Industry: Bailout? What Bailout?

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.