THE AUTOEXTREMIST

January 7, 2009

Ninety days to nowhere. Reality bites for Detroit.

By Peter M. De Lorenzo

Detroit. The New Year has opened for Detroit with what amounts to a thud, because in the cold days of early January what has changed, exactly? Not much. Yes, GM and Chrysler got their “bridge” loans, but consumer credit is still locked tight; vehicle sales are borderline nonexistent in too many places - meaning more dealers are on the brink of oblivion than ever before - and American consumers continue on their no-spending holiday, a grim reminder that the final days of 2008 are still very much with us in 2009.

But with a new President about to take office, and all the changes that may (or may not) entail, here are some key things to contemplate about Detroit and the automobile industry in general going forward in 2009...

The Obama administration will bring a different perspective to Washington, but that alone won’t be enough to save Detroit. Yes, President-elect Obama will bring a different perspective to Washington - and the challenges facing the auto industry - but that alone won’t save Detroit. Not when there are southern senators and members of Congress who are hell-bent on destroying the Detroit Three in their quest to ultimately replace the nation’s homegrown auto industry with a loose network of imported auto manufacturing facilities based in the Southern Corridor. Not when there are members of the new establishment in Washington who are rabidly pushing for a huge green directional shift for industry and manufacturing in this country, with little concern about what the realities or the ramifications of that kind of massive shift on America’s manufacturing base or immediate economic future. Not when our leaders in Washington continue to give a free ride to countries and manufacturers who want to do business here, at the expense of our own industries and manufacturing base. And especially not when the nation’s consumers are locked in this painful reduced-credit or no-credit holding cell that has paralyzed commerce across the country.

As I’ve said before, no matter how well-intentioned President-elect Obama is and how exuberant or visionary his agenda may or may not be, if consumer spending doesn’t resume - allowing companies to generate revenue and putting this country back in business - then the rest of it won’t matter for Detroit, or the rest of the nation for that matter either.

Getting American consumers to look beyond the negative perceptions and discover the positive reality about Detroit’s competitive models might be the most daunting, make-or-break marketing challenge in history. Speaking of the American consumer, the most damaging byproduct of the lambasting that the Detroit CEOs suffered in Washington was that it seared a losing image for the domestic automobile companies - at least two of them anyway - in the American consumer consciousness. The people who hated Detroit to begin with found reassuring affirmation in what went on in those hearings, of course, but it was the consumers out there who really didn’t have an opinion one way or another about the subject who were swayed against Detroit - primarily Chrysler and GM - because of the Grand Inquisition that went on in Washington. The entire fiasco laid waste to Detroit’s hopes that a quick turnaround of the American consumer mindset was just around the corner.

In a world where Detroit has tremendous difficulty getting consumers to even look at their product offerings, let alone actually consider buying them, the debacle in Washington was devastating, which makes the task facing the Detroit Three’s marketing mavens the most daunting, make-or-break marketing challenge in history. The majority of American consumers, even when presented with the facts and reams of evidence to the contrary, still don’t believe that Detroit builds desirable or fuel-efficient vehicles, and that must change if Detroit is to survive in some way, shape or form.

Despite the pronouncements and the table-pounding, Washington will find out little in 90 days. The 90 days given to GM and Chrysler to allegedly get their acts together reinforced how little Washington knows about the car business and the industry in general. The thread that Chrysler LLC is hanging by is on its last tendril, and the loans that the company received may only allow it to get out from under the debts owed to key suppliers. I said at the end of last year that I didn’t see a future for Chrysler beyond the first quarter, and nothing I’ve seen has given me a reason to change my mind. As for GM, they can rearrange their brands, deemphasize their brands, ice some brands or shelve some brands altogether, but that will have little or no effect on the company over the next three months, no matter how much foot stomping and hand-wringing goes on in Washington. Short of a complete cessation of state dealer franchise laws and a wholesale shift of corporate emphasis to just two divisions - Cadillac and Chevrolet - GM’s future will remain murky, at best, and well beyond the 90-day “window” too.

What Washington will find out about Detroit and the U.S. auto industry in 90 days. Two things: 1. The crushing reality of the situation for the U.S. auto industry at this very moment in time is that at the current sales rate, only one Detroit auto manufacturer can survive long term (in this case, long term is defined as 2010), and Washington will either have to come to terms with what that will actually mean for America’s economic future going forward, or it will have to take even more aggressive actions and measures designed to prevent the total implosion of the domestic auto industry and in turn the continued erosion of our manufacturing base. And 2., That without a coordinated and comprehensive economic stimulus program that not only restores consumer confidence and gets people spending again (while restoring order to the national banking system), but lays the groundwork for a sustainable, supportive and reinvigorated future for the U.S. manufacturing base, then the U.S. automobile industry will be left reeling indefinitely.

Sobering words on the eve of the 2009 North American International Auto Show, but in this case, reality well and truly bites.

Thanks for listening.