US AUTO SECTOR: CAN IT BE SAVED? 8 Market Leader As July drew to a close,Washington had to add another $2bn to the oversubscribed billion dollar“Cash for Clunkers”scheme that had offered $4,500 for Americans trading in their old gas-guzzlers for more efficient models. It was small beer in proportion to the $80bn industry rescue package, though perhaps symbolic that the scheme appears to benefit the environment more than Detroit. As consumers traded in old, mostly US-made gas-guzzlers for new efficient cars, foreign companies (notably Hyundai) were major beneficiaries of the programme along with Ford, which recorded its first increase in sales in two years. Hyundai this July reported record quarterly profits. Long-time industry consultant Professor Barry Bluestone at Boston’s Northeastern University last year pointed out the stark realities in a memo to Representative Barney Frank, a key legislator in the Federal rescue programme for the industry. Using the oft-cited but, in Detroit, much-ignored market to make his case, he invokes the second-hand value of comparable 2003 model cars. “In late 2008, the Toyota Camry V6 had a Vehix.com value of $11,150 while a comparably-powered Honda Accord V6 is slightly higher at $11,225. In contrast, the trade-in values of the Chevrolet Impala V6 was only $6,850; the Chrysler Stratus $6,200, and the Ford Taurus $5,000.” Bluestone cites similar devastating figures from Consumer Reports for 2008 that show Big Three brands came in below 50 on the 0-100 satisfaction scale while the equivalent “import brand” models, as Detroit labels even US-built vehicles by foreign companies, won scores of 70s and even 80s. He concludes: “Automakers that provide their customers with quality that lasts, with a satisfying driving experience and a vehicle that meets their driving expectations, will make a profit and will not need Federal support.” Bluestone recalls other missed opportunities. Around the time that Bush Senior was recycling his dinner menu in Japan, General Motors had tried to move forward with the Saturn, using the techniques that were propelling Japanese success. However, the good efforts came to little. No one now pretends that what’s good for General Motors is good for America. The contumely that greeted the Big Three executives in Washington when they turned up last year (cap in hand and on executive jets) marked the end of an era. Political shift There has also been a political shift. As the Republican Party has become more intensely ideological, Detroit, with unions and workers“pampered” with health insurance, lay-off pay and pensions, looked dangerously “socialist” (an almost insulting jibe in US political circles) compared with the foreign transplants that had taken root in the Republican-voting Southern states with laws hostile to unionisation. That allowed the discussion to become obsessed and obscured by Monks’ “fig leaf,” the costs of union labour. In fact, there already was a convergence between labour costs in the old United Auto Workers (UAW) plants and the transplants, which suggests that it was not so much the cost of labour but, according to some analysts, the low quality of management and design that wasted the skills of the workforce. In fact, Professor Bluestone points out that many of the “import brand” transplants have had very successful union working agreements, and cites the Modern Operating Agreement of the Mazda plant in Michigan, theToyota plant in California—and, significantly, the Ford plant in Cleveland, significant because, of all the US companies, Ford has weathered the crisis best. In the face of Republican indifference and taxpayer revolt in the aftermath of banking bailouts, Detroit had to suffer tough love from Washington legislators who had previously been the political equivalent of a pushover. Congress forced it to commit to all the steps that it had helped them avert for all those decades. Washington acted quickly, allowing accelerated bankruptcy proceedings, helping shed many liabilities while backing-up corporate guarantees on vehicles, thus stopping even more precipitous erosion of the consumer base. Additionally, the industry had accelerated its long-procrastinated reforms with mandated cuts in staff, plants, marques, dealerships remuneration, an end to dividends, and with directives to invest in newer, more efficient models. Notably missing from the dole queue was Ford, which, Jack Plunkett of the annual Plunkett’s Automobile Industry Almanac points out, had “brought in a brilliant outsider”, former Boeing Commercial president Allan Mulally, to be president and chief executive officer, and so was in the right position to meet the crisis, amassing huge amounts of cash, creating efficiencies across the board, standardising designs and components across the product range. It had negotiated new union contracts, which reduced the labour force and cut wages and benefits for new employees. It cut its 97 marques to a manageable 20 or less. As a result, Ford could refuse offers of government money but did ask for a line of credit guarantee to maintain sales. In contrast with its beleaguered compatriot firms, it recorded a second-quarter $2.3bn net profit. However, even if Ford was prepared to bounce off the rocks that almost crushed GM and Chrysler, it is still in a hard place: the faltering global and US economy. 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