Can Detroit Be Retooled — Before It’s Too Late?

Can Detroit Be Retooled — Before Its Too Late?

The automobile business is great. Just ask someone who’s in it. “People want to buy cars,” says Rod Buscher, CEO of Summit Automotive Partners in Denver, which owns 30 assorted dealerships nationwide. And he really wants to sell cars. The problem is that would-be buyers lack either the income or the access to credit that would allow them to drive a new Malibu or Lincoln or Camry off the lot. That won’t last forever; in fact, the automobile business figures to be good in 2011 and terrific in 2012 — which also happens to be an election year.

The question is whether any U.S. automobile manufacturer will live long enough to enjoy it. President Barack Obama would rather bridge General Motors to the future than see it collapse, but he has now made it clear that the GM we know and don’t really love is finished. So is GM CEO Rick Wagoner, who was told to hit the road, his three decades of service to GM — and strong support within the industry — now considered a liability. “This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company,” Obama said in condemning him. “Rather, it’s a recognition that it will take a new vision and new direction to create the GM of the future.” In Wagoner’s place, the President promoted COO Fritz Henderson, who has worked at the company for 25 years. Henderson gets the message: “One, go deeper, go harder; and second, go faster. And so we got it. We understand exactly what that means.”

The to-do list presented to GM by the President’s auto task force is stark and steep: shrink labor costs, including retiree health-care expenses; slash debt; kill or sell low-performing brands; and reduce the number of models for sale and the number of dealers selling them. Should GM, the United Auto Workers and the company’s bondholders fail to figure out how to execute those tasks by June 1, the government will usher GM into bankruptcy, which could lead to its breakup into “good” and “bad” subsidiaries. The bad would be sold for parts.

In that sense, GM is getting off easy: Obama’s task force gave Chrysler just 30 days to seal its proposed partnership with Italy’s Fiat Group — or else join the likes of American Motors, Packard and Studebaker in the auto graveyard. If Chrysler gets the deal done, the government will lend it $6 billion to sustain its operations. But Chrysler’s owner, Cerberus Capital Management, will leave with zero of its $7.4 billion original investment.

The landscape of the U.S. auto industry, in other words, is about to be radically reshaped. So what will its future look like It’s difficult to imagine today, with consumers hunkering down, car loans drying up and the Detroit Three struggling to survive, but the global car business may be on the verge of a big upswing in demand. Companies that can meet consumers’ needs for fuel-efficient yet stylish cars — and that have flexible manufacturing plants to turn out the hot products on demand — are likely to find huge opportunities for growth once the economy recovers. That’s partly why there’s so much riding on the Administration’s plans to revamp GM — and why it had better happen fast. If U.S. automakers don’t take advantage of the coming car boom, the rest of the world will.

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