David Booth examines the options for the 'Big Three' as the bleak economic picture unravels Detroit may seem to be both thousands of kilometres and a cultural wasteland away, but the United States is still the epicentre of the economic tumult that has yet to loosen its grip on worldwide headlines. Meanwhile, Michigan, and in particular the city of Detroit, is the nexus of the incredible implosion in the automotive market. While it may no longer be true that what's good for General Motors is good for America and what is good for America is good for the world, Detroit's annual North American International Auto Show has long been the centre of automobile happenings. And this year, even more than in past years, the news out of Cobo Hall may have an even larger impact on the global auto market.
First the bad news: Chrysler is dead. Today, tomorrow, next week, next month or next year, at some point in the not so distant future Chrysler will cease operating as a full-line supplier of automobiles. Whether the company simply folds, is parcelled off piecemeal or is sold off as a going concern, the days of it operating as a fully-independent, multi-brand automaker are almost certainly numbered.
One seemingly insurmountable problem is that Cerberus Capital Investment, Chrysler's owner, is a reluctant car maker at best. Quite why it bought the company from DaimlerChrysler is a question of much speculation. But this much is certain; they most certainly now have no interest in running an auto manufacturer, the financiers having almost strangled the car maker's new product development. There are plenty of other good reasons to predict Chrysler's demise - including that it is the only one of the "Big Three" that is completely North American centric with no overseas buffer for its troubled North American operations - but the most obvious is one of pure power politics. Though Chrysler got US$4billion (Dh 14.6bn) in the first round of bailouts, no one doubts the automakers will require additional rounds of public financing. And if a scapegoat or sacrificial lamb is needed to make the next round of money more palatable to an already irritated taxpayer, ownership by a private equity firm almost certainly makes Chrysler first in line to be refused.
The good news in all of this is that Chrysler's demise or downsizing is probably a good thing for the North American automobile industry. Instantly, there will be less overcapacity in the American market. GM and Ford might even sell a few more cars. It may be wishful thinking, but the current Chrysler owners should be more likely to turn to a domestic manufacturer than to an import. And if liquidation is the most likely scenario, then GM or Ford could pick up Chrysler's still wildly successful minivan business (it's also likely that the other successful model in its portfolio, the Dodge Ram pickup, would go to Nissan who already has contracted production of its new Titan to Chrysler). In other words, it could be the "healthy rationalisation" that is often touted as the only benefit of a recession.
Another long-time Detroit icon probably making an exit is General Motors' CEO Rick Wagoner. By all accounts, Wagoner is a good man - intelligent, thoughtful and well-apprised of the challenges facing his company. He is also a profoundly decent man, one of those unusual bosses who, when he claims to actually care about his employees, doesn't sound like he's reading a script from a management manual.
Unfortunately, that very thoughtfulness may also be exactly the reason that he is ill-suited to turning around the world's once largest auto manufacturer. His seemingly total aversion to confrontation has meant that the various cuts, clawbacks and renegotiations that have long been needed to return GM to good health have always been done at the last possible minute. In each case, Mr Wagoner seems to have hoped that the cancer would somehow miraculously disappear, only finally resorting to the long-overdue surgery when the patient is on the brink of collapse. Indeed, even now, as his company faces complete and utter ruination, he can't seem to bring himself to face the cancellation of moribund brands like Pontiac or chop the company's oh-so-bloated US dealer network. And anyone expecting Mr Wagoner to suddenly grow some cojones and take on the UAW head-on is in for great disappointment, I think.
The final big loser in this scenario is the auto show itself. So far, Porsche, Nissan, Land Rover, Rolls-Royce, Suzuki and Mitsubishi have all pulled out of Cobo Hall, while Toyota and Honda have seriously scaled back their presence. Once the most important auto show in the world - mighty enough in fact that it needed three names, as in Detroit/North American/International Auto Show - the early January gathering along the Detroit River has long been the one must-see event for anyone in the auto world. In recent years, as the importance of the "Big Three" has waned, so the show's substance has slowly eroded. I suspect that, with this year's cancellations, that entropy will turn into a full-fledged rout.
Despite this, I think there is some justification for optimism to shine through the despair that is the automotive segment. This recession is now the longest-running economic slowdown in recent memory and at least some are finally predicting something approaching a recovery. There's even talk of North American auto sales enjoying a (very) modest rebound in the second half of 2009. Of course, it is dependent on a whole slew of factors, the most important being the effectiveness of Barack Obama's turnaround plan and whether the housing market - the barometer of the American economy - rebounds, or at least stabilises.
That buoyancy, however slight, will likely cause some to grasp for any shining light at the Detroit show, and the pundits will be especially on their guard for some good news from any of the "Big Three". The leading candidate for positive headlines is the new Fusion hybrid which Ford is claiming can drive 41 miles for every American gallon of gasoline (5.7 litres per 100 kilometres). That's eight miles more than Toyota's much- heralded Camry hybrid and only seven miles less than the much smaller Prius. It will also make the Fusion the most fuel-efficient midsized sedan in America. It should quiet some of the congressional critics who questioned the commitment of the "Big Three" to fuel conservation.
We should also hear more substantial news from Chevrolet regarding the production of its much- ballyhooed Volt. Essentially an electric vehicle (only the electric motor drives the wheels) with a petrol-powered backup generator, the Volt is a potential game-changing technology that could put GM back atop the automotive industry. The only caveat is that there is likely to be little demand for an expensive (the Volt will probably demand a premium of about US$7,500 [Dh 27,500] over a similar car with a conventional powerplant when it is released in 2010) fuel- sipper when gasoline in the US costs just a $1.60 (Dh 6) a gallon. For the first time in memory, an American automaker may be praying for higher gas prices.
Next week, Georgia Lewis and David Booth report from the floor of the North American International Auto Show, which runs from Jan 11 to 25.