Hard decisions learned in bankruptcy – or not – have a legacy all their own for Detroit Three
A few years after the bankruptcies of General Motors and Chrysler, I found myself on the long porch of Mackinac Island’s Grand Hotel chatting with Fiat Chrysler CEO Sergio Marchionne.
He was talking about the Chapter 11 process to help failing companies and how it helped Chrysler and GM survive – thanks to Obama's auto task force and American taxpayers.
It also forced the people running those companies – and those who would follow – to make hard decisions. I was reminded of that this week. In less than 24 hours, those who care got three separate looks at the financial health of Detroit’s three automakers and things looked different.
Now, you should know one of the things I’ve learned covering the Detroit three around the world for more than 20 years: They hate comparison, especially to each other. Sometimes it’s necessary, and this is one of those times.
First point: They’re all making money, principally here at home.
Second point: The profits are being driven by the sale of pickups, SUVs and crossovers of all shapes and sizes.
Third point: Just because the Detroit-based industry is collectively and surely abandoning the traditional sedan market doesn’t mean it’s setting itself up for yet another crash when spiking oil prices push gas above four bucks a gallon.
Why? Because lightweight materials and smaller engines in many new SUV-style vehicles, especially in compact segments, deliver similar fuel economy. And because companies like GM and Ford are planning to offer battery electrics and gas-electric hybrids as options they didn’t have before.
The people running Detroit’s autos today are more realistic and more hard-nosed than the crew that rode GM and Chrysler into bankruptcy. They clearly understand job one is making money for shareholders, not maintaining jobs programs by building more cars fewer people want.
That’s why ol' Sergio was first of the three to pull Fiat Chrysler out of the small car business in the United States. It’s why GM’s Mary Barra quit Russia, bolted India and exited Europe after 90 years. Why pour more precious capital into a region that looks like it will deliver sub-par returns til the end of time when there are better options?
You want to know what’s driving Detroit today? That’s it.
That’s why Ford is cutting all but two cars from its North American car lineup. Once again, it will retire its Taurus. Fiesta is dead. Fusion will exist in name only, most likely badging some kind of crossover.
But here’s the biggest point: Ford is late to the hard-call game. It’s moving to pare its car lineup years after Sergio did it. It’s yet to exit under-performing regions like GM, though it still might. It’s planning to cut costs by more than $25 billion over the next few years.
What’s that tell ya? That bankruptcy, as painful and embarrassing as it is, can teach some valuable lessons and deliver powerful change. Escaping it – like Ford did nearly a decade ago – is no guarantee tough decisions won’t someday need to be made. That day’s here.
Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.