GM, Ford Can Survive, but Chrysler's History Spells Trouble

Network News

X Profile
View More Activity
By Warren Brown
Sunday, February 22, 2009

Calm down.

There will be a Ford in the future of consumers who care about the continued existence of that American car company; and those who choose to do so will still be able to see the U.S.A. in a Chevrolet.

Chrysler is another story.

It has spent the past 22 years being fattened, stripped and reshaped again, more in preparation for sale to the highest bidder than for its survival as an American manufacturing icon.

Chrysler survived de facto bankruptcy in the early 1980s with the help of federally guaranteed loans. It grew big enough to consume American Motors Corp. for $2 billion in 1987. It entered a joint manufacturing venture with France's Renault in the early 1990s; and it became successful enough during America's truck-crazy days for Germany's Daimler-Benz to buy it for $40 billion in 1998.

The German company, lured by what it thought would be truck profits and easy access to mainstream American buyers, as opposed to that smaller segment affluent enough to buy Mercedes-Benz products, made a money-losing mistake. But it and Chrysler initially misrepresented the deal as a "merger of equals."

It was a phony equality represented in name only, Daimler-Chrysler AG -- a moniker that was trashed in 2007 when the merged companies split.

Daimler became Daimler AG. And Chrysler became Chrysler LLC, the ward of Cerberus Capital Management, a Wall Street investment firm that knew less about the automobile business than several failed Wall Street companies -- Lehman Brothers and Bernard L. Madoff Investment Securities are examples -- apparently knew about investing.

Given that history, this column picks Chrysler as the most likely domestic car company to succumb to the current economic crisis. But the word "succumb" should be taken advisedly. Chrysler, or some remnant thereof, will remain as a part of someone else's car business. The only question is whether the American taxpayers who are now loaning Chrysler billions of dollars -- to grow strong enough to merge with someone else -- will get a fair return on the deal.

Again, keep in mind that growing fat enough to merge with someone else has been Chrysler's end game for more than two decades.

General Motors and Ford Motor, on the other hand, have spent the past 20 years restructuring in pursuit of continued independence -- a restructuring that has been accelerated and made more urgently brutal by the current economic crisis.

GM and Ford often have been clumsy and inconsistent in their efforts to remake themselves. They frequently have taken baby steps where giant steps were needed. But their goal over the past two decades has been clear -- to return to prominence as independently owned, U.S.-based manufacturers of globally competitive vehicles.

That seems laughable given GM's current ill depictions in the media and its rough treatment by critics on Capitol Hill. The tendency is to portray GM as a chronically failed company now in pursuit of billions of dollars in federal aid. The truth is much more complicated than that, and it's much fairer to GM when examined in historical detail.

Stated briefly, the GM that gave us the miserable Chevrolet Vega in the 1970s is not the GM that has given us the excellent Chevrolet Malibu today. The GM that ran its European, South American and Asian operations as separate fiefdoms -- each with its own product development, design and supply procurement operations -- is not the GM that runs an increasingly efficient global company today.

The GM that launched the Saturn Division in 1985 to prove that GM people could design and develop world-class cars and sell them in a way respectful of consumer intelligence is not the GM that needs a separate Saturn operation today. Nor is it the GM that needs Swedish automobile manufacturer Saab to burnish its reputation as a manufacturer of quality luxury automobiles. GM's Cadillac Division now makes luxury cars capable of competing with the world's best.

The truth is that GM has been correcting many of the errors -- redundant product development processes, poor quality, lousy marketing, poor dealership relations -- that brought it to a low in public esteem.

GM's problems today have little to do with corporate management. They have practically nothing to do with product quality, selection or availability. They have everything to do with a consumer market collapsed by the absence of a commercially and environmentally feasible national energy policy in the United States and, most recently, a failed financial system that has put consumer credit on ice.

Those same failures are hurting all car companies doing business in this country.

It is the sweetest irony, for example, that Ford is being hailed in the media and on Capitol Hill as being the darling of domestic automobile manufacturers, the company that apparently is doing everything right, mostly because it has not formally applied for federal bailout loans. Only five years ago, Ford was being portrayed in the media as the domestic car company most likely to fail.

Ford has not yet asked for any federal money because of the steps it took under extreme duress to avert that failure. It started cutting costs and getting rid of underperforming brands several years before the consumer credit markets crashed. And it borrowed billions from private markets to invest in new products, mortgaging itself to the hilt.

But Ford, too, will be forced to ask for federal loans if consumer credit remains frozen and unemployment continues to soar.

Still, here's betting that Ford also will survive the crash and will be in position to repay whatever it borrows when the current economic downturn turns upward enough to bring consumers back to new-car showrooms. Like GM, Ford has made major strides in streamlining its global operations and strengthening its product portfolio. Its management, like that at GM, has always been centered on maintaining an independent, U.S.-based company.

The bottom line is this: All car companies, including the mighty Toyota, which is losing billions of dollars in the current economic environment, are suffering from the unemployment and frozen consumer credit that have combined to crush sales. If the Obama administration is going to fix Detroit or any other aspect of the automobile industry, it is going to have to fix that first.


© 2009 The Washington Post Company

Network News

X My Profile
View More Activity