Dave Wallens' Turn One (10/08) was excellent. He gave an accurate assessment of the challenges facing the "Detroit Three" automakers. I have to be careful commenting on the subject as I am employed by a large financial institution in a department which trades auto-sector corporate bonds.
That being said, the Detroit Three are in dangerously poor condition. Their labor costs are too high, their management still has elements of Detroit "good ol' boy) within (especially true of GM, less so by Ford and Chrysler). Many of their factories are older and less efficient than their foreign competitor's U.S. factories.
The roots of the Detroit Three's demise can be rooted in cheap gasoline prices and the NASCAR / Harley Davidson culture which pervaded Middle America since the later 1980s. During the 1980s Chrysler gained center stage with its affordable and reliable mini vans. The mini van was born when high fuel prices of the 70s was fresh in the minds of consumes. The mini-van, K-car and its derivative saved Chrysler. GM and Ford tried to play catch up. They gained traction when gasoline prices actually fell both in raw dollars and in real dollars. Families gravitated toward SUVs because they offered the utility of a minivan, the powerful V8 of a muscle car, the "safety" of a truck and a macho image. Mini vans were for wimpy dorks.
When the SUV rage began in the late 80s, a Chevrolet / GMC Suburban cost about as much as a Caprice wagon. As SUVs became more popular, prices rose accordingly (in some cases, exponentially). The huge profit margins offered by SUVs and large trucks had Detroit executives (with the possible exception of Chrysler) patting themselves on the back. It also encouraged the UAW to ask for ever more lucrative contracts. Detroit executives agreed to UAW demands to prevent work stoppages which would have halted assembly lines and derailed the SUV gravy train.
The most frustrating part of this saga is Chrysler. Chrysler's focus on small cars, if maintained, would have left them perfectly positioned for today's market. Chrysler's miss-steps include reliance on the K-derived platform for too long, poor paint quality and getting too comfortable with the success of its "cab-forward" era. During the cab-forward era, Chrysler went from the most efficient in bringing cars to market at the beginning of the era, to a bloated and inefficient typical Detroit manufacturer which needed the "merger of equals" with Daimler to avoid running out of cash. Chrysler defenders will point to the excess cash on its balance sheet at the time of the "merger", but Chrysler management and Wall Street knew they were poised to burn through this rather quickly. Chrysler had difficulty bringing new vehicles to market.
Daimler actually made things worse. Juergen Schrempf thought taking Chrysler upscale would save the company. Buyers were luke-warm to leather-seated Caravans and Mercedes-derived vehicles such as the Crossfire. Just as Chrysler was finding a market for its new rear-wheel drive cars, gasoline prices sky-rocketed. Daimler tried to highlight the fuel efficiency of the Multi-displacement Hemi (remember Dr. Z?), but consumers weren't buying it, even though a Hemi-AWD Magnum (now cancelled), is more fuel efficient and a better driver than many, if not most crossover SUVs.
Ford had Jacques Nasser. For frere Jacques it was one mistake after another, beginning with the under-inflated tire scandal. Something is wrong when a company tries to cover up for poor engineering by lowering tire pressures. He also refused to build the current generation Mustang stating that people don't want a retro-car (New Beetle, PT and Mini not withstanding).
GM is just one big comedy of errors. Listening to investor and analyst calls and reading GM press releases, I keep checking to see if Ike is in the White House. The company will not face reality. They (nor the other Detroit automakers) ever tried to match the quality of its foreign competitors. I read a Bloomberg article authored by noted automotive journalist Doron Levin with the head of the Malibu engineering team (admittedly a good car). The GM engineer told Bloomberg that, for the first time in his career at GM, he was told to try to match Toyota is quality and performance. Prior to that, the official edict was to do the best you can to make the car good enough. Amazing.
The Detroit Three also do a poor job of marketing their cars (not trucks). The last effective marketing campaign I saw for a small domestic car was for the Neon. Chrysler also markets its newer larger cars. Ford did a good job with the Mustang, but that was about it. It is hardly surprising. Until recently, the domestic auto manufacturers last money on every vehicle which stickered for under $24,000.
Of the three, Chrysler is in the worst shape and Ford is in the best. Chrysler is owned by Cerberus, a private equity (LBO) firm. Its goal was to stabilize Chrysler and sell it off to a foreign maker who wanted a truck line and Jeep), That is probably not going to happen. Now, Ma Mopar, once the leader in domestic small cars, is forced to go to Nissan for its next series of compacts. Cerberus' strategy is to have Chrysler sell foreign cars with Chrysler badges. Think of it as one big Eagle.
Ford has the right idea and right products in Europe. Wisely, CEO Alan Mullaly (from Boeing, not a Detroit insider) has decided to bring Ford's very well-engineered, efficient and sprightly European cars to the states. Ford will even build them here, once it can change its factories over to car production (it can't keep up with demand for its very good and very popular focus).
What is GM doing? It is selling Hummer (maybe) and nothing else. It has the Cobalt, but has not tried to publicize it or make serious inroads with enthusiasts. Pontiac may have the best car line up at the General (Cadillac and the Corvette) not withstanding. All I am hearing from GM on the marketing of Pontiac are crickets. All I have heard from GM regarding marketing is that they want the ad agencies to cut their fees because the General is hurting. This is similar to what GM forced its parts suppliers to do. Most are on the brink of bankruptcy or have already filed.
My solution is are prepackaged restructurings (if not actual CH. XI). Give creditors cents on the dollar, move factories to the South (near Toyota, Nissan, BMW, and Mercedes) and begin anew. It is their only hope.
