By Peter M. De Lorenzo
Detroit. “It was the best of times, it was the worst of times…”
After two of the three Detroit-based car companies careened in to and out of bankruptcy, the upward trajectory of this business has been one sweet ride. Sparked by new product and unburdened by crushing debt, GM and the Fiat-owned Chrysler rose from the ashes in stunning fashion, while Ford, benefiting from the most focused leadership in the business as well as a staggering array of highly-competitive products, adhered to its “One Ford” product plan to achieve impressive results of its own.
But this business always seems to have a somber note lingering in the shadows - ghosts of automotive history laden with the burdensome legacy of poor decisions, bad timing and broken dreams - one serving to haunt the best of times percolating right now. It’s the stuff keeping executives tossing and turning and up through the night bemoaning the “what ifs?” Because lost in the gaudy sales and profit numbers generated by the car companies of late is the sobering reality that a real slowdown is coming, and just how deep and how long it will be is anyone’s guess at this point.
“… it was the age of wisdom, it was the age of foolishness…”
How can this be, you might ask? How can car companies churning out such massive profits have anything to worry about? The problem is that the red-hot ride this business has been on since the end of 2009 has given some who are relatively new to the business - or those who debunk history as a matter of course - a warped view of reality, somehow seeding the notion in their minds that this kind of good times euphoria could go on forever.
Well, it can’t and it won’t.
But right now the wise are being overwhelmed by the foolish in this town, as Detroit – and when I say Detroit I’m including those Italian interlopers who now own Fiat-Chrysler - returns to its ugly habit of churning out vehicles heavy with thousands of dollars in incentives to keep things humming. But humming toward what and to where, exactly? The mindset that once propelled this business to oblivion has returned to prominence, and the news that this town has become The Land of Short-Term Thinking yet again can only be viewed as being a heaping, steaming bowl of Not Good.
“… it was the epoch of belief, it was the epoch of incredulity…”
The short-term thinking taking hold of Detroit only serves to negate the stellar work being done by the True Believers at all three companies who are designing and building truly excellent products. Once again the inherent goodness and ultra-competitiveness of the cars and trucks being built by the Detroit-based car companies is being swallowed whole by the notion out there in ConsumerVille that there are great deals to be had, which reinforces the still-lingering stereotype that if you’re looking for a deal – image be damned - then look to buy from a domestic automaker, because that’s where the best deals are. But then again if you were looking for a real “good” car then you’d be wise to look elsewhere.
“… it was the season of Light, it was the season of Darkness…”
It’s a real shame that in this era when “Detroit” is collectively building the finest cars and trucks in its history that old habits seem to be rearing their ugly head, old habits that will surely put paid to the notion that “Detroit” is a worthy player in the global auto scrum. There’s much to be said about Detroit’s penchant for being unable to stand prosperity, and unfortunately most of it is all true. How else to explain the three steps forward, and five back dance of mediocrity that seems to take hold about every five years in this business? Think about it: Five years ago two of three domestic automakers were thrust into gut-wrenching bankruptcies after years of incompetence and repeated stupid behavior. And now, five years into another Detroit recovery “miracle” the chances that some of these companies may implode again is not out of the question or even all that ridiculous to contemplate. Some of the current top dog execs at these companies will scoff at that notion – because after all, they’re different and smarter than you and I - but the particularly seasoned ones who have seen this move before are quietly searching for danger signs that things could go the wrong way. They won’t have to look far.
“… it was the spring of hope, it was the winter of despair…”
There’s no doubt that when things are going well for the Detroit-based car companies it’s a rush that is nearly unrivaled in corporate America. It’s a high that borders on a fever and rational thought can easily become lost in the heady shuffle. To wit? Despite the carpetbaggers from Fiat who were simply looking for a goldmine to save their moribund excuse for a car company from oblivion, the fact remains that the Jeep franchise – worth the $6 billion that Sergio Marchionne paid for the entire Chrysler enterprise alone – is enjoying its most halcyon days. A particularly brutal, Siberia-like winter here in the U.S. has played right into the Jeep brand’s hands, and people can’t seem to get enough of them. And Ram Trucks are hand-over-fist hot, too, albeit with a heavy dose of incentives piled high on their hoods.
But beyond those obvious positives there are clear warning signs that Fiat-Chrysler is on shaky ground. Beyond having to prop up Fiat financially - which may eventually bury the good times for Chrysler once and for all – the fact remains that Fiat-Chrysler is a Jeep and pickup truck company, with some nostalgia rods and cool cop cars thrown in for good measure, and that’s unlikely to change anytime soon. The new 200? It’s a segment placeholder and nothing more. There are too many more worthy and established entries in the segment that the Chrysler 200 has to go up against, and the chances that Fiat-Chrysler’s decidedly average entry cracks the code much beyond rental fleet duty are slim. And if Sergio and his espresso-swilling minions can’t crack the code with the 200, then the hope springing from those dazzling Jeep and pickup truck profits could soon be overrun by the reality of despair.
And GM has its own crosses to bear as well. With some of the most competitive products in its history arrayed across almost every segment, you would think that the denizens of the Silver Silos would be giddy right about now. And most of the execs camped out hard by the Detroit River are, in fact, positively euphoric. But the hopeful spring for General Motors has already begun to give way to the gathering storm clouds on the not too distant horizon.
The pickup truck battle threatens to consume the company. They have incentives piled upon incentives on the Chevrolet Silverado and GMC Sierra pickups, trucks that have been in the market for less than a year. Plus they have new, “mid-size” pickups ready to launch – the Chevrolet Colorado and GMC Canyon – that threaten to dilute their own pickup market share even further. And Ford, its chief rival, is putting on intense pressure with massive incentives aimed at clearing out its 2013 and 2014 F-150 pickups in preparation for the debut of The Game Changer – the aluminum-intensive 2015 F-150 – that is sure to shake the market to its foundation next fall. GM has some wonderful show ponies in the market right now - the new Corvette, the Cadillac CTS and ELR, the Impala and the Camaro – but its bread gets buttered by its pickup truck sales, and if that market is under duress and can’t deliver the profits that GM needs, then watch out.
And Ford has every reason to be optimistic as well. With the best product lineup from top to bottom in its history, this upcoming spring should be a wonderful time. But Ford has deep challenges of its own with three absolutely key product launches on the docket this year. The launch of the aforementioned F-150 – aka “The Franchise” – is so fundamentally crucial to the overall health and well being of the company that it cannot be stressed enough how important it is that this vehicle comes out of the gate smokin’ hot. Anything less would be the quintessential definition of A Bad Day for the posse in Dearborn. Then there’s the launch of the new Mustang – aka “The Soul of the Company” – and the unquestioned spiritual flame for Ford. This is the one image vehicle that transcends all age and demographic groups for the company, and an automotive opportunity that Ford cannot squander in any way, shape or form. And finally there’s the launch of the Lincoln MKC. With the rejuvenation of the Lincoln brand truly a work in progress, the MKC is not just another launch for Ford’s luxury brand. Even more impressively competitive than the MKZ, the MKC will allow Lincoln to jump into the compact SUV/crossover battle with both feet, only the hottest segment in the market by far. The future for Lincoln hinges on the MKC catching fire in the market, it’s that simple.
With these three exceedingly pivotal launches for Ford, it’s no wonder that the hand-wringing going on in Dearborn has reached new levels of urgency, with a dollop of trepidation thrown in for good measure.
“… we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”
On the one hand, that this business is hanging by a razor-thin thread of cautious optimism even with the gathering storm clouds on the horizon is to be commended, in a Jimmy Stewart, Mr. Smith Goes to Washington sort of way. On the other it is to be pitied, too, because when this business gets it wrong and augurs in to the ground due to its own serial incompetence and relentless stupidity, it doesn’t take a few quarters to pick up the pieces, it’s a painful recovery that’s measured out in years.
But then again these automakers will never get a “quick rinse” free pass again. If they venture into The Darkness once more, there will be no light at the end of the tunnel. There will only be more darkness and a choking sense of foreboding.
A Tale of Two Cities, the Charles Dickens-penned masterpiece from over 150 years ago, spoke of a different time and a different era marked with churning consternation and unbridled rancor and fears the likes of which none of us are familiar.
Yet here we are mired in a tale of two cities of a different sort, with the two “Detroits” once again at war with each other.
On the one hand we have the “old” Detroit, a sodden mess of an auto business and a city – each burdened with the devastating effects of a pervasive union mentality that has long since past its usefulness (see Peter’s comments on the VW/UAW news in “On The Table” – WG) – that conspired together to get lost in a lumbering cadence of lowest-common-denominator “we’ve always done it this way” thinking that actually caused some people to believe that “good enough” mediocrity was not only somehow sufficient, but desired, while the world changed dramatically all around them and moved on.
On the other we have the “new” Detroit trying to project itself as a glimmering beacon of hope in the darkness, an industry emboldened with new products, new vision and a feisty new competitive spirit, augmented by a city that has been reborn and rejuvenated after years of being the country's punchline, one teeming with new enlightenment and perspective while pointing to a limitless future.
The reality is that Detroit – the car business and the city – is somewhere in between, and on any given day the pendulum can swing from one extreme to the other.
And the one cautionary note fueling Detroit’s winter of discontent?
It is achingly apparent that bad old habits die hard around here.
And that’s the High-Octane Truth for this week.