Auto Industry Comeback: Creating the Conditions for Success
Brad Plumer has a well-reported article about the domestic auto industry’s comeback, and how it derived from ending the failed business model of selling more and more gas guzzlers, and responding to consumer desires for lighter, more fuel-efficient cars. It’s a good in-depth piece, here’s an excerpt:
“The economic recovery and a deep bench of fuel-efficient cars and crossovers have been driving our sales for more than a year, but the combined impact has never been stronger than it was in March,” Don Johnson, vice president of GM’s U.S. sales operations, said in a statement. “Since the last time fuel prices spiked, both the economy and GM’s product portfolio are undeniably stronger.” […]
But there’s a more subtle reason that the Big Three are succeeding. With gasoline prices topping $4 per gallon in many parts of the country, Detroit needed to offer reliable, fuel-efficient vehicles that Americans would actually buy. And, unlike when they faced this situation in 2008, the Big Three are well prepared this time around.
“The Big Three are in a far better place than they were in 2008,” said Michelle Krebs, a senior analyst at Edmunds.com. “They’re all producing really good mid-sized cars, compact cars, subcompact cars. Back then, they often didn’t even have a player in some of those categories. There wasn’t a Ford Fiesta [in the United States]. There wasn’t the type of Ford Focus we have now. There wasn’t a Chevy Cruze, a Chevy Sonic.”
I could see this story getting spun into a theory about how businesses need to be allowed to succeed. No Administration should take credit for the auto industry comeback, in this telling. Only the titans of industry who responded positively to market wants and needs should take the credit.
But of course, those same titans must be put in a position to succeed. And that’s where the government came in with its bridge loans. Without them, no private investor would have kept the auto industry going through bankruptcy because of the uncertainty looming on the other side. Without the kind of investment the US provided, particularly for ancillary industries, the supply chain could have evaporated, particularly if one or more of the Big Three sank. Detroit would not have been in the position to make better cars without the largesse of the federal government, largesse which has been paid back, not only in the raw dollar amount, but in the boost to the domestic economy.
Most important, the rescue provided the time necessary for the automakers to land these new products and bring them to market, given the push provided by new fuel efficiency standards. It takes years to get cars from concept to conclusion, and even a stripped-down industry wouldn’t have been able to capitalize on the success of these new models, because they wouldn’t have had the ability to introduce them.
I hope it doesn’t get lost that the story of the auto comeback is a story about government creating the conditions for success. It’s also a story about union sacrifices, added with the ability to share in the upside. And it’s all working for the moment.