Issue: Dec 2008


Five Key Reasons Why U.S. Automakers Must Survive



by John Larkin

Outside the Box LLC, a suburban Detroit firm comprised of veteran industry experts, today outlined five key reasons how the U.S. automakers can, and must, survive:

· To save three million jobs, all having stakes in the outcome should buy stock, now selling in the $2 to $3 range, in GM and Ford

· Initiate favorable industrial policies that would enable the auto industry to become a leader in “green technology”

· Create a Department of Industry and Technology similar to Japan’s to utilize the domestic auto industry’s huge technical and manufacturing resources

· Place technical people in top corporate management and on boards

· Adopt a 72,000-mile, six-year, bumper-to-bumper warranty to instill pride in American-made products

Reasons the Automakers are in this Mess 

The U.S. Big Three automakers have made their share of mistakes, but they were well on their way to returning to viability until $4-per-gallon gasoline and Wall Street’s meltdown interceded to plunge car and truck sales to the lowest level since 1983.

The run-up in fuel prices can be traced directly to the failure of the United States government to create a cohesive energy policy. And Wall Street’s mess also can be laid at Washington’s failure to regulate wildly speculative investments in sub prime mortgages, which toppled many famous firms, sent jitters through banks, dried up credit for everything including car loans and dealer financing, and left millions of home owners facing foreclosure.

Now Congress and the lame-duck Bush Administration are weighing proposals to provide the Big Three with a bridge loan to give them breathing room until the economy recovers. Congress previously approved $25 billion for automakers to re-tool to produce more fuel-efficient vehicles, and some now want that cash to be used instead for a bridge loan. Others want a $25-billion slice of the $700 billion approved to save Wall Street from total collapse. Both face opposition chiefly from Republican and southern lawmakers. President-elect Barack Obama calls the automotive industry “the backbone of American manufacturing” and says he favors “a bridge loan” to Detroit rather than “a bridge to nowhere.” He can influence his fellow Democrats in Congress, but he can’t move personally until he takes office on Jan.20. And time is running out.

Outside the Box LLC has spent two years developing a survival strategy for the Big Three, and will publish its findings in a new book edited by veteran automotive editor David C. Smith scheduled for publication next spring. The firm has gathered the best thinking and reporting of veteran journalists and industry experts, and will focus on the post-crisis and what steps must be taken for long-term viability. The following elaborate on the five reasons for saving the industry outlined above.

Reason Number One 

Jobs. During the recent primaries and general election, every politician spoke ceaselessly about “creating” jobs, but not one word about “saving” existing jobs. Common sense has been on a long-term holiday. Yet one in every 10 U.S. jobs is traceable to the domestic auto industry, including the Big Three and more than 2 million at suppliers and dealers -- right down to your favorite Wal-Mart greeter. Putting all of these folks out of work would cause chaos in an already weak economy and cost billions in lost tax revenues, unemployment benefits and health care. The cost of the Wall Street bailout would shrink by comparison. And who would benefit? The Japanese, Korean, European and – soon – Chinese auto industries. Right now Ford shares can be purchased for around $2 and GM $3. OTB urges everyone having a stake in Ford and GM, especially its union and salaried employees, to purchase 100 shares of each. That may not cause a big ripple on the New York Stock Exchange, but it would provide symbolic support and pay off when the companies move back into the black.

Reason Number Two 

The Marshall Plan rebuilt Germany and Japan following World War II, and the United States has provided a protective umbrella for South Korea since 1953. This has enabled each of these countries to build strong, manufacturing-based economies supported by industrial and monetary policies favorable to exports and job creation in their home markets. It made great sense for them and it has worked. But as former Chrysler chairman and industry icon Lee Iacocca pointed out during the 1980s when Chrysler sought $1 billion to build its new headquarters and technical center north of Detroit, he was forced to pay 16 percent interest while his Japanese competitors were paying only 2 percent to finance their expansions. Why? Favorable Industrial policy, lacking then –and still lacking – in the U.S., this for a nation whose automotive industry became known as “The Arsenal of Democracy” during World War II when Detroit’s automakers built everything from tanks and aircraft to munitions, rifles and cannons. Indeed, they may well be called on again, so to allow them to “fade away,” as General MacArthur so eloquently put it upon his retirement, could have serious national security implications. OTB’s solution: Restructure the auto industry to become a leader in “green” technology, using its strong technical and intellectual resources to not only manufacture fuel efficient vehicles but also a Manhattan Project approach to solving the nation’s energy and related environmental challenges. And yes, greener cars, a path already well underway with a growing fleet of hybrids, soon-to-arrive plug-in hybrids, and ultimately fuel cell vehicles that promise both high mileage and zero exhaust emissions.


Reason Number Three 

With a new Administration coming two months from now, it’s precisely the time to create a new U.S. Department of Industry and Technology (DOIT). The model could be Japan’s Ministry of International Trade and Industry (MITI), which has been the powerhouse behind that nation’s industrial rise for five decades. The U.S. Department of Commerce is as close as the U.S. comes, but it lacks the tools to be a strong supporter of American industry during a period of rampant globalization. Consider this, because it has been overlooked in every pro and con discussion of whether to aid U.S. automakers: Despite the fact that foreign transplants in 2007 built 3.7-million cars and trucks in North America, mainly the United States, some 3.8-million foreign imports still rolled into the country. That’s 23.3 percent of all light vehicles sold here last year. The Big Three imported 296,491 cars and trucks under GM-affiliated nameplates such as Chevrolet Aveo (Korea), Saab (Sweden), Pontiac G8 (Australia). Ford-affiliated imports included Jaguar and Land Rover (both U.K.), Volvo (Sweden) and Mazda (Japan). Chrysler’s grand total was 25,360 – vehicles built by its former owner, Daimler AG. Through 10 months this year, imports exceeded 2.9 million, or a 25.4 percent market share, up from 23.3 percent in 2007. Of those, Big Three imports totaled 296,491, or 10 percent of the total. OTB is not suggesting quotas or higher tariffs; the U.S. still promotes free trade and the Big Three have major operations worldwide. Still, because the U.S. auto industry’s survival and jobs are at stake, it may be prudent to examine this critical element of the equation before pulling the plug on the Big Three. If there had been oversight on Wall Street, today’s calamity could have been avoided.

Reason Number Four 

The bean counters – financial types – have had their day; the beans are down to a precious few. Detroit’s automakers reached their greatest heights when technical leaders, designers and inventors had a strong voice in management decisions. Since GM’s last brush with bankruptcy in the early 1990s not a single GM technical executive has been elected to its board of directors and in fact the only GM executive on the board is Chairman Rick Wagoner, a financial man. Of GM’s other 13 directors, few have any technical or automotive background. At Ford, only four of 13 directors have any automotive experience. Two are Ford family members, Executive Chairman William Clay Ford Jr. and Edsel B. Ford II, a retired vice president. Alan Mullaly, who joined Ford two years ago as president and CEO, came from Boeing Co. and is an engineer. Because it is private, the composition of Chrysler’s board is not known. However, Chairman and CEO Robert Nardelli has a retailing background (Home Depot) and Vice Chairman and President Tom LaSorda has a manufacturing resume. Assuming the Big Three survive, OTB recommends that each install exceptional technical talent in both top management positions and on their boards of directors.

Reason Number Five 

Call this a list of a few additional ideas OTB has explored from hundreds of sources.

Despite widespread criticism, Big Three vehicles have sharply advanced in nearly every independent study of quality and customer satisfaction. Obviously a large body of American buyers agree. Half of all cars and trucks sold are still Big Three brands. One irony: Americans still love classic American cars, as witness the more than one million people from around the world who gather each August for the Woodward Avenue Dream Cruise in suburban Detroit featuring cars from Ford Model Ts to the ‘60s, nearly all made in the U.S.A. The perception of more recent Big Three vehicles, however, remains negative despite their gains in quality and design in recent years. Warranty costs are dropping, but to cement their case OTB recommends that the Big Three adopt a 72-month, six-year bumper-to-bumper, no- strings-attached warranty. OTB posits that a cultural makeover also is needed to re-instill pride in American products based on trust between workers and management and between the Big Three and their suppliers and dealers – trust that results in superior products and based on a revival of Yankee Ingenuity that built the industry.

Note: The final book will include numerous additional topics covered in depth aimed at shoring up this vital industry in the years ahead. Outside the Box LLC welcomes positive input and ideas. Email us at OutsidetheboxLLC.org. Media also can obtain artwork by going to www.Lookoutamerica.org.


About the Editor: David C. Smith’s career includes stints with The Wall Street Journal in Cleveland and Los Angeles, business editor of The Detroit Free Press, and more than 30 years as editor-in-chief of Ward’s Auto World Magazine and editorial director of other Ward’s publications. He has won dozens of editorial awards including those from the University of Missouri, the American Business Press and other organizations. He is a graduate of the University of Michigan and in 2005 was elected to the Michigan Journalism Hall of Fame. He resides in Port Huron, MI.


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