If there’s one thing the past year has taught us, it’s that everyone has an opinion about the auto industry. Most are fervently held. Many are unprintable.
If you spend a lot of time reading industry news–we do–you might conclude that President Barack Obama is on a single-handed mission to destroy the US, eviscerate a stunningly successful auto industry, and punish every car buyer by making us all drive golf carts.
We beg to differ. We think Obama could be the best thing that’s happened to Detroit since, oh, Henry Ford. Or at least since the 2002 hiring of Bob Lutz to smack some sense into GM’s product planners.
Public debate is a messy process, and it’s good that everyone gets to air their views. Or gripes. But we hope this high-level view might give GreenCarReports.com readers a different perspective from which to consider the issue.
What has Obama done since January 20? Oh, he merely hired a team that forced a long overdue rationalization of the US industry, but saved it from the very real threat of permanent shutdown.
First, the griping
Many of those views are widely shared by parts of the automotive press. We read that Obama is playing into China’s wicked schemes. “Pardon me while I puke,” writes the always eloquent Manny Lopez of the The Detroit News, saying that the president is “playing us for fools.”
And so on; there’s much more vitriol where that came from.
Our favourite, and most extreme, anti-Obama trope: The government is forcing GM and Chrysler to terminate dealers who have donated to Republican politicians. But as Nate Silver bracingly demonstrates, pretty much ALL car dealers donate to Republicans.
A lot of it, frankly, makes Obama the latest and most convenient target of pointless whining and self-indulgent nostalgia for a US auto industry that hasn’t existed for a long, long time.
Glimmers of reality
But some industry observers–including those in the heart of Detroit–are addressing the reality we see from outside the heart of the industry.
Even in Michigan, where the hard-won middle-class life of hundreds of thousands of taxpayers is being destroyed, the verdict on Obama is evenly split.
Asked whether Obama’s involvement with the auto industry is a good thing, 42 per cent of Michigan residents say it’s hurt, but 39 per cent say he has helped the carmakers.
And we particularly like Daniel Howes, who said yesterday in the The Detroit News:
Conventional wisdom in Detroit-centric auto circles is that someone else–aggressive foreign competitors, disloyal American consumers, greedy executives, parasitic unions, a lazy news media, to name a few–is to blame for the forced dismantling of Detroit.
Partly, but so much more: Acceptance that good enough cars and trucks were good enough, when the evidence and the market share trends suggested otherwise. The belief that pay and benefits could only go one way–up–because they always had. A culture that spent more time looking at its past in the rearview mirror instead of tooling itself, and its children, for the future.
Monday, all that was declared dead, even if it actually still lives, battered and bruised, in offices, on plant floors and in GM communities.
So what have Obama and his task force done since August, when the wheels started to come off?
1. He brought in smart outsiders
Obama’s automotive task force was widely derided for having few “car people” on it. Impressive resumes, yes. Accomplished executives, yes. But not a single respected statesmen like Bob Lutz.
But it didn’t take the team long to understand the challenges facing the auto industry. And outside product design, the need for insiders may be vastly overstated anyway.
Case in point: Alan Mulally, CEO of Ford Motor Company, who spent his career at Boeing. He not only understood Ford’s looming capital needs to return to profitability, but got the entire company working with the same playbook globally–something no prior Ford CEO had ever been able to do.
The problem is, the need for radical auto-industry restructuring has been known for years, even decades. Every analyst knows that GM had too many factories, too many brands, too many dealers, and too many employees and retirees whose wages and benefits cost too much.
Yes, GM went through half a dozen restructurings in 25 years. But none cut deep enough or fast enough. With the company continuing to lose market share (from 50 per cent four decades ago to less than 20 per cent today), more pain was unavoidable.
2. He took time to understand the nuances
Another line of complaint against Obama is the “let ’em die” approach. If Ford was smart enough to borrow funds to restructure itself while they were available, many say, shouldn’t competitors who were less adept be allowed to fail?
It’s an argument worth considering. But the Obama team fairly quickly rejected the notion because they felt it would cost more than the alternative.
If GM and Chrysler had simply gone belly-up, liquidation might have pushed one-third to one-half the entire base of parts suppliers into Chapter 11 too. But automakers share suppliers to such a degree that such the ripple effect could have halted most US auto production for 6 to 12 months–even at Ford, Toyota, Honda, et al.–until other suppliers could be lined up.
Studies from the centre for Automotive Research and other analysts looked at the costs of “disorderly” Chapter 11 filings. The administration concluded that uncontrolled liquidation would have cost far more in job losses and plummeting tax revenues than its preferred alternative: fast, ‘surgical’, controlled bankruptcies for GM and Chrysler to separate the viable from the terminal.
The sale of Chrysler’s good assets to Fiat was approved Monday, and may close tomorrow. The company could emerge from bankruptcy early next week. Chrysler has served as a test case for GM, which is the larger and by far the more important company.
3. He addressed longstanding structural problems
Our earlier look at the Automotive Task Force’s crisp, clear, devastating reactions to the restructuring plans from GM and Chrysler convinced us that the Task Force clearly understood the industry’s structural problems.
They tartly identified the weaknesses in each plan, highlighted overly optimistic assumptions, and drew the line as to what the Task Force would recommend be funded–and what it wouldn’t. Most observers were stunned at the clarity and accuracy of their recommendations.
The task force told GM that keeping Pontiac on life support as “a niche brand” made no sense, and that dealers ranks had to be cut deeper and faster. It clearly underlined that Chrysler’s sole hope of survival was to ally with another carmaker that builds the smaller cars it so desperately lacks.
Strangely, the carping about how outsiders couldn’t possibly understand the uniquely complex nature of the industry seems to have faded.
The Task Force hardly fears pain and bad news. Right after its Chapter 11 filing, GM said it will close 14 more US factories and cut 21,000 more jobs. It will have just 40,000 employees when it’s all over, a tenth of the total 30 years ago. It’s even been bounced out of the Dow Jones industrials average.
And the funding is staggering. GM has already received $19.4 billion; it will receive $30.1 billion more from the US federal government, plus a further $9.5 billion from Canada and Ontario.
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