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Posts Tagged ‘Detroit automakers’

Chrysler Is Kaput

May 2nd, 2009 Comments off
In December, 1956 Chrysler Corporation’s president “Tex” Colbert issued the following apology to his company’s dealers: “At the moment we are embarrassed-and seriously-by a shortage of automobiles.” And embarrassed he was. Despite expanded production capacity to meet expected demand for the 1957 product line of Chrysler, actual customer purchases far exceeded projections. That was Chrysler, then.
And now? On the verge of extinction, having initiated bankruptcy proceedings, a torrent of unsold inventory clogs dealership lots, while the dying company seeks to decapitate those same dealerships. In just over half a century, how did Chrysler, and the wider domestic automobile industry, traverse the road from riches to ruin? It is a complex story, far too long to be fully documented in this space. However, there are a couple of themes related to Chrysler’s imminent demise that warrant reflection.
In 1957, engineers, real practitioners of the automotive art, still had a significant voice within the corporation, alongside the finance and marketing gurus. In fact, Chrysler at that time was renowned for the quality of its automotive engineering. In 1957, its hemi V-8 engines were considered among the finest mass produced powerplants in the industry. Its TorqueFlite automatic transmission was unsurpassed by any of its competitors. In 1957, Chrysler introduced torsion bar suspension on its vehicles, making them the most roadable American cars of their era. And not only in engineering was Chrysler dominant. In the late 1950s, Virgil Exner created the “Forward Look” for Chrysler, making the company’s cars among the most cleanly and beautifully styled on the American road. At that time, what were then Toyota, Nissan, and Honda were technologically and stylistically light years behind the supremacy of Chrysler.
Sadly, in 2009, we observe this once proud and powerful automobile company in a state of lethargy, with the embalming fluid about to be poured over the scattered remnants of its once thriving industrial empire. When we reflect back on the forces that led to the downfall of Detroit, and especially Chrysler, we see the inverse of what occurred in Japan. As solid engineering became redundant in Detroit, largely replaced by so-called “badge engineering,” Japanese firms built up the quality of their automotive engineering to a point where it ranked as world class.

When Toyota decided to create a luxury brand, Lexus, they did not merely slap a Lexus grill and some extra chrome on a jazzed-up Toyota; they invested in the most sophisticated engineering available to insure that a Lexus would be perceived by consumers as a first rate product. Chrysler, along with the other Detroit automakers, preferred to use common chassis designs and powertrains, and differentiate their brands with a different badge on the grill, and perhaps an opera window on their luxury models.

American consumers caught on, and began deserting the domestic car manufacturers in droves for the Japanese alternatives. Too late, Detroit began to recognize some of its mistakes. When the Global Economic Crisis exploded, demand destruction shrank the American automobile market by millions of units annually, at the same time that Detroit was losing market share.

Now the course of history is supposed to be reversed by, of all things, a bankruptcy filing. Is President Obama, as sincere as he is, really serious in believing that this is the path to a renaissance for Chrysler?

We are also informed that the Italian automaker, Fiat, will help to save Chrysler by offering its own automotive technology. The same Fiat that had a disastrous commercial experience in the United States, abandoning the American car market decades ago. Fiat may have excellent experience and engineering for the European car market, but to expect a merger with the Italian firm to prove more efficacious than Chrysler’s previous calamitous merger with Daimler-Benz, is simply whistling Dixie in the dark.

Chrysler is headed for oblivion, and the history books. The late “Tex” Colbert must be turning in his grave, aghast that the successful industrial behemoth he once ran so successfully is left with the forlorn hope that technology imported from Fiat is the path to salvation for a company that once stood at the top of the world in engineering excellence.

This epic is more than tragic. It is a metaphor for the reasons why the U.S. economy, once the center of manufacturing for the world, is in free fall collapse.

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

 

 

 

 

 

Is The U.S. Auto Industry Doomed?

March 31st, 2009 Comments off
Detroit has become an urban wilderness. Only a few miles from the downtown core of the Motor City can be found once vibrant neighborhoods that are now devoid of human life. Only abandoned homes remain, extinguished of their occupants by a tidal wave of foreclosures. Recently, the local and even national media have reported on a phenomenon unique in metropolitan America; animals that had not inhabited Detroit for decades, including industrious beavers, were now reclaiming their previous habitat, as more and more areas of urban Detroit have been transformed into pastoral land. No better metaphor can exist to point out what has happened to the heart of America’s once mighty automobile industry.
As the Global Economic Crisis destroys worldwide consumer demand for automobiles, two of America’s three remaining domestic carmakers, General Motors and Chrysler, look to President Barack Obama for salvation. They, however, are not alone. The financial and banking system are first in line, while states and cities starved of tax revenues are also clamoring for help from the Obama administration. No doubt President Obama has many burdens weighing on him as he seeks to provide leadership for a national and global economy in tatters. Obama did not cause the decline of the U.S. automobile industry, and no doubt he is trying to do his best in formulating policy regarding Detroit and well as the many other ailing sectors of the U.S. economy. However, the recent decisions regarding G.M. and Chrysler that Barack Obama has made will not, in my view, do much to reverse the dismal fate that seems irreversible for the once proud car builders of Detroit.
The perspective from the White House appears to be that the two domestic auto manufacturers are in dire straits because they have not formulated a business plan that is viable in current market conditions. They have therefore, in effect, been sent an ultimatum. Chrysler is being told to merge with the Italian automaker, Fiat, while G.M. was compelled to fire its CEO, and must “restructure” radically within two months, or face bankruptcy. Washington will only provide funding for the duration of the ultimatum, with further support only available if the expectations of the Obama administration are met in full.
With respect to Chrysler, the attempt at a shotgun marriage with Fiat is just another failed automotive merger in the making. The record of foreign carmakers buying large or controlling interests in American auto companies has been universally disastrous. One need only look to Chrysler’s relatively recent merger with Mercedes-Benz, at which time the joint company was known as Daimler-Chrysler. Prior to that catastrophic union, which Mercedes-Benz management will forever regret, there was the purchase of American Motors by Renault, the French auto giant. The end result of that merger was the extinction of AMC, with its remnants bought by Chrysler. It should also be pointed out that Fiat abandoned the American car market decades ago, so it is totally unfamiliar with the dynamics of the U.S. auto marketplace.

General Motors is a much larger carmaker, with a global presence and vast overhead. Its very size defines the essence of the problem being faced not only by G.M. but also by other global car builders, including Toyota, Nissan and Ford. Currently the world has the manufacturing capacity to assemble more than 90 million automobiles a year. However, the Global Economic Crisis has created a vortex of demand destruction in the car business, reducing global demand to around 50 million units. The overhead for maintaining this complex, global manufacturing infrastructure is staggering, and can only generate profits if sales match production capacity. With worldwide sales reduced to 50 million cars, no major car company can make money.

The only solution for preserving General Motors is to provide sufficient demand for its manufacturing capacity. This demand need not be restricted to cars; during World War II Detroit became the arsenal of democracy, as its assembly lines retooled to build the weaponry that helped defeat Nazi Germany and Imperial Japan. However, in 2009, political leadership appears to lack the imagination to see the potential of harnessing the productive capacity of the auto manufacturers in other directions that can facilitate global economic development and recovery. What we are left with are ultimatums that provide only two possibilities: bankruptcy now, or becoming “leaner” with the future possibility of insolvency still hanging like a sword of Damocles.

I do not think the Obama plan for preserving a domestic U.S. auto industry, as presently conceived, will work. At most, it may preserve fragments and echoes of what was once the mightiest industrial productive capacity on the planet. Unlike the Great Depression of the 1930s, in which industrial giants such as G.M. and Chrysler did survive and eventually prosper, the Global Economic Crisis is devouring what were once seen as the pinnacles of economic and industrial might. If G.M. and Chrysler are in fact doomed, along with much of what remains of America’s industrial capacity, this will be largely due to a policy decision that establishes the financial sector as the center of gravity for the U.S. economy, reflecting the vastly more significant taxpayer dollars that have been allocated to that sector, with far fewer strings than are being attached to the paltry aid given to Detroit.

How is it possible for the U.S. to rebuild its economy if the industrial sector, epitomized by companies such as General Motors and Chrysler, is largely sacrificed on the altar of Goldman Sachs, AIG, Bank of America and their ilk?

 

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

 

 

Global Economic Crisis Ravaging World’s Auto Companies

December 14th, 2008 Comments off

America’s car industry is on the verge of extinction amidst the global economic crisis. The Senate tuned down a bill offering Detroit automakers a $14 billion dollar bridge loan. Now it is up to the Bush administration to grant the 3 domestic auto manufactures the money from its TARP fund for the temporary rescue of the Detroit automakers; TARP was originally set up by Congress to save the financial industry from the global economic crisis.

The downturn in the auto business is not only an American phenomenon. The global economic crisis has ravaged auto producers throughout the world. Among the major European car producers come warnings of a bleak and barren 2009. The indications are growing that the deepening crisis in the automobile sector is global, going beyond the American auto industry’s desperate life and death struggle.

Recently, the CEOs of Renault-Nissan and Fiat stated that the automobile markets would undergo sustained declines in 2009. This parallels the catastrophic sales declines that have pushed the American “Big Three,” Ford, GM and Chrysler, to beg for bailouts from the government. The global economic crisis is destroying demand for cars in virtually every market.

The world’s number one car company, Toyota Motor Corp, will be reporting a loss of about 100 billion-yen ($1.11 billion at current exchange) for October-March. This is according to Japanese media. If even Toyota is losing money and cutting automobile production, how many weaker car companies will become extinct during the global economic crisis? For the auto business, as with many other enterprises, the worst is yet to come as the global economic crisis picks up the pace of its destructive impact on the world economy and global financial system.