x Abu Dhabi, UAEMonday 22 January 2018

US presidential contenders put different spins on car industry bailouts

David Booth on how the bailout of General Motors, as well as the futures of Chrysler and Ford, have become political hot potatoes in the United States.

Chief executive Dan Akerson, seen last month giving evidence to a Capitol Hill committee convened to investigate the Chevrolet Volt fires, is General Motors’ third since the company was declared bankrupt in 2009 and then gifted a government bailout. He says the Volt has become a political punching bag. AP Photo
Chief executive Dan Akerson, seen last month giving evidence to a Capitol Hill committee convened to investigate the Chevrolet Volt fires, is General Motors’ third since the company was declared bankrupt in 2009 and then gifted a government bailout. He says the Volt has become a political punching bag. AP Photo

Two and a half years ago, there was no way to predict the phenomenal resurgence that has occurred since General Motors and Chrysler were forced into bankruptcy and restructuring. Indeed, in the name of full disclosure, I have to admit that at the time I was in favour of bailing out General Motors, but I though it was best that Chrysler be left to flounder. The company had consistent trouble in engineering competitive products, its reliability record was incredibly spotty and its customer service was among the worst in the business. And, while I still have some questions about Chrysler's long-term viability (as does, judging from his recent press conferences, CEO Sergio Marchionne), the company's success over the last 12 months has proven me, at least for the short-term, egregiously wrong.

Both General Motors and Chrysler are beating analysts' expectations and flummoxing the competition, which seems to be driving the American Right to distraction. Supposedly the bastions of enterprise and keeping jobs in American, many in the American Republican party continue to hold on to their tired old dogma that their car makers should never have been bailed out in the first place. That their tough love was not applied to Detroit still rankles despite the companies' success and behind the scenes the auto industry has become something of a political football.

Perhaps the most distressing example of this is the hullabaloo over the fires that have been reported in Chevrolet's new Volt extended-range electric car. For the record, there have only been two, one in a car that was part of a crash test and another in a rather convoluted laboratory experiment that proved hard to simulate. The American National Highway Traffic Safety Administration has since cleared the Volt after GM made a slight modification and The General offered to buy back all cars from any unsatisfied Volt customer.

Yet the controversy drags on. Most distressing is the contention of Dan Akerson, General Motors' latest chief executive officer (it's had three since the company's 2009 bankruptcy), that the Chevrolet Volt has become a "political punching bag" for critics of the original bailouts. According to Automotive News, Akerson wrote, "the Volt seems, perhaps unfairly, to have become a surrogate for some to offer broader commentary on General Motors' business prospects and administration policy" in his testimony to the House Oversight subcommittee looking into whether the investigation of the two fires was deliberately delayed.

It is worth noting that the chairman of the subcommittee is a Republican vociferously against the original bailouts and who vows to continue pursuing his right-wing agenda. And the loser, as Akerson points out, is GM's halo vehicle, the Volt, whose sales have suffered since news of possible fire hazards were leaked.

Of course, the other side of the table is not immune to political gamesmanship. In his recent American state of the union address, Barack Obama, the US president, praised the resurgent American car makers and their job creation (he says the industry in America has added 160,000 jobs since he came to power). Of course, sceptics can grouse (with some authority, I might add) that with so few triumphs in the first two and a half years of his administration, Obama had little choice but to trumpet Detroit's (OK, Detroit's and Turin's) rather astonishingly quick return to health as one of the successes of his administration's policies.

Although if one were being scrupulously honest, you'd also have to admit that the tsunami that crippled Japan's motor industry benefited America's Big Two-And-A-Half. Nor did having former number one car maker Toyota suffer a much overblown unintended acceleration crisis hurt their cause either. One could, were one truly unkind, even note that, having hit rock bottom, there was no direction other than a Saab-like complete failure for the American manufacturers to go.

Nonetheless, by any measure, they have been resurgent since their 2009 bankruptcies and taxpayer-fuelled restructurings. Never mind that the bank loans so derided just a few years ago are being paid off faster than imagined. Or that Fiat so loves Chrysler that it is buying up its outstanding shares faster than predicted. All three domestic car makers have increased their market share since 2009 and, for the first time in many a year, Detroit's combined portion of the North American market has actually increased.

But the true measure of their success is that the domestic brands are building (mostly) better cars and, more importantly, the public is buying them. Chevrolet's Cruze may not yet be the number one compact car in North America, but considering that just a few short years ago critics decried as impossible the profitable manufacture of a small US car, the million Cruzes sold worldwide must stand as a monumental success.

And, has any brand been so comprehensively and thoroughly revised as Buick? North American consumer awareness of the once-somnolent brand's new product may still lag behind the excellent product in its showrooms, but I predict a notable resurgence in Buick sales over the next few years.

Chrysler, initially decried in Italy as a burden on parent Fiat, is now filling the company's coffers with profit as the European sales tank. The new Dodge Dart may not be as pretty as the Alfa Romeo Giulietta that it is based on, but I suspect it, too, will enjoy a modicum of success. And sales of Ram pickups remain stellar, the company's pickups now challenging the finest from both Ford and GM.

Even boring old Ford is cranking out some fine cars, the new Fusion that wowed this year's Detroit North American International Auto Show a perfect example. And, where Toyota once had sole proprietorship of the green market, Ford is challenging the Asian giant with a full range of alternative products, from more fuel-efficient EcoBoost powertrains to a fully electrified Focuses. It's simply not a good time to be a Detroit sceptic.

Ideology has no place in the pragmatic world of automobile manufacturing. The industry creates too many jobs and, yes, is too important to the American psyche to be left to the whims of political demagoguery.

That so much of the discussion about whether the car makers should or should not have been bailed out is based on partisan canon and not hard-nosed business insight is just proof of how far the political discourse in the United States has gone off the rails. Indeed, while it's easy to denigrate the American Right for having been proven so wrong in this particular case, I suspect the Democrats were only right because large-scale government intervention just happened to fit their doctrine.