According to our latest sales data, the Detroit Three have enjoyed something of a comeback relative to the “foreign” competition this year. And though it’s not clear how long that trend will last, the media is catching the Detroit-boosting bug again. The NYT’s Bill Vlasic epitomizes the mood, focusing on improvements in GM and Ford’s products in a piece titled American Cars Are Getting Another Look. Between IQS score improvements and anecdotal evidence of consumer interest in Ford and GM’s “gadgets” and “value,” Vlasic’s sidekick, Art Spinella of CNW Research, forwards an interesting theory for the death of the “perception gap” (a construct he helped create, by the way):
Ford has become almost the ‘halo brand’ for G.M. and Chrysler. Because of Ford’s success, people are less resistant in general to considering all of Detroit’s products.
Well, that’s not the dumbest thing ever said about the destruction of the perception gap… but it sure is a head-scratcher. Did Nissan and Honda just spend the last several decades skating by on Toyota’s sterling reputation (RIP)? Still, it might be interesting to hear Ford’s perspective on all this.
Sure enough, Ford’s Jim Farley tells Vlasic that the bailout was basically responsible for bringing Ford’s product improvements to the public eye. In the frantic days of debate over a possible auto bailout, argues Farley, something changed.
For the first time in many years, Americans debated the value of our industry. When the crisis happened, they started to notice that we were doing things differently and our cars had gotten a lot better.
Of course it helped considerably that Ford was the one company not receiving billions in TARP money from the government. But if Ford’s image benefited from being the conspicuous exception to Detroit’s bailout binge, how are GM and possibly Chrysler piggy-backing off of Ford’s image-boost now? After all, it’s not like these firms have paid taxpayers back yet.
The answer, if there is a definitive one, may well be found in a recent piece by The Atlantic’s business and economics editor, Megan McArdle. A libertarian-oriented commentator who admits to having opposed the bailout, McArdle traveled up to Lansing to watch Buick Enclaves being built. Her epiphany reflects a shift in perspective that has slowly emerged in a number of anti-auto-bailout commentators (er, both of us):
In the end, the bailout will probably cost voters a lot of money, and worse, more money than it had to. And there are all sorts of questions about whether other companies will be tempted to seek a government bailout, or whether the cost advantage that GM gained in bankruptcy might put pressure on other manufacturers’ margins, ultimately forcing them to follow suit.
On the other hand, had the government not stepped in, the GM liquidation would arguably have deepened the recession—not tumbled us into Great Depression II, as some more-hysterical bailout supporters claimed, but raised the unemployment rate and lowered GDP somewhat. A libertarian economist of my acquaintance recently confided that he thinks the bailout has been surprisingly successful—“not necessarily a good idea, but far from the worst thing the administration has done.”
After spending a few days in Detroit, this assessment strikes me as about right. The bailout wasn’t a good idea, and it will probably cost billions. But the government wastes billions of dollars every year, because for the United States, $1 billion adds up to the equivalent of less than one venti latte per American. At least in this case, we got something in return: a functional car company, resurrected from the ashes of the old GM’s bloated carcass. Americans probably won’t notice the few extra dollars they spent on the bailout. But they may eventually be glad when another shiny new Buick Enclave rolls off the Lansing assembly line, and into their driveway.
Which goes to show how far the erstwhile anti-bailout crowd has come on the role of consumer choice. For the sake of contrast, I predicted (in the height of bailout-debate mania) that GM’s relationship with consumers wouldn’t change post-bailout because it
has singularly failed to understand that the classic American narratives of rebirth and redemption begins with a dark night of the soul– not a trip to DC to ask Santa for a multi-billion dollar bailout.
But perhaps this distinction has been lost to most Americans. After all, most of the products credited with improving GM’s overall quality were on the market by the time the bailout went through, and once invested their manufacturer, taxpayers would be more likely to consider buying them. Especially when, as McArdle notes in her piece,
Jack Baruth, a reviewer on thetruthabout cars.com, recently wrote, “[The Chevy Cruze is] well-positioned against the Civic and Corolla. I believe that it beats both of those cars in significant, measurable ways.”
Certainly building cars that meet with the approval of respected independent reviewers like Jack will tend to make consumers more interested in their cars. Meanwhile, the argument that “things would have been worse” without the bailout takes a lot of the air out of lingering political opposition to GM. But with a GM IPO on the horizon, the final bill still has yet to be reckoned. And as the latest round of Volt hysteria has proved, GM still likes to use its political persecution syndrome as a PR crutch… and cudgel.
If Ford has overcome its image issues, and Chrysler is still dying by the side of the road (for now… it can’t enjoy a “perception gap” until more of its vehicles are actually better than people think they are)), GM is the dramatic figure, still struggling through the doors of perception. Depending on the value of its IPO, the amount taxpayers are finally paid back, and the path GM’s PR team treads between now and final payback, real improvements in the quality of its cars might not translate into improved market share. Certainly ham-handed attempts like “Payback-gate” won’t help. In fact, other than continuing to relentlessly improve product, GM’s biggest challenge is figuring out a way to address the bailout honestly, while taking advantage of the intellectual shift mapped by McArdle. Though consumers are learning (and liking) more about improvements in GM’s products, they’re still struggling to love The General.