Two years ago, the three Detroit-based auto companies were in the news as poster children of the great American bailout.
Of the companies once referred to as “The Big Three” – Ford, General Motors and Chrysler – only Ford seemed likely to survive the recession. Ford appeared viable only because a year earlier the new CEO pawned every piece of the family jewelry – including the company trademark – to raise a war chest to underwrite massive restructuring.
Chrysler was pretty much down for the count after being acquired and divested by Daimler-Benz, without a solid new product in its portfolio. Only the promise of its U.S. dealer network makes it appealing to potential buyer Fiat of Italy, out of the American market for several years.
General Motors, once the dominant force in American automobile manufacturing, was judged too big to fail once policymakers calculated the number of primary and secondary jobs that would be swept off the table if GM shut down. After an initial loan that proved insufficient, federal policymakers chose to buy a majority share of the company in return for an infusion of $50 billion in cash. The maneuvers were the only possible strategy to get it out from under the unsustainable weight of past and future obligations to its workers that had been negotiated in the halcyon days of the 1950s.
So where are we two years later? Having just driven a new 2011 Cadillac CTS the week after driving a 2011 Ford Mustang – and enjoying both – we know that Ford and GM are still functioning. In an industry where the mantra has been “All we need is a good product,” they are clearly capable of producing good cars.
We aren’t the only reviewers who like the new Mustang and Cadillac models, as well as other cars recently introduced by both companies. Ford and GM still have the ability to build innovative models that U.S. consumers will like and also appeal to overseas markets. The new Ford Fusion is popular in Europe, and Buick is the best-selling foreign brand in China. Improved hybrids from Ford and all-electric cars from GM are in the pipeline.
Quality has been improving as well. Consumer Reports issued a press release Oct. 26 noting that GM ranks above several European nameplates – including Audi, BMW and Mercedes-Benz – in reliability. As a brand, Ford outranks Mazda and Nissan for reliability and is rated just below Lexus.
GM and Ford are profitable again, despite a sagging economy that’s contributed to U.S. cars’ sales plummeting to their lowest level in decades. These results are the consequence of radical restructuring; both companies have sold off their holdings in overseas brands like Jaguar, Land Rover and Saab, and shut down entire domestic brands like Mercury, Pontiac and Saturn.
In mid-September, Dan Akerson, new CEO at GM, announced that his company would pay back the nearly $7 billion government bailout earlier than expected and would make an initial public offering of stock in the new GM company sometime this month.
With positive third-quarter financial results announced Oct. 26, Ford President and CEO Alan Mulally reported that the company is continuing to gain momentum in “delivering world-class products and aggressively restructuring” its business.
But as important as product is to the automobile companies, and as significant as their restructuring has been, there are still two variables to be addressed.
Although Ford avoided a government bailout and externally dictated restructuring plan, and is in better financial shape than GM, its problems were deeper and longer-lived than just the recession or a few years of bad products. The substantial debt carried on the balance sheets of both companies still places them in jeopardy.
In addition, they are Detroit-based and – for better or worse – bound to the United Auto Workers, a constraint that foreign-based companies manufacturing in the United States and Canada have avoided. Most of the cost differentials with foreign brands faced by the Detroit companies are due not to inefficiencies in their operations, but rather to the generous benefits negotiated over many years with their unions.
So the key unknown in determining whether Ford and GM will survive as independent companies and important parts of the American economy hinges on whether the unions, and the workers they represent, are as willing to adapt to this new, competitive world as their companies are proving to be.
We hope so – we liked the two distinctively American cars we drove and hope there will be many more examples to come.
Longtime Los Altos residents Gary and Genie Anderson are co-owners of Enthusiast Publications LLC, which edits several car club magazines and contributes articles and columns to automotive magazines and online services.