THE AUTOEXTREMIST

May 4, 2011

All bunny rabbits and rainbows for Detroit? Not so fast.

By Peter M. De Lorenzo

(Posted 5/3, 1:00 p.m.) Detroit. In case you hadn’t noticed, the media buzz of late has been all about the fact that Detroit is poised to make real hay in the market as its Japanese competitors, specifically Toyota and Honda, struggle from a combination of the lengthy recovery needed from the tragic earthquake and their own serial marketing and product incompetence.

The positives for Detroit are stacking up like piles of fall cordwood, starting with the improved balance sheets for two of the Detroit-based automakers – GM and the Fiat-owned Chrysler – due to the bankruptcies, the fact that Ford is leading the way with its unrelenting and disciplined product focus, and the general acknowledgement that the Detroit-based automakers are finally building some excellent and remarkably competitive products that can stand on their own in the marketplace.

These are all good and verifiable things, to be sure.

But as with anything lately there’s the knee-jerk, 10-second “deep” dive that counts for cogent analysis these days, and conversely there’s the creeping reality running underneath what’s happening that defines what’s really going on, and for the record the twains only rarely meet in this era of “instant” auto experts and satellite level views of the business.

As for the positives, there’s no doubt that GM’s troops, having been fortified by the freedom of the second chance given to them when their hellacious debt load was simply wiped clean in the “quick-rinse” bankruptcy, have refocused on their new product cadence and have the bit in their teeth as they race to gain respectability on all fronts. And their sales growth in the Chinese market is indeed impressive.

And the Fiat-owned Chrysler, which was basically handed over to the Master Manipulator – Sergio Marchionne – by the Obama administration because they were clearly out of ideas and Marchionne’s Fiat group provided the best option, has performed miracles with the freshening of its existing product lineup (not counting the dismally mediocre Chrysler 200), and is poised for a return to profitability, if not outright respectability.

And what can be said about the Alan Mulally-orchestrated Ford Motor Company that hasn’t already been said? Driven and relentlessly focused on the task at hand, I don’t expect they will be taking their foot off of the gas anytime soon. And that’s all well and good.

The two domestic automakers, Ford and GM, each have burgeoning strengths going forward. GM is poised to make piles of money simply because they don’t have the debt load that was crippling them before. But make no mistake: they’re delivering excellent products to the market and finally, finally, marketing them properly and with aplomb. And with Toyota’s travails, GM is poised to flex its muscles again as the world’s largest automaker. (Not that this is necessarily a good thing for GM, given CEO “Lt. Dan” Akerson’s blunderbuss approach to most aspects of the business and the healthy dose of misguided ‘tude that he seems to ladle on every move he makes, but I digress.)

Ford on the other hand has one of the best product development teams in place in the business and their knowledge and ability to transform their vision into real products that are desirable to customers across the spectrum of life in the U.S. market is indeed impressive and not likely to get off track for the foreseeable future. And Ford marketing, until proven otherwise, is simply the best in the business right now. So Ford will remain formidable and will stand toe-to-toe against any competitor in the business.

The picture for the Italian-owned Chrysler isn’t so rosy because it’s simply incomplete, but I’m willing to give them the benefit of the doubt, at least for a while. Suffice to say the product freshening and the smoke-and-mirrors marketing will only carry this enterprise so far and it won’t be until the first quarter of next year, when Chrysler is allegedly going to drop a 40-mpg compact in this market, that we’ll really know.

That is the extent of the “bunny rabbits and rainbows” portion of our program today because the rest of the story is that Detroit’s vaunted “recovery” is tentative, at best. Any number of factors could derail this feel-good train at any moment.

First of all, with $5.00 per gallon gasoline looming on the horizon the profitability of all three of these automakers will come under severe pressure because let’s face it, the gaudiness of recent earnings statements has been bolstered by pickup truck sales, Detroit’s traditional bastion of profitability. Not that the newly reinvigorated GM and Ford are incapable of delivering profits with their new small car offerings because they can and they will, but let me be clear, pickup truck sales have been the story here, and with fuel-efficiency now Priority No. 1 for most U.S. auto consumers, the share of pickup truck sales in the overall market will dwindle, even though Ford’s excellent EcoBoost V6 application in its F150 is showing surprisingly well.

But that’s not all, because there’s a very real possibility that the increased fuel prices will start to put a damper on the recovering U.S. economy as a whole, and if that happens, watch out.

Then there’s the supplier tsunami that is the direct result of the devastation in Japan. This is real and it will grow uglier by the month before it even begins to get better. The resulting plant closures and product restrictions will put tremendous pressure on the Japanese automakers, that’s a given, but it will negatively effect the Detroit automakers as well.

And let’s not forget that as much trouble as the Japanese car makers find themselves in now, it won’t last. And anyone who thinks they won’t come back re-energized and ready for battle is simply kidding themselves. But then again a reinvigorated Honda or Toyota may not even matter in the grand scheme of things, because the Hyundai/KIA automobile making machine is growing stronger and more impressive by the model, and any feeling of success currently percolating in Detroit should be tempered by the knowledge that the relentless Korean automaker will not stop until they’re the most successful import manufacturer doing business here – if not the most successful car manufacturer, period – one that will apply pressure and threaten the Detroit Two + One from this day forward.

And on top of that, as if this story needed any icing on its cake, there’s the whole “Detroit Vacuum” thing. What I mean by that is the insular mindset that rears its ugly head once in a while around here (much too frequently in the past, in fact), which has executives in this business set their capacity for rational thinking – and sanity – aside while narrowing their view of the world to a 50-mile radius. I can tell you that this leads to poor decision making, clouded judgment and an irrational view of the way things are. (Memo to “Lt Dan”: You’re new around here but this could easily be directed specifically at you.)

Over the years I’ve seen the dreaded “Detroit Vacuum” suck the very life out of previously rational and genuinely smart people, leaving them to become babbling, blithering idiots functionally inept and utterly incapable of rational thought.

My advice to the well-meaning executives toiling away in Auburn Hills, the RenCen and over in Dearborn?

Pay no attention to the man behind the curtain. And those dulcet tones roiling around in your head that sound remarkably like the siren song of success?

Things aren’t what they seem, so change the channel because it’s not doing you a lick of good.

And while you’re at it avoid the press clippings and any idolaters in the media who would have you thinking that you’re really pretty good and that things are really going well, because that’s exactly when things can turn to shit in a heartbeat.

In short, Detroit isn’t back. It’s finally off of the mat to be sure, but back? Nah.

The global marketplace has redefined what “back” is in this business. There are new parameters and new standards for success and the bar is being raised higher by the day.

So no, Detroit isn’t back.

Detroit is, however, fully engaged and on its way to being consistently competitive. And in this first week in May, in the year 2011, I’ll take that as a positive.

And that’s the High-Octane truth for this week.

See another live episode of "Autoline After Hours" with hosts John McElroy, from Autoline Detroit, and Peter De Lorenzo, The Autoextremist, and guests this Thursday evening, at 7:00PM EDT at www.autolinedetroit.tv.

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