37 LINKEDIN 72 COMMENTMORE

Detroit’s automakers are learning a painful lesson: record profits and record U.S. sales aren’t enough to earn the kind of respect that pays the bills.

Not from investors, whose collective yawn is reflected in lagging share prices of General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV. Not from Silicon Valley, whose challenge to this town’s automotive hegemony has “disruption” written all over it. Not even from customers, whose taste for vehicles from foreign-owned rivals still outpaces Detroit in its home market.

That’s why there will be more, not fewer, aggressive moves by the hometown automakers to reconfigure their manufacturing footprints and cost structures, to answer the high-tech assault on the traditional industry and its emerging “mobility” segment, to demonstrate that today’s results aren’t necessarily as good as they’re going to get.

“Nothing’s moving the needle right now,” a ranking industry executive says. “This is the issue right now. It’s all anyone is talking about inside GM and Ford.”

It should be, judging by the gulf separating the financial performance of GM and Ford, particularly, from the lofty expectations of the investors who value — or don’t — a cornerstone of American engineering, manufacturing and product development.

The signs of anxiety in the Detroit C-suites are everywhere, and most of them lead to the same places: first, to efforts to boost profit margins and returns on invested capital and, second, to moves to show New Detroit will not mimic the mistakes of its predecessors and fail to counter threats from well-financed and innovative competitors.

This year’s North American International Auto Show, followed by year-end earnings calls with all three companies, tell the tale. Ford leaders used the show to hawk their hip mobility cred to anyone who would listen; GM touted its Chevrolet Bolt electric car, a two-fer that acknowledges the burgeoning ride-sharing craze even as it answers tough federal fuel economy standards coming in 2025.

Fiat Chrysler’s Sergio Marchionne used his annual show roundtable to warn, again, that the industry’s consumption of capital outstrips investors’ willingness to fund it. To buttress his point, a few weeks later he confirmed the company likely would exit the car-building business in the United States and focus its resources on higher-margin Jeeps and Ram pickups.

Last week, following a return to profitability in 2015, Ford of Europe outlined another round of restructuring to improve profit margins to as much as 8 percent, bolster its product lineup and rationalize its white-collar workforce through buyouts.

In a statement, Jim Farley, Ford executive vice president, Europe, Middle East and Africa, called last year’s profits of $259 million “a good first step,” adding: “We are absolutely committed to accelerating our transformation, taking the necessary actions to create a vibrant business that’s solidly profitable in both good times and down cycles.”

At roughly the same time, Ford is moving to double its production capacity in Mexico even as it pulls assembly of its Focus, C-Max and hybrids from Michigan Assembly in Wayne to make room for production of a new Bronco SUV and a revived Ranger pickup. The goal: to maximize margins in a market skewed to trucks and SUVs.

“Not once during negotiations did the company ever say to us that if you negotiate these wages, benefits or anything else, we’ll have to move product somewhere else,” United Auto Workers President Dennis Williams said late last week. “Not once.”

There’s a harsh lesson here: automakers aren’t in business to design and build cars and trucks, or to employ tens of thousands around the world, or, to provide pensions and health care to their employees. Investors are reminding them, through share prices, that this town’s automakers are in business to deliver profits and sustainable growth potential to investors. Period.

All of which poses a difficult conundrum for today’s automotive leaders. If the downsides of recession and slack demand are steep and if the upsides are limited by the investor skepticism prevailing today, how can perceptions be changed? Prospering in difficult times, unlikely in Old Detroit, is one way; wresting advantage, and growth prospects, from Silicon Valley is another.

The truth for Detroit is that perceptions die especially hard — and the people leading today’s companies know it. Not by what they say on earnings calls or in interviews with CNBC, but by what they are doing and how they’re doing it.

Good times, fat profit-sharing payouts and what is likely to be a bonus bonanza later this quarter shouldn’t obscure the fundamental challenge these companies face: proving to themselves and to would-be investors there really is a New Detroit. So far, they haven’t.

Daniel.Howes@detroitnews.com

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.

37 LINKEDIN 72 COMMENTMORE
Read or Share this story: http://detne.ws/1XhvhLg