Resurgent U.S. automakers vow to sustain momentum
DETROIT — Detroit’s on a roll. But can it last?
American auto brands Chevrolet and Ford are outselling Toyotas in the United States for the first time in years, thanks to a new stable of better designed and more reliable cars. General Motors Co., meanwhile, has become the top foreign automaker in the fast-growing Chinese market.
At the same time, painful cost cuts — including trimming employment and health expenses, and rewriting union contracts — have fattened the bottom line for domestic automakers, with General Motors and Ford Motor Co. earning nearly $4 billion combined in their most recent quarterly reports.
That’s a figure that was once “unimaginable” considering that total U.S. auto sales were only 11.6 million last year, still near historic lows, said David Cole, a longtime industry analyst and chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich.
And that’s why the mood is decidedly upbeat among the executives who are gathering this week in Detroit for the North American International Auto Show.
“The auspices are a lot better than they were a year ago,” said Sergio Marchionne, chief executive of Chrysler Group, which is gaining market share and expects to move back into the black this year after narrowing its losses steadily last year.
Still, given Detroit’s long decline from its heyday in the 1950s and 1960s, some are wondering whether the turnaround is a momentary blip or a sustainable change.
Rising oil prices could topple the economy into another recession. Upcoming United Auto Workers union talks could turn into a fight by workers to regain benefits lost during the U.S. industry’s restructuring. Foreign automakers, especially Toyota Motor Corp. and Honda Motor Co., could recapture their verve and attack the market with new models and attractive pricing. The Detroit Three could revert to bad habits and start producing more cars than can be reasonably sold.
“We have concerns,” said Rebecca Lindland, an automotive analyst at IHS Global Insight. “There is just so much competition in the marketplace, especially from fast-growing companies like Hyundai and Kia. And this fall the negotiations with the UAW could be very contentious. The workers are going to want some of those profits.”
But executives from the domestic companies, their overseas rivals and industry analysts say that the auto world has changed in the past two years and that American automakers will be much stronger competitors.
“We have never seen such dramatic change in such a short period of time,” Cole said.
One difference from years past is that the corporate chiefs of the U.S. automakers speak with seemingly one voice when it comes to operating tightly run businesses.
Ford CEO Alan Mulally, GM North America President Mark Reuss and Chrysler’s Marchionne all promise not to fall back into the trap of making too many cars and then slapping huge discounts on the vehicles to move metal off dealer lots.
“This has been the heart of the problem in Detroit,” said Marchionne, who also heads up Fiat, the Italian auto company.
Mulally said Ford has learned that it has to “deal with the current reality. You have to match production to real demand and accelerate development of new products that people will want to buy.”
For Ford that meant going with a plan for massive restructuring to a consortium of banks and borrowing $23.5 billion, he said.
For GM and Chrysler it meant bankruptcy filings and huge bailouts from the federal government. Mulally still describes as “surreal” the experience of going before Congress and urging the federal government to throw lifelines to his competitors, but he says it was the only way to ensure the U.S. industry’s survival.
Such measures allowed the Detroit Three to cut employment, slash health expenses, rewrite union contracts, winnow out surplus factories and trim the cost of building a vehicle by several thousand dollars.