Howes: Detroit’s bid for respect is earned, not given
Detroit’s “we-don’t-get-no-respect” lament is about to get a test.
For six straight months, auto sales are down from last year, led by plummeting demand for traditional cars. Plants are eliminating shifts and putting a growing number of line workers on layoff — even as the likes of General Motors Co. and Ford Motor Co. rake in profits on pickups and SUVs amid low gas prices.
Money is growing more expensive because rock-bottom interest rates are inching higher and some lenders are reassessing the attractiveness of auto lending. High-tech content is proliferating across model ranges, boosting transaction prices and swelling monthly payments.
And Elon Musk’s Tesla Inc., more highly valued by investors than GM or Ford, is poised to launch its first high-volume electric car this month. The $35,000 Model 3 will help answer just how formidable Tesla really could be within the mass market, and how much consumers from the United States to China really will go electric without the impetus of soaring oil prices.
For skeptical investors eager to see whether Detroit can manage adversity, now could be their chance to get an early look. Will the new leadership at GM and Ford, and the veteran Sergio Marchionne at Fiat Chrysler Automobiles NV, show the discipline they claim to have — or revert to the bad old habits that erode profits and tarnish brand images?
Will the urge to juice sales with incentives overcome the hard-won understanding that the price for so-called spiffs is suppressed demand and squandered brand equity? Brands like GM’s Cadillac have spent the better part of the past decade rebuilding a brand that would be damaged by such moves.
Answers will be found in what the companies do, not what they say, and how quickly they do it. Detroit comes by its seismic reputation honestly. For too long, it managed cockily on the upswing, panicky on the downturn and made excuses along the way.
Only its performance over the coming months will demonstrate whether that old narrative can adjust to new realities. Or whether the reinvention of the past seven or eight years reverts to the historical mean that so many investors trading Detroit shares flat seem to expect.
Detroit is more likely to embrace the new normal because it must. In the battle between Silicon Valley and Detroit, the city and its hometown automakers that helped put the world on wheels are at a disadvantage largely of their own making.
Investors clearly have longer memories than customers and dealers, employees and hometown boosters. The country’s most valuable companies aren’t old-line industrial names producing real, tangible goods; they’re tech companies largely powered by software developed in a business culture radically different from Detroit’s.
Judging by market valuations alone, investors are far more inclined to believe in Silicon Valley’s ability to innovate and build value because they’ve done just that for the past decade. And Detroit has not, notwithstanding billions in North American profits earned during the market boom now showing distinct signs of slowing.
That may not be fair, but it’s reality. The first mass-market electric car capable of going more than 200 miles on a single charge — and already in U.S. showrooms — isn’t a Tesla. It’s GM’s Chevrolet Bolt.
Detroit has something to prove: that it learned from its many mistakes of the past; that it can harness its technical capability and redeploy it for an electrified, autonomous and mobility services world; that it can change, can be attractive employers for millennials and can still remain corporate bulwarks in communities where it operates.
The past seven years of expanding U.S. profits is necessary, but it’s not sufficient. Neither is GM selling its Opel and Vauxhall brands in Europe to the French, or bolting the Indian and Russian markets. Neither is Ford finally deciding to assemble in China Focus compacts for sale in the United States, or even ousting CEO Mark Fields after less than three years on the job.
The undeniable truth is that the companies that endured the ignominy of bankruptcy (or, in Ford’s case, barely avoided it) are held to a higher standard now because they achieved a lower standard for way too long in the past.
Reaching that standard and attaining it starts with managing adversity well. It also means showing that icons of the Old Economy can play smartly with New Economy rivals competing for a share of next-generation transportation, valued in the trillions.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.