Warren Brown's Car Culture
Sunday, May 31, 2009
Buried under the current global economic collapse is the debris of conventional wisdom. Consider, for example, the wreckage of the automobile industry.
You'll notice that I said "the automobile industry," as opposed to "Detroit" or "the Big Three" -- references to a car business that hasn't existed for at least a decade.
"Detroit" became truly global in the past 10 years with the streamlining and more thorough integration of worldwide operations at General Motors and Ford. Chrysler, as noted in this space on several occasions, for the past 22 years has attempted to become a global company primarily through merging with a foreign partner.
In its bid for a quick exit from Chapter 11 bankruptcy reorganization, Chrysler -- once an "ally" with French automobile manufacturer Renault before becoming a cuckolded "equal" in a merger with Germany's Daimler-Benz -- is trying again, this time with Italian automobile manufacturer Fiat.
The bottom line is that all three U.S.-spawned companies -- GM, Ford and Chrysler -- will survive in whole or in part as reconstituted international operations.
"In whole" refers to GM, regardless of whether it completes its current restructuring in or out of bankruptcy court.
Conventional wisdom says that the New General Motors (NGM) will be a much smaller company, because it has divested, or is in the process of divesting, certain properties held by the old company. Gone or going are the old GM's Opel, Saab and Vauxhall operations in Europe, as well as its Saturn, Pontiac and Hummer franchises in the United States.
NGM, ironically, will resemble the old, U.S.-centric GM, a company focused on home-grown American brands -- Buick, Cadillac, Chevrolet and GMC trucks. That looks like a retreat. But it isn't.
Buick is one of the most popular brands in China, the world's fastest-growing automotive market. Chevrolet is now a global brand, selling worldwide in much the manner that Toyota (more on that later), Honda, Nissan, Volkswagen and Mercedes-Benz are marketed worldwide. Ditto Cadillac.
That being the case, it makes good sense for NGM to get cash by selling off Opel, Saab and Vauxhall in Europe. Given the global automobile industry's interdependent nature -- rival companies using many of the same suppliers for components, for example -- NGM could always turn to one of its former European properties for needed parts or desired design and development work.
"In whole" also refers to Ford, which turns out to have had the good fortune of being on the brink of bankruptcy three years ago. That early life on the precipice forced Ford to bring in new management, represented by Alan Mulally, who joined Ford as president and chief executive in September 2006 after serving as chief executive of Boeing's commercial airlines operations.
Ford is a car company, but Mulally taught it how to fly. He quickly jettisoned excess baggage -- cost-weighty prestige brands such as Aston Martin, Jaguar and Land Rover. He literally mortgaged the company, borrowing billions of dollars from banks and other financial institutions. The borrowed money, none of it from the government, was used to improve product quality and roll out new products, such as the Ford Fusion Hybrid mid-size sedan.
Ford's products, the little Fiesta and Focus cars are examples, are now among the best-selling automobiles in Europe. The Focus has been the best-selling car in Russia.
But honorifics such as "best-selling" and "best quality" and "invulnerable" constitute transient praise in a highly competitive, capital-intensive automobile industry, especially one wracked by a disastrous collapse of global sales. Consider Toyota.
I hate to say, "I told you so." But, hey, I told you so repeatedly in this space, as well as in my "On Wheels" review column: Toyota and the old GM have more in common than the media and many of our politicians, such as House Speaker Nancy Pelosi (D-Calif.) and President Barack Obama, would have you believe.
Toyota and the old GM, to their detriment, relied on sales of big trucks and sport-utility vehicles. But Toyota cleverly concealed that reliance by hyping its gas-electric hybrid Prius car, proudly wearing the cape of the industry's green champion while collecting as much fiscal green as possible through sales of models such as its Highlander and FJ Cruiser sport-utility vehicles and its Tacoma and Tundra pickup trucks.
When U.S. gasoline prices spiked last summer, Toyota was just as exposed to sales disruption as the old GM. Truck sales, all truck sales, slowed to a miserable trickle. Toyota's plans to build a truck plant in Mississippi were scrapped in favor of using that plant to roll out more fuel-efficient Prius cars.
But U.S. gasoline prices dropped just as quickly in the fall of 2008 as they rose in the summer of that year, quashing Toyota's Prius plant plans in the process. The lesson: Toyota was no better at guessing a market immersed in cheap gasoline than was the old GM.
Those mistakes, combined with unfavorable currency exchange rates and Toyota's insistence on exporting more cars from Japan (60 percent of home production) than it builds abroad, resulted in a $4.4 billion loss for Toyota in the fiscal year that ended in March.
It gets worse: Toyota lost $7.7 billion in its last quarterly reporting period. It expects to lose $5.5 billion in the fiscal year ending March 2010.
Unlike the old GM and Chrysler, Toyota, buoyed by decades of strong profits, is not likely to drown in red ink and file for bankruptcy protection. But it is no longer considered "invulnerable" or somehow immune from corporate error.
Executives of NGM, and whatever constitutes the new Chrysler, should keep that in mind as they go about their future business. No one has a corner on common sense, innovation, supplier and consumer relations, and product quality. No car or truck is "best" simply because it comes from Asia, Europe or North America.
Appropriately, "best" in the automobile industry is a rolling target. It always has been and always will be -- in times good or bad.