Detroit Car Makers Come Back

This story first appeared in USA TODAY.
Ford Motor reported Tuesday that it made $2.4 billion in the second quarter, down 8% from a year ago.
The earnings reports — especially Chrysler's projection it only will break even this year because of the cost of repaying the loans — won't trigger a ticker-tape parade in downtown Detroit. But they do suggest that the Detroit 3 have put the big loses behind them.
No tooth fairies, guardian angels or rabbits out of hats rescued Detroit automakers from what seemed certain ruin not that long ago. Motor City's still-fragile bounce-back is the result of years of awful pain.
To stop the billions in red ink and give automakers a chance to make money again, more than 100,000 people lost their jobs. American taxpayers put tens of billions into auto bailouts and lost $1.3 billion on Chrysler, and would lose another $11.6 billion if the U.S.Treasury sold all its remaining shares of GM stock at typical recent prices. Car buyers will be hurt, too, eventually seeing higher prices and fewer discounts if the restructured U.S. auto industry avoids the overproduction that for years resulted in fire-sale discounts.
Two years ago for Chrysler, too: Government-arranged Chapter 11 bankruptcy reorganization, summer of 2009 that gave control of Chrysler to Italy's Fiat in return for high-mileage small cars and international distribution.
Ford avoided Chapter 11 and federal bailout money, so it took longer, five years, to become an "overnight success."
Actually, the reshaping of the Detroit 3 stretches further back than that.
Restructuring has been underway at these companies for many years, aimed at making them profitable at much lower volumes.
From 2006 through 2010 the three Detroit automakers shed an astonishing 120,000 jobs, more than one-third their combined total, and closed dozens of factories.
Key changes
The Detroit 3 now are sized to make money when the U.S. new-vehicle market is 12 million or 13 million a year. The record is 17.4 million, set in 2000, and the low in the recent recession was 10.4 million, in 2009. The industry's on pace to hit 12 million or more this year.
If demand for new vehicles booms, Detroit can schedule overtime and reopen idle plants to avoid missing the chance to sell more than expected.
Several modifications of the labor agreement with the United Auto Workers union, which represents most auto-industry hourly workers, have lowered the total outlay for workers — pay, benefits and other costs — to a range of $49 an hour (Chrysler) to $58 (Ford), down from an average $75 to $78 before the contract modifications in 2005, 2007 and 2009.
The 2007 changes were key, letting automakers off-load responsibility for retiree health care to the UAW and establishing two-tier wages. Newly hired hourly workers are paid $14 to $16 an hour, about half what veterans get.
New hires are locked into less-generous benefits than veteran workers get, no matter how high the new group's pay rises. They cost infinitely less, and they will become the majority of hourly workers as others age and leave.
Before the bloodletting, there was no hope.
At GM, for example, Structural costs were so fouled, so broken, that they couldn't make money at the high end of the (sales) cycle: 16.8 million and General Motors was essentially breaking even.
Akerson wasn't connected with GM before the bankruptcy period. A businessman and investment specialist who graduated from the U.S. Naval Academy in 1970 with an engineering degree, he was put on the GM board July 24, 2009, by the Obama administration, was picked to be CEO last September and got the chairman's title as well on Jan. 1.
He completed Detroit's corner-office overhaul. All three CEOs now are outsiders in an historically insider town. Ford Motor CEO Alan Mulally was a Boeing executive when hired by Ford Chairman Bill Ford in 2006 to save the Blue Oval. Chrysler Group CEO Sergio Marchionne is also CEO of Fiat Auto, which now owns a majority of Chrysler, comes from way outside Detroit, culturally and institutionally. And he's known by investment analysts as a finance and deal man more than as a "car guy."
No guarantees
Despite the new blood at the top, leaner organizations and recent near-death experiences as motivation, the Detroit rebound comes with no guarantee.
• Costs are rising. The new models in the pipeline, the ones that could save the industry, cost billions of dollars to design, develop and launch, then to support with heavy marketing for a year or so. Commodity costs are up, too.
•Negotiations with the UAW on a new contract begin this week. Automakers don't want to lock in higher wages or other costs, but the union passionately wants to regain some ground it surrendered to keep the automakers afloat.
•Detroit's move to small cars might not work. Ever-tightening federal fuel-economy regulations almost dictate many more small, lightweight cars for automakers to hit the required average of 35.5 mpg in 2016 and perhaps 54 mpg by 2025, according to the latest not-so-private discussions between the White House and the auto industry.
But you can't sell what people won't buy.
One market analyst says Americans don't have an affinity for small cars. When they can, they like to get into bigger, more comfortable cars.
•Economic malaise lingers. Unemployment remains stubbornly above 9%. And Treasury Secretary Timothy Geithner said on last weekend's TV talks shows that the economy might have slowed, not accelerated, in the second quarter.
People without jobs in an uncertain economy are antithetical to new-car sales. It's not clear whether GM, Ford and Chrysler could withstand more years like 2009, when only 10 million cars were sold. And if they must try to, what's left to cut?
•Product problems remain. GM has far too many powertrains that aren't all that different. Akerson says there is not any real difference between a 1.4- and a 1.5-liter engine. He adds that just causes complexity in your purchasing and your supply chain.
GM also must move fast into non-petroleum-fuel powerplants, such as pure electric cars and those fueled by clean-burning compressed natural gas (CNG), he says.
Ford's confusing high-tech electronics, and six-speed automatic transmissions tuned so aggressively for fuel economy that the cars drive poorly, caused frustrated owners to slap Ford down to No. 23 on a recent J.D. Power and Associates quality survey, from a lofty No. 5 a year ago.
Ford's Lincoln luxury brand definitely needs a better-defined identity. Consumers are smart. They're not going to pay an extra $10,000 for a cosmetically enhanced Ford.
Chrysler's Fiat-designed, U.S.-built 40-mpg small cars — a Fiat promise to the U.S. government as part of the Chapter 11 rescue — have yet to materialize. They're in the works, but will they be soon enough, and good enough, in a market crawling with new-design, high-mpg small cars?
•Widespread mistrust of Detroit, from years of shoddy and un-inventive vehicles, hasn't been eliminated.
Ford seems to have a head-start overcoming that, for not taking government money.
GM's Akerson acknowledges the low esteem and notes that it's an impression created over the past 20 or 30 years, and they are not going to cure that in one year.
He hopes the advanced-technology Chevrolet Volt helps erase the low-tech image and that a series of new models coming in the next 18 months will help identify GM as an exciting and relevant company.
In a fell swoop, Chrysler has overcome some resistance. Its "imported from Detroit" TV ad during the Super Bowl acknowledged that the city and its main industry have taken hard hits but asserted powerfully that times have changed. The ad starred popular musician Eminem driving a then-new Chrysler 200 mid-size sedan.
The ad spawned lines of clothing, overwhelming numbers of e-mail to Chrysler and a continuing social-media buzz.
What Akerson finds exciting, and believes is a mark of GM's integrity and a harbinger of its success, is that the company continued to work on the controversial Chevy Volt extended-range electric car even during the distractions of Chapter 11.