Industry: Bailout? What Bailout?

Edward Niedermeyer
by Edward Niedermeyer

TTAC has always taken pride in its outsider status, and we’ve taken pains to cover the industry from a safe distance in order to continually bring a fresh perspective to developments. As a result, we’re not always on the same page as trends in the industry at large, which tends to be far more given to wild optimism than the average TTAC analysis. But, based on a new study by Booz & Company [ PDF], it seems that the “carpocalypse” of recent years has driven the industry to a more TTAC-esque pessimism. According to responses by executives at both OEMs and suppliers, the industry generally feels that the bailout was either a missed opportunity or it didn’t do enough to address fundamental weaknesses… and as a result, executives see challenges ahead.

So, where is the industry now? Not much better than it was at the height of the “carpocalypse,” when GM and Chrysler were going through bankruptcy on the government’s dime. And though OEMs generally benefited more than the suppliers, the automakers themselves are less optimistic about the current state of the industry… although that might be a function of the fact that suppliers were going bankrupt by the 12-pack before the industry recognized that it was in crisis.

So, what did the bailout do right? Cutting capacity, or in less politically-palatable terms, firing people. Ironic, isn’t it, that a policy that’s being defended as a jobs-saving measure did its best work (at least according to the OEMs) when it put people out of work? Meanwhile, feel free to draw your own conclusions about the fact that the industry liked the “capacity rationalization” aspects of the bailout, while feeling like the bailout didn’t do enough. Saving jobs, as we’ve pointed out for some time, is not the same as saving companies… in fact, the two goals often clash significantly.

In any case, both OEMs and suppliers picked the government’s rescue of Chrysler as the least-positive impact of the auto industry rescue. Some 42% of OEMs feel rescuing Chrysler was negative for the industry, while 20% of suppliers sign on to the same sentiments, despite being largely positive about the GM bailout.

And here’s where the rubber hits the road: nearly 30% of the industry thinks another OEM will fail within the next two years. Risk is fundamental to every industry, but the fact that almost a third of industry execs expecting an OEM failure within the next 24 months is a searing indictment of the bailout, which was supposed to create a sense of confidence. And if GM or Chrysler fail again, all those rescue efforts will have been wasted, and every job “created or saved” will be in jeopardy again.

So what to do now? Incentive and pricing discipline, long a TTAC hobbyhorse, is identified by both sides of the industry as being one of the most important tasks (the most important for OEMs). Production discipline is also identified as a key consideration, something the bailout also hasn’t been able to change. In short, the easy cuts and consolidation have been achieved, leaving only the tough challenges that require a focused, disciplined culture… and the bailout still hasn’t made a demonstrable difference in the culture of the industry, which has been flirting with a price war since the beginning of this year. The lesson: you can cut, rinse and inject cash, but ultimately, success in this industry comes down to focus and discipline, neither of which can be provided by a government bailout.

Edward Niedermeyer
Edward Niedermeyer

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  • MikeAR MikeAR on Apr 24, 2011

    It will take some sort of Black Swan event for someone to fail within the next two years but after that, it's a matter of time. I am talking about the domestic companies of course, worldwide it could happen within that time. Ford is pretty safe for time being. If the UAW destroys them it will sow the seeds for the union's destruction which would help the entire industry out. Fiat actually has a good chance to save Chrysler, not trying to compete with every brand in every segment is a great idea for them. GM is still the mostly likely to have an event at some point.

    • Highdesertcat Highdesertcat on Apr 24, 2011

      I think that the domestics still need to put a lot of cash money on the hood to move their stuff. Here are some of the advertised prices for new 2011 vehicles I plucked from today's Sunday newspaper, for my area, each with dozens to choose from, at various dealerships. Compare and contrast for yourself: F150 -- $23K - $26K Silverado -- $22K - $25K Ram -- $21K - $24K Tundra -- $32K - $37K Malibu -- $19K -$21K Altima -- $18K - $21K Fusion -- $17K - $20K Camry -- $26K - $28K Accord -- $24K - $29K Sonata -- $24K - $27K Unless all of those people now choosing to buy a foreign brand choose to buy a domestic brand instead, I think we will see, possibly GM, go under within the next 24 months. Chrysler is just not a player any more. It will serve Sergio in the larger scheme of things for market penetration of the Fiat-owned brands across the world, but I see a diminished market share for the Chrysler brands in the USA. And Chrysler will soon be majority-owned by Fiat, so they won't count in the domestic tally for US auto manufacturers any longer. So IMO these bail outs amounted to nothing, only delaying the inevitable at great expense to the tax paying American public. A helluva way to run a railroad! What a waste of good money.

  • CapVandal CapVandal on Apr 24, 2011

    We are already getting much more back from the US Auto bail out than I ever expected. I had assumed that nothing would be paid back. The logic was more as a jobs program than an 'investment'. It was the worst possible time for the US industry to implode, and kicking the can down the road wasn't a negative. I thought it was a good idea at the time. It has worked out better than I thought, with a decent chunk of the government money being returned. I suggest that the conflict between 'too big to fail' and 'the need for more consolidation' needs to be considered. Too big to fail yet too small to succeed? The real story is how Hyundai managed to kick ass during a massive cyclical downturn. As far as the future of GM and Ford, that is up to them, the marketplace, and how they perform.

  • 3-On-The-Tree Lou_BCsame here I grew up on 2-stroke dirt bikes had a 1985 Yamaha IT200 2-strokes then a 1977 Suzuki GT750 2-stroke 750 streetike fast forward to 2002 as a young flight school Lieutenant I bought a 2002 suzuki Hayabusa 1300 up in Huntsville Alabama. Still have that bike.
  • Milton Rented one for about a month. Very solid EV. Not as fun as my Polestar, but for a go to family car, solid. Practical EV ownership is only made possible with a home charger.
  • J Love mine, but the steering wheel blocks dashboard a bit, can't see turn signals nor headlights icons. They could use the upper corners of the screen for the turn signals. Mileage is much lower than shown too, disappointing
  • Aja8888 NO!
  • OrpheusSail I once did. My first four cars were American made, and through an odd set of circumstances surrounding a divorce, I wound up with a '95 Nissan Maxima which was fourteen years old and had about 150,000 miles on it.It was drove better, had an amazing engine, and was more reliable than any of my American cars. This included a new '95 GMC pickup that went through five alternators in under two years while the dealership insisted that there was no underlying electrical problem while they tried to run the clock on the warranty.That was the end of 'buy American'. I've bought from Honda and VW since, and I'll consider just about anything except American now.