A year ago this month, a new version of General Motors emerged from a government sponsored bankruptcy, only weeks after the new version of Chrysler came to live with federal help. On July 7, NPR’s Neal Conan invited me on Talk of the Nation to discuss what things look like now.[audio:20100707_totn_04.mp3]
In short, things are better. Auto sales are rebounding modestly from the awful levels of last year. But the industry is a long way from the boom days of the mid-’00s, and Detroit companies still have far to go. How does each company look now — and what role with they play as the manufacturing belt transforms itself? The auto industry’s story is a crucial part of Changing Gears.
Brothers in Bankruptcy
As the biggest American auto company, G.M.’s journey has gotten the most attention. In in the past year, it has changed its senior management, replacing lifelong G.M. executives with a trio of leaders headed by Edward Whitacre Jr., the former chief executive of A.T.T.; Chris Liddell, a former Microsoft executive, and Steve Girsky, a long-time Wall Street analyst.
G.M. also has eliminated or sold brands like Pontiac, Saturn, Hummer and Saab. And, it posted a $865 million profit in the first three months of the year, a big step on its road back.
But it still has two big challenges coming up: launching a stock offering, and launching the Chevrolet Volt, a plug-in hybrid that it has been talking about for the better part of four years.
Both are critical to its future. Between them, the American and Canadian governments own about two-thirds of G.M., which they received in return for about $50 billion in direct bailout money. (G.M. recently paid back the $5 billion or so that was considered to be a loan.)
G.M.’s stock offering, which is expected as soon as next month, has to be successful if the two nations are ever to unload their stakes and put the “Government Motors” label to rest.
The Volt is scheduled to go on sale late this year. It be offered first in Michigan, California and Washington, D.C. G.M. also plans to sell it in Texas, New York, New Jersey and Connecticut. G.M. hasn’t set a price yet but it’s widely thought the vehicle will sell for about $40,000. G.M.’s first year plans are pretty modest — it thinks it will sell 10,000 Volts in 2011 and perhaps 30,000 in 2012.
Chrysler is overshadowed by its bigger brother, but its story also is compelling. It is now under the management control of Fiat, which owns a 20 percent stake in the company. And it will be a Fiat that gets the bulk of attention in the next year or so.
The little Fiat 500 (cinquecento in Italian) is an iconic car in Europe, almost as recognizable as the Mini Cooper, which BMW brought back to life last decade. Fiat, in fact, is going to follow a Mini-like strategy in its return to the United States. It plans to keep the availability limited. Only 200 Chrysler dealers will be selected to sell the 500 (all 2,350 can apply) and the car will be available in 41 states, primarily in big city markets.
Fiat will build the 500 in Mexico, with half the production going to the United States and the other half to South America. It’s a quick way to give Chrysler a small car and a quick way for Fiat to get back into the U.S. market, where it’s been missing since 1983 (Alfa Romeo, which is owned by Fiat, was here until the mid-1990s).
Unlike G.M., which is racing to put its stock back on the market, Fiat chief executive Sergio Marchionne is in less of a hurry. He wants to see how the G.M. offering does, and there’s less of a “Government Motors” stigma at Chrysler, since the Treasury Department only owns about 8%.
A Relative Success Story
The other Detroit company, Ford Motor, is considered by many analysts to be a relative success story. It did not accept federal bailout money, and its profits lately have been strong (Ford earned $2 billion in the first three months of the year, or more than double G.M.’s earnings). Long before the recession flattened its two competitors, Ford mortgaged everything including its Blue Oval logo to borrow money to keep going.
It still has a lot of debt — about $27 billion — but it has been reducing that load steadily in recent months. Ford also took the long awaited step earlier this spring of killing Mercury, which had become a “me, too” brand, selling cars that were based on those developed for the flagship Ford brand. Ford also has nearly finished selling Volvo’s car operations to Geely, a Chinese manufacturer.
Investors are somewhat bullish on Ford. Its stock is selling for about $10 a share, compared with $7 a year ago. But not too many years ago, Ford shares sold for a lot more and its investors would certainly welcome a higher price.
A Mixed Bag
Of course, the auto industry’s story is not just Detroit. Foreign nameplates hold more than half the American car market, and the battle for market share is fierce. A year ago, pundits were speculating over whether Toyota, which unseated G.M. in 2008 to become the world’s biggest carmaker, might bump it out of the top spot in the American market as well. Back then, Toyota was enjoying strong demand for the newest version of its Prius (disclosure: I drive one and wrote the Prius Diary for The New York Times).
Instead, while Detroit companies regrouped, Toyota has been buffeted by nearly a year of bad news. It began with a deadly accident last September in California, in which four people died when the accelerator pedal of a Lexus became entangled in its floor mat. Since then, Toyota has recalled more than 8 million vehicles worldwide, about 6 million in the United States, for a series of problems including the potential for sticking pedals.
The recalls prompted its chief executive, Akio Toyoda, to apologize repeatedly, before Congress and in almost every public appearance this year. He’s tried to spin things forward by doing a joint venture with Tesla, the electric car company. And although Toyota’s sales lately have been better than a year ago, it has lost its second-place spot in the American market to Ford. And, the recalls continue, with another Lexus safety problem popping up just this week.
By contrast, the big star among foreign manufacturers this year has been Hyundai, the Korean carmaker. It looks likely to sell half a million cars in the United States this year for the first time. Put together, Hyundai and its sister company, Kia, sell more cars here than Chrysler. Both have plants in the American South, Hyundai in Alabama, Kia just inside the Georgia border with Alabama. (Kia has set heads bobbing with its commercial starring an adventurous sock monkey set to The Heavy’s “How Do You Like Me Now?”)
Another commercial is catching the eye of Tour de France fans this month. It stars Lance Armstrong, the champion cyclist and pitch man for the electric car called the Nissan Leaf. Nissan’s chief executive, Carlos Ghosn, long was skeptical about whether hybrid-electric vehicles like the Prius would be popular with consumers. But he’s since become an enthusiastic convert to the electric cause and Nissan has put a big effort behind convincing consumers to drive a Leaf.
The Biggest Question
But automakers may be facing a bigger question than getting people to buy cars. Given the slow pace of auto sales, many potential buyers seem to be asking themselves how much car they need, and whether they need cars at all?
Of course, people who live on farms, in remote areas and who don’t have public transportation have no choice. Many others don’t want to give up the freedom a car provides and for some, nothing can ever replace the roar of an engine and thrill that torque provides.
However, a lot of people have rethought what they can afford, how many cars they need and whether they can do without. Public transportation, car pooling, bicycles, skateboards and walking are now in the mix for people who might not have thought twice at jumping behind the wheel just a year ago.
So, as Detroit regroups, and the other manufacturers plot their path back, the situation is simply different than they might have expected only a year ago.
Now, tell us your thoughts about the automobile industry. Is there a way the manufacturers should be changing gears?