Howes: Unraveling necessary for Detroit carmakers' future

The unraveling began long before Detroit's auto bosses testified to angry congressional committees a year ago this month, the punishing prelude to a revival that remains possible but uncertain.

It came before then-General Motors Corp. made its first overtures to Washington for federal aid, before the bankruptcy of the investment bank Lehman Brothers shook global financial markets, before a private equity fund acquired Chrysler LLC, stripping it bare of people, product and hopes for a future.

The unraveling, culminating decades of bad habits and bad choices, traces the painful arc of Detroit's auto industry and its communities over the past 12 months. The hearings, the call for billions in federal funds, the "viability plans" rejected and redrafted, skyrocketing gas prices and frozen credit markets, helped to accelerate the downward spiral into speedy bankruptcies that didn't kill the companies -- at least not yet.

Because they gave the automakers a final chance to act like businesses should -- namely, less like the plodding, insular destroyers of other people's capital they became and more like savvy, right-sized corporations rooted in the realities of market dynamism.

The jockeying in Washington, the grandstanding of Republican senators and the first slugs of federal dollars heralded the end of Old Detroit's "way of life." They paved the way for admissions, concessions and the reluctant embrace of long-known realities too painful to contemplate, much less adopt. But the automakers did, for there were no other options.

There still aren't, as Michigan and other auto states look around the economic corner to a future that promises a slow recovery with fewer auto jobs, less tax revenue and lower home values even as companies like GM have cleaner balance sheets, stronger vehicle lineups and greater earnings potential than any time in decades.

This is the shape of the "new normal," the undeniable legacy of former auto execs, labor leaders and corporate directors who collected their pay, shunted manifest problems to their successors and often blew town. Except that American taxpayers got stuck with the final bill -- somewhere between $60 billion and $125 billion, depending on who's counting.

Did the intervention come soon enough to save Detroit's auto industry from a collective corporate suicide that would have been the logical end-point of its dysfunction? Arguably, yes, but at a high cost. Jobs lost, plants shuttered, communities harmed, investors wiped out and principle sacrificed to economic and political expedience.

Business principles rule?

Interests of secured creditors were subordinated in bankruptcy to the political interests of unions. Government ownership of private companies was established. Pensions gutted for salaried retirees of Delphi Corp. Hundreds of GM and Chrysler dealers forced to close, impacting local economies across the country. Executive ranks winnowed, some unceremoniously. Concessionary union contracts, including no-strike clauses, shaped by federal demands.

This year alone, the state of Michigan is expected to lose 283,000 jobs, according to the University of Michigan's annual economic forecast, the grimmest single year for job losses in some 70 years. Detroit is desperately trying to retain GM's headquarters in the Renaissance Center, and the future of Auburn Hills-based Chrysler rests with the Italians of Fiat SpA.

Detroit's automakers, including bankruptcy-avoiding Ford Motor Co., are smaller, employ fewer and will command a smaller piece of their home market for the foreseeable future. But they are running more like the profit-driven businesses they should be than the social welfare institutions they became, arrogant, uncompetitive tributes to the sclerotic oligopoly pressured by a labor monopoly.

Doesn't work. It took a Democratic president of the United States, probably the most liberal and labor-friendly since LBJ, amid a brutal recession to force sane commercial principles on Detroit's automakers and the United Auto Workers -- principles they have embraced grudgingly over the years when they have embraced them at all.

Still, it may not be enough. Monday, Fitch Ratings predicted only a slight recovery in industry sales to 11.1 million cars and trucks next year, and warned that the industry may be headed for "airline-style" cycles of boom and bust, bankruptcies and continual restructurings.

Wonderful. The good news is that we're still here, that the darkest warnings about a total collapse of the U.S. auto industry in bankruptcy didn't come true, mostly because the bankruptcies engineered by the president's auto task force were bankruptcies of a special kind.

Detroit lives, differently

What did we learn?

That Detroit's automakers still hold value, technological prowess and market positions here and overseas that their critics too often overlook because it would undercut their narrative of chronically inept corporate collapse.

That Detroit cannot live by its own set of economic rules. An automaker operating in competitive markets cannot ignore the competition, cannot blame consumers and cannot blame the media for its problems. And a labor union cannot price itself consistently above the competition's labor and expect its employers to remain viable.

The automakers can't. Nor can the union expect the Bigger America -- those states and cities whose people don't live and work inside the bubble surrounding Detroit's auto industry -- to accept its expectations for pay, benefits and resistance to change, a sense of entitlement made in Detroit.

We learned that few members of Congress have more than a passing understanding of what Detroit and its metal are today, that the politics of bailouts are more regional than they are Republican or Democrat.

We learned that the president who inherited this automotive mess is willing to bend bankruptcy rules, to fire the CEO of GM before the government owns a single share, to force GM and Chrysler through Chapter 11, to marry Chrysler to a foreign automaker to save jobs and to rescue the UAW's reason for being.

This is more than a reckoning. It's an unraveling that needed to happen to give an American-owned auto industry a chance to survive and prosper.

dchowes@detnews.com">dchowes@detnews.com (313) 222-2106 Daniel Howes' column runs Tuesdays, Thursdays and Fridays.