Howes: Prosperity to test carmakers
The good times are returning to Detroit, cautiously.
A hometown auto industry that stood at the brink of collapse six years ago powers into next week's North American International Auto Show behind strong consumer demand and cheap gas prices that make its profit-rich pickups and SUVs arguably more attractive — for now.
The city synonymous with its three automakers is out of municipal bankruptcy, the largest in American history. The home of the auto show, Cobo Center, now is a regional exemplar of disciplined management instead of a riverfront embarrassment. Downtown is buzzing, and the automakers are back.
For the first time since the 1960s, Detroit automakers and their principal union, the United Auto Workers, are managing good times, optimism and tough competition instead of continual decline and denial. Can they handle the success, historically the precursor to an ugly slide, dumb mistakes or both?
"I think they can," says David Cole, a longtime industry analyst who chairs Ann Arbor-based AutoHarvest and is chairman emeritus of the Center for Automotive Research. "They've been dealt a hand that is much more favorable than they've had in a long time."
He says the risk is not "so high of going back to business as usual. They are keenly aware of how good the others are," referring to foreign competitors from Germany, Japan, South Korea, even India. "That's going to be with us for some time."
Detroit Mayor Mike Duggan tours Cobo Center on the Thursday before the North American International Auto Show opens.
Credit the virtuous automotive circle unique to the Detroit-based industry. Namely, brutal restructuring and Chapter 11 bankruptcy for a pair of players produced financially competitive companies better equipped to capitalize on a U.S. market expected to expand for the seventh consecutive year.
The automakers' labor forces, salaried and hourly, are dramatically smaller, meaning labor is a smaller piece of the total cost of a car or truck than anytime in recent memory. Plant networks are smaller, too, with those still open running at or above capacity. And memories of near-collapse remain raw.
Forgetting or reversing either, be it through rich labor contracts later this year or ambitious plans to build new plants and add fixed costs, would signal a return to the bad ol' days Detroit allegedly buried in 2009. There is scant evidence either trend is likely to be reversed anytime soon.
"I don't think that there's any silver bullet," General Motors Co. CEO Mary Barra said Thursday, referring to the automaker's ability to stay disciplined amid prosperity. "We're going to continue to focus on the customer, on great products, on overall great experience and work really hard at it."
Maybe so. But Detroit's long record of overreaching and underperforming soon after reaching the apex of a collective profit cycle is not easily ignored. How, and whether, it avoids repeating past mistakes will affect post-collapse perception among investors, customers, even its own employees.
What's new is the scope of change at GM, Ford Motor Co. and Fiat Chrysler Automobiles NV's North American operations: There are new CEOs at GM and Ford since last year's auto show; undisputed Italian control of the old Chrysler; more competitive cost structures with dramatically lower break-even points.
GM's ignition-switch recall debacle, which broke just weeks after last year's show ended, and the federal government's reaction to it forced dramatic change in the safety protocols of all automakers, not just GM.
And sharp declines in gas prices upended assumptions pushed by federal regulators and the Obama administration that consumers would buy more small cars and fewer large trucks and SUVs. Not true, as sales figures and moves by the automakers to slow production of small cars and hybrid vehicles attest.
A preliminary verdict on Detroit's ability to manage prosperity — or blow it in a flurry of bad deals and big spending — could come as early as this year. The three automakers are expected to negotiate another year of sales expansion and bellwether negotiations with a UAW under new, and untested, leadership.
The talks will be the first round of traditional bargaining since the prospect of collapse and the rigors of federal bailouts imposed limits on all sides. In their place: a veritable profit bonanza already raising expectations within the union rank and file and eliciting pledges from ranking industry executives to remain "competitive."
"You've got a lot of new people and you've got a lot of controversial issues," says Art Schwartz, a former GM labor-relations executive and now president of Labor and Economics Associates of Ann Arbor. "I don't think they can get a contract ratified without a pay raise" for so-called legacy employees. "It's not going to kill" the automakers "with their cost structure."
Maybe not. But that question cannot be answered until the fall. What is clear to those paying attention is that the leaders of Detroit's automakers regard their prosperity with necessary caution and a gnawing sense that there are no guarantees.
Ford's miracle-working CEO, Alan Mulally, has been gone a little more than six months. GM most of last year gutted through a harrowing recall scandal. Chrysler disappeared into its Italian parent, a by-product of The Reckoning that nearly killed the Detroit industry.
It didn't, with a little help from American taxpayers and a lot of hard work and painful sacrifice. The challenge is not to squander the victory.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.
What's coming up at detroitnews.com
Saturday night: Gallery of luxury cars at MGM Grand
Sunday: First look at new Buick, reveal of Infiniti Q60 Coupe concept
Monday morning: First look at Chevy Volt, Nissan Titan, new vehicles from Ford, Alfa Romeo and BMW, plus North American Car and Truck of the Year Awards
Monday afternoon: Debuts of Toyota Tacoma, plus new Audis, Minis and Hyundais
Tuesday morning: New Lincoln, Ram Truck model