Mary Barra, on the job roughly three weeks, detailed General Motors Co.’s earnings Thursday and it all sounded so normal.
Not because she’s the first woman to lead a global automaker. Not because the new CEO sounded to be reading from a prepared script laced with words like “team” and “products” and “execute.” And not because GM’s $32 billion in adjusted earnings over 16 consecutive profitable quarters is so, well, expected that mentioning it borders on boring.
It all sounded so normal because Detroit’s automakers, for what feels like the first time in anyone’s memory, are settling into a groove also known as running their businesses the right way. And by “right way,” I mean in a manner that business people outside the old, thoroughly discredited Detroit bubble would recognize.
Detroit’s break-even points are sharply below their sales volume. They generate cash. They manage debt. Their profit margins are two or three times what they were before the crash. They use good times to reduce pension liabilities. They pay dividends to investors. They regularly fund capital investment, and they’re once again taken seriously on Wall Street.
They don’t pay union members not to work. They don’t support more brands than they can afford to market. They don’t easily succumb to competitive pressure to boost incentives to defend market share, especially if doing so would be too damaging to profitability (and credibility).
And they have options, a credit to financial muscle that would have been unimaginable five years ago. Detroit’s automakers closed last year with combined net income of $13.8 billion ($7.2 billion of which is attributable to Ford alone) and total liquidity in cash, marketable securities and credit lines of nearly $105 billion.
All of it, and more, combines to feed a new virtuous circle until recently better understood in Munich, South Korea and Japan’s Aichi Prefecture than here in the Motor City: Invest in developing new cars and trucks to generate sales and profits so you can invest in developing new cars and trucks more quickly to generate more sales and profits.
Bottom line: With GM’s record $7.5 billion in adjusted North American earnings now in the books, Detroit’s automakers are demonstrating that they can consistently make real money in their own backyards and export the know-how to markets around the world.
Ford Motor Co., the financial darling whose leaders managed to avoid taking a federal bailout, recorded one of its best years in its 110-year history. The Chrysler unit of Fiat Chrysler Automobiles NV is the cash generator for the transatlantic group, now poised to consolidate further under a single corporate umbrella.
Better times certainly are here for the Detroit Three. Less certain, as all three companies transition to either new leadership or new corporate structures, is whether they can manage the prosperity, maintain their new-found discipline and avoid the traps that historically ensnared Old Detroit predecessors.
“We clearly have a lot of work ahead to make our regions solidly and consistently profitable,” GM’s Barra said, describing what she called “a multi-year journey” to get there. “We are confident we have the team, the products and the processes to get it done.”
Lord knows all three automakers are in stronger positions to manage the transition, to anticipate the global economic challenges featured regionally, to use their solid profitability in their home markets to drive restructuring in critical markets around the world (as Barra pointedly referenced in her remarks).
The trick is in the doing. The history of Detroit’s three automakers is marked by a recurring detours into mediocrity and complacency, usually just about the time the hourly profit-sharing checks clear, the proxy statements detail fat executive bonuses and sales volumes peak.
Barra’s mentor, Dan Akerson, vowed complacency creep will not happen, but he won’t be around to ensure it won’t. Ford’s brass, from Executive Chairman Bill Ford Jr. and CEO Alan Mulally to COO Mark Fields and Americas President Joe Hinrichs, say it won’t happen.
And FCA CEO Sergio Marchionne this week said Detroit has “asserted in unmistakable terms that the American auto industry is back” — a claim Marchionne himself likely would concede means nothing without more solid results to back it up.
That’s the trouble with the road back to respectability. It keeps winding because the destination is never reached; it’s always around the next corner or two.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.