All are looking good for now... but it depends



As you probably know, Chrysler has reported its best quarterly profits in 13 years, has just introduced a very nice new Dodge Dart compact sedan and continues to gain sales and market share. GM has also been highly profitable with a string of solid product hits, though it has not gained share working with just half of its former eight U.S. brands.

As you also know, both of these iconic American car companies were upside down four years ago and likely would have been dissolved – along with millions of good U.S. jobs – had both the Bush and Obama administrations not decided to invest taxpayer money in saving them.

Now, with election season heating up, we'll be hearing much from both sides on the GM and Chrysler "bailouts." Democrats will rightly claim credit (though it began under Bush) for saving the U.S. auto industry and millions of jobs. Republicans will correctly counter that they did it all wrong (stiffing private investors, destroying thousands of dealer businesses for no good reason and handing Chrysler to Italy's Fiat) and for the wrong reason (to save the UAW).

"Let them fail," conservatives crowed then, and still. "That's how capitalism works."

"Let them fail," conservatives crowed then, and still. "That's how capitalism works." But there was no private capital in late 2008 for business loans or bankruptcies, so federal support was the last resort. Ford had sufficient capital to weather the crisis only because it had run out of money two years earlier, when it still could (and did) mortgage itself for working capital.

There has been no end to political rhetoric about creating new jobs, but little knowledgeable discussion around saving those millions of auto (and industry-dependent) jobs that we already had. What very few outside the industry – including financial gurus and media pundits – understand is how this industry is a huge, fragile, interdependent house of cards.

2012 Chevrolet Cruze Eco

If GM had failed, so would have most of its 3,690 (at the time) suppliers, beginning with the 2,000 in the U.S. that operated 4,550 facilities in 46 states. And, since most also supplied key components to other automakers, that would have brought down virtually all U.S. auto production, including transplants. Don't believe me? Both Ford and Toyota said so at the time.

Vehicle assembly, powertrain and parts plants nationwide would have shut down, and a plant town whose plant has died is a jobless ghost town whose out-of-work residents, including owners and employees of the small businesses that depended on plant workers' incomes, can't afford to move because their homes – like their hopes and dreams – are worthless. U.S. dealers of all brands, with no new cars, no credit and few credit-worthy customers, would have dropped like flies. Without auto advertising, media of all types would have suffered and many would have died. The predicted initial loss of three million jobs would have been just the beginning. Can you spell depression?

Whichever political side they may be on, Americans should be extremely grateful that we still have a U.S. auto industry.

Whichever political side they may be on, Americans should be extremely grateful that we still have a U.S. auto industry, and one designing, developing, building and selling the best products it ever has. And, at least for the moment, making good money in the process.

But can Detroit's newly-revived success and prosperity last in the face of relentless high unemployment and economic uncertainty? Based on its current and soon-to-come highly competitive products, we believe so... at least for a while. After that, it depends.

General Motors was on an accelerating product roll well before its bankruptcy. Pre-Bob Lutz, there was little wrong with GM quality as defined by things gone wrong. Its primary problem was exteriors so bland, interiors so cheap and powertrains so old that its products required big incentives to sell, failed to meet sales targets and lost major money.

Lutz's lasting legacy lies in wresting away design from vehicle line executives (VLEs) and returning it to the designers, then winning the battle with financial types to invest much more money in interiors, powertrains and features to make its products segment leaders, or at least fully competitive. Witness the popularity and profitability of most mainstream GM products today – Sonic, Cruze, Malibu, Equinox, Silverado, CTS – and there's more good stuff to come: the 2012 Buick Verano, (next-gen) 2013 Malibu, Cadillac XTS and ATS, the 2014 Impala.

2012 Ford Focus hatchback - yellow - front three-quarter view

Ford, too, has offered mostly outstanding product – Focus, Fusion, Escape, F-150 – with strong profitability almost since CEO Alan Mulally arrived, took out those (risky) multi-billion-dollar loans and invested most of that money in product development. Unlike its Detroit rivals, Ford still has to service that debt, has a tougher labor situation and has far to go to revive its Lincoln luxury brand after selling Volvo, Jaguar and Land Rover and scuttling mid-range Mercury – but I'm confident that it will. Look at the '13 Fusion and Escape, for example.

The biggest question used to be Chrysler, still a full-line U.S. automaker employing many thousands of Americans, but now under full control of Italy's Fiat and its CEO, Sergio Marchionne. Its designers and engineers have done a masterful job of redesigning and/or upgrading most of its products, especially the Chrysler 300/Dodge Charger full-size sedans, Jeep Grand Cherokee/Dodge Durango SUVs and Jeep Wrangler off-roader. But its U.S.-market Fiat 500 subcompact has struggled (as is its parent company in economically chaotic Europe), and its plan to kill one of two still-successful minivans is questionable. But look for that new Dodge Dart, the hoot-to-drive Fiat 500 Abarth and sharp new 2013 Ram pickups.

Longer term, so much depends on the next election.

Longer term, so much depends on the next election. Will a new administration and Congress be business-friendly or (like these) overtly hostile? Will they continue to strangle business with high taxation, runaway litigation and over-regulation? Or will they lighten up on all three "awful-ations" and encourage businesses of all sizes and types to invest and grow?

Will the U.S. (and global) economies and private-sector employment recover from decades of irresponsible spending and crippling debt? And will any full-line maker (see previous columns on Ford, Chrysler and GM 1,2) be capable of meeting corporate average fuel economy (CAFE) mandates slated to increase by four-plus percent per year for the next 13 years with products that are desirable, affordable and profitable?

We'll hold our collective breath, and hope.


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    • 1 Second Ago
  • 75 Comments
      Scambuster
      • 2 Years Ago
      Witzenburg is a propagandist for either the auto industry or the UAW or both. Had the Detroit Big 3 filed for bankruptcy under Chapter 11, the companies will not necessarily dissolve and disappear. Like so many Chapter 11 firms, from airlines to aerospace to software firms, private investors would have bought these struggling companies and reinvigorate the firms with real talent instead of the same old Dead Beats who had ran the companies into the ground. Instead of a socialist government bailout program that saved the labor unions and stuffy management while stiffed so many creditors, there would be an orderly repayment of loans and the removal of proven incompetent leaderships. Japan, a volcanic island with limited natural resources, has eight auto firms (Honda, Toyota, Mitsubishi, Mazda, Subaru, Nissan, Daihatsu, Suzuki) that exports vehicles throughout the world. America, a naturally resource rich land more than twenty times the size of Japan has two domestic auto firms (GM, Ford) and one foreign based firm( Italian Chrysler) exporting a few domestically produced vehicle outside of USA to neighboring Mexico and Canada. Once upon a time, the Powerful Big 3 was the icon of America's industrial might and even the world; today's debilitated Big 3 is a snap-shot of the effects of Big Labor and Big Government on a once proud and healthy industry. The Madison Avenue Spin Doctors would have the taxpayer believe the benavalent government came ridimg to the rescue of the Big 3. The ugly truth is about preservation of socialist politic. The salvage of the Big 3 has much to do with bailing out the socialist trending American government whose perverse economic policy has destroy the domestic consumer electronic industry, manufacturing, ship building, housing construction, WallSt bankers, and auto industries, as bailing out the ailing domestic auto industry. Today, as in the pre-bankruptcy days, Detroit's Big 3 are uncompetitive firms assisted by either government subsidies, loans, tax credit, ' Cash for Clunkers rebates' or grants.
        kEiThZ
        • 2 Years Ago
        @Scambuster
        You apparently don't understand what a liquidity crisis is. And you fail to understand the motivations of any investor. Would you invest in the Big 3 when they were struggling? I wouldn't. As an investor, I would have let them go under and picked at the carcass for pennies on the dollar. That would have been good for me as an investor. Terrible for the country though.
        Spec
        • 2 Years Ago
        @Scambuster
        "private investors would have bought these struggling companies and reinvigorate the firms with real talent" They had the chance to do so. No one stepped forward to do it. That is the hard cold fact as much as many seem to want to forget. There just were absolutely no private investors that could raise that kind of money during the financial crisis. If not for government money, the auto bankruptcies would have been liquidations.
          design eye
          • 2 Years Ago
          @Spec
          @ Spec Some people either weren't paying attention back then or have very short memories. As Marco Polo said...Exactly correct! Well said.
          Marco Polo
          • 2 Years Ago
          @Spec
          @ Spec Exactly correct ! Well said.
        • 2 Years Ago
        @Scambuster
        "private investors would have bought these struggling companies" And with all credit absolutely frozen and the banks that normally lend that credit having the floor collapse under them, where exactly would these supposed investors get the money? What investor in their right mind would try to knife catch a multi-billion dollar industry as it was being sucked into a black hole. Everyone was waiting on the sidelines for the house of cards to collapse, and by then there would be no U.S. auto industry to buy, it'd make more sense to invest in Chinese automakers. When a Republican President initiates the rescue of a private industry with government funds, you know there is not a single private investor willing to pay an amount that would prevent the auto industry from cratering, jobs and all, and taking the rest of the U.S. economy with it. If Chapter 11 bankruptcy could have happened, with private investors buying up and rebuilding the company, then ***why didn't Bush do it!***
          kEiThZ
          • 2 Years Ago
          And with the pathological dislike that many have for foreign investors (see opposition for example to Dubai Ports World buying US ports or opposition to Chinese investment in the US), how many foreign investors would want to take on such a big US company as a US automaker? The regulatory and political risks are huge. The only investors who had that kind of capital during a liquidity crisis would have been sovereign wealth funds. Americans on the right would have been complaining about foreigners trying to sneak in through investment. The left would have been complaining about foreigners laying off Americans. If you ran a sovereign wealth fund, would you want to invest in a country where xenophobia runs so rampant, that there's the threat of legislation that could imperil your multi-billion dollar investment? America is not the open and welcoming country it used to be. The foreigners have figured this out a long time ago.
        Edge
        • 2 Years Ago
        @Scambuster
        > exporting a few domestically produced vehicle outside of USA to neighboring Mexico and Canada. GM's biggest market is China.
      Actionable Mango
      • 2 Years Ago
      This article is great political flame bait, but I don't understand what it has to do with green auto news.
        Joeviocoe
        • 2 Years Ago
        @Actionable Mango
        Not a damn thing. ABG is just Trolling again.
        Dan Frederiksen
        • 2 Years Ago
        @Actionable Mango
        why Gary Witzenburg is paid to write here is a bigger mystery. he's ignorant. a global warming denier. and his ignorant articles are labelled 'exclusive'. I'm at a loss to explain it. I can only guess at some misguided attempt to gain credibility for autoblog by using an old car 'journalist'. I can only dread the thought of how much he is paid for it.
      • 2 Years Ago
      Wait, what? Federal bail-out of U.S. automakers good, but Federal regulation of U.S. automakers bad? "Will a new administration and Congress be business-friendly or (like these) overtly hostile?" Like these? What does that mean? Is he including the Bush Administration? The Congress with a Republican House? Was this article written in early 2010? I supported the saving of the U.S. auto industry by the Federal government (though I would have preferred the auto industry not have driven itself off a cliff in the first place), but I wholeheartedly disagree with the "overtly hostile" assertion. The private sector screwed itself BECAUSE there wasn't enough regulation. Anyone who has taken out a home mortgage can see how the private sector is more interested in short term gains rather than long term profits, and businesses will continue to collapse as the people running them cannibalize the businesses from the inside out before escaping with their golden parachutes. It's like a family member with an eating disorder who had to get a lap-band to battle their life threatening obesity, that I had to pay for. Our last president was the one who kept taking them back to the buffet and now our current president is getting castigated for placing restrictions on their diets. If the collapse of private businesses didn't have such a catastrophic effect on myself personally and our economy as a whole, I would say let them all die, but unfortunately we are so co-dependent on these businesses that we can either submit to their will or face economic annihilation. Reducing regulation for very small businesses I can understand, but my opinion is that too-big-to-fail businesses are not regulated enough. If people want fewer government regulations, then people should be calling for these too-big-to-fail enterprises to be bust up by the government so that fewer regulations are truly needed to prevent another economic meltdown. If the Titanic had, instead, been a bunch of smaller cruise ships, then only one would have sunk and fewer lives would have been lost. Tighter regulations would not have been as necessary because the stakes would not have been as high.
        • 2 Years Ago
        I never said that the answer is to break up cruise ships or businesses, I said: "***If people want fewer government regulations,*** then people should be calling for these too-big-to-fail enterprises to be bust up by the government so that fewer regulations are truly needed to prevent another economic meltdown." If businesses are going to be "too-big-to-fail" then they need to have heavy oversight and regulation to make sure that they don't fail and take the whole U.S. economy with them. The Titanic is a great example because the massive loss of life was a consequence of a free market. Had regulations been in place to require a minimum level of safety, such as sufficient life boats and an evacuation plan, loss of life would have been significantly less. This free-market f-up resulted in regulation in the form of SOLAS coming to fruition, but did thousands of people really have to die for that to happen? "The North Atlantic liners prioritised time-keeping above all other considerations, sticking rigidly to a schedule that would guarantee their arrival at an advertised time." http://en.wikipedia.org/wiki/Sinking_of_the_RMS_Titanic Short-term gains were more important than long term viability. That can be said of the crew of the Titanic just as it can be said of the people handing out loans and the CEOs asleep at the wheel. The free market at work.
          Marco Polo
          • 2 Years Ago
          @Paul, You miss Edge's point. Your way the Titanic would never have been built in the UK, instead it would have been a Lloyd Liner and the UK would have been reduced to small ships operating the coastal trade ! Not much point for a nation totally dependant on it's merchant marine. Competition and ambition are the risks we take to progress. Hindsight is the most perfect, but most useless form of sight. The free market is the only market there is, by definition. It's true there must be winners and losers. The alternative is state control ! In which, everyones a loser! The trick to economic progress is to provide a regulatory framework flexible enough to adapt to different dynamics, while still being effective. To use a military term, there has to be some collateral damage. The regulatory system will never be perfect, but it can be acceptably effective, if ideology is removed from the design. Economies can never be perfect, because they reflect the activities and aspirations of imperfect human civilisation.
        Edge
        • 2 Years Ago
        > If the Titanic had, instead, been a bunch of smaller cruise ships, then only one would have sunk and fewer lives would have been lost. Poor analogy, because it's the economics that are driving the industry, the same as it drives the modern cruise ship industry today. If the US government mandated smaller vessels, you would kill the local industry in favor of the foreign competition. So you basically made a perfect example how regulation against US industry could harm it.
      SVX pearlie
      • 2 Years Ago
      Who the hell is downvoting Spec? He's completely right that Chrysler will get crushed when (not "if") gas prices rise. Yes, prices have eased a bit. But 2-3 years down the road, do any of you expect to pay less per gallon than you do today? The lack of adequate Federal taxes to properly fund transportation needs, along with increased global competition for fuel resources can only increase fuel costs. And Chrysler is not prepared for that change.
      Wrangler Unlimited
      • 2 Years Ago
      No, one of the Detroit three(Auburn Hills actually) went belly up, and the Italians bought them.
      christianii
      • 2 Years Ago
      Could you imagine how bad **** would be if a consertive was running thing..? if they actually let these companies fail? i would hope that they would flip flop on that actually would have bailed them out too. I really doubt that Obama or Romney would make any changes that would hinder the auto makers...but I do forsee that if a conserative gets into the house, they would hinder the effors to create and foster alternative energy and alternative energy vehicles. which in the long term...would be bad.
        2 Wheeled Menace
        • 2 Years Ago
        @christianii
        That's the thing. They wouldn't have let the companies fail. It is just posturing to make Obama seem like a radical communist, which he is not. He's just serving different corporate interests than them. That's the only difference.
      Spec
      • 2 Years Ago
      "Republicans will correctly counter that they did it all wrong" Instead of whining now, why didn't you take it up with the bankruptcy court judge?
        Marco Polo
        • 2 Years Ago
        @Spec
        @Spec, Yeah, but that's part of the game in politics. Afterwards, the other side always says, "we could have done it better !" The republicans are not unique in that behaviour !
      mylexicon
      • 2 Years Ago
      If writing rules solves problems, I propose a law banning journalists and citizens from writing or commenting on economic subject matter without the requisite degrees or experience.
        PR
        • 2 Years Ago
        @mylexicon
        Then you should follow your own advice. The author of this piece has published his credentials that qualify him. You haven't. If you want to propose such a ban, why don't you live up to it yourself first?
      Marco Polo
      • 2 Years Ago
      @ Scambuster Gosh, but you are an 'onery cus ! GM's international divisions buy products from the US, and repatriate profits. This is a huge income earner for the US. Think this stuff through, before posting !
      design eye
      • 2 Years Ago
      agree!
      Scambuster
      • 2 Years Ago
      Edge: GM China Division manufactures the vehicles in China; no Buick built in USA is exported to China.
      PR
      • 2 Years Ago
      See the dodge dart story. 39 mpg. see all the other stories of potential EU fiat cars being cross-labeled and shipped to the US. see all the stories of Fiat diesels and their fuel economy. Fiat/Chrysler has plenty of mileage tech. They have been competing in the EU for decades, and scoring some of the best MPG in many classes of cars. Making any future-looking predictions based only on the Fiat 500 is a strawman. The Fiat merger changed everything, and is a way better fit than MB.
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