial policy. And if that's where Sen. Schumer wants to take us, he might as well come right out and say it.

Fox Business Video

- Euro Debt Could Boost Gold
- Feb 9, 2010
  
  FOXBusiness.com LIVE
- Health-Care Reform vs. Job Creation
- Feb 9, 2010
  
  Question of the Day
- Ron Paul on Stimulus
- Feb 9, 2010
  
  Future of government bailouts?
- U.S. No Longer the Space Explo...
- Feb 9, 2010
  
  Future of space program
- Toyota Will Recover
- Feb 9, 2010
  
  Will the auto manufacturer bounce back?