The Grey Chronicles

2009.August.6

Kings of The Road to Roadkill: Postscript



This concludes the post on the book Comeback (1994), written by two Wall Street Journal’s bureau chiefs, Paul Ingrassia and Joseph B. White. After writing about the events at General Motors [GM], Ford Motor and Chrysler, America’s Big Three, it is but fitting to narrate how these companies fared after their downfall in the 1980s, and then again in the most recent time, as if a deja vu, such as the current global economic crises.

Comeback likened the scenario to the coming of the young lions. Chrysler’s CEO, Bob Eaton had run GM Europe for four years. The Swiss-born Bob Lutz has been an executive at BMW, and later chairman of Ford Europe, then lured by Iacocca as Chrysler executive vice president. GM’s John F. Smith made his mark running GM Europe and then all of GM’s international operations. Ford’s Alexander J. Trotman, a British by birth, run Ford’s automotive operations in Europe, the Far East, and North America. To all of these young lions, selling cars outside the United States was more than just a sideshow. The auto industry had gone global with the first oil crises in 1973. Finally, exactly twenty years later, Detroit was getting its first global CEOs.

GM, moreover, on 29 April 1992, announced that it earned $179 million in the first quarter, its first profitable quarter since 1990. A month later, it sold $2,9 billion of new common stock, the first time since 1955. John F. Smith was named GM president and CEO in November 1992, and by April 1993, GM announced that the Chevy-Pontiac-Canada and Buick-Oldsmobile-Cadillac car-engineering groups—created by Roger Smith, would be merged. Then Jack Smith slashed the 13,000 central office bureaucracy to just 2,000 people; as well waged war against waste by adopting Toyota’s production methods to produce the J-cars, one to replace the Chevrolet Cavalier and the other to replace the Pontiac Sunbird, to competer head-on with Japanese Toyota Corolla and Honda Civic as well as much improved small cars from Ford and Chrysler. In December 1993, GM announced that it will build cars for Toyota in Lordstown, Ohio plant. In February 1994, GM reported that it had turned a full-year profit for the first time since 1989.

At Ford, in October 1993 it launched the New Mustang. Ford sold 600,000 Mustangs in 1966, two years after its debut, making it one of the most successful new cars in Detroit’s post-Model T history. It was hailed as the All-American car. Ford then named Alex Trotman, chairman and CEO, succeeding Red Poling.

In September 1993, Chrysler formally unveiled the Dodge/Plymouth Neon to the automotive press and public. In mid-1993, Chrysler launched the new Dodge Ram, its first new full-size pickup truck in twenty years. With the Dodge Ram, Chrysler quickly started to cut into a market segment once dominated by its larger rivals. In January 1994, the Neon went on sale in U.S. showrooms, and Chrysler’ price advantage was enormous. Aside from the Neon, Chrysler hinted that two compact sedans, code-named JA, would replace Dodge Spirit and Plymouth Acclaim—virtually the last two descendants of the K-car. On January 1994, Chrysler unveiled at the Detroit Auto Show both the Dodge Strauss and Chrysler Cirrus.

The year 1994 could be called the banner year of the Big Three’s comeback, highlighted in January with the festive Detroit Auto Show. Comeback wrote:

“Ultimately, the big winner in the global car wars wasn’t Detroit or Japan. Instead, it was the American consumer. Anyone shopping for a car in America in 1994 onward would find a stunning array of high-quality choices. … By 1994, millions of American factory workers—at the Big Three, at Japanese factories in the United States, and in thousands of tributary companies—were encountering the invigorating new system pioneered by Honda in Ohio and by Toyota in Nummi. Managers were, at long last, recognizing that the men and women on their assembly lines weren’t machines or children who had to be ordered around. They had knowledge and ideas to be put to use.”

General Motors, Ford, and Chrysler raked in a cumulative $13.92 billion in profits in 1994. an all-time record that may not be equaled again soon. Early in 1995 brought a slowing of the U.S. economy that prompted the Big Three to trim production. It was yet the latest reminder that Detroit’s fortunes always will swing with the cycles of the American economy.

White and Ingrassia, writing an Afterword for the Comeback on May 1995, concludes:

“But in a volatile global economy, the winners will be the players that adapt quickly when the world turns upside down. And there, the American car companies should have a big advantage. They know how that feels better than anyone else in the business.”

Fast forward to February 2009, moreover, White (2009) speaking in a seminar, “Cars and Trucks, Markets and Government,” in Hillsdale College, congratulated his audience:

“You are all now in the auto business, the Sport if Kings—or in our case, presidents and members of Congress. Without your support General Motors and Chrysler would very likely be getting measured by the undertakers of the bankruptcy courts. … What will be the fate of a quasi-nationalized enterprise whose ‘board of directors’ will now include 535 members of Congress, plus various agencies of the Executive Branch?”


Fortunately for the Detroit automakers, there is an American government willing to bail them out of yet another crises. GSHL do not have such a big moneyed-backer to bail it out of succeeding failures in Nigeria except the International Chamber of Commerce; in Bulgaria except one big charismatic brother; in India except a consortium of Indian banks; in Zimbabwe except to ignore the probes; or in the Balkans except to let the deals fell through.

For GSPI, the Philippine government is keeping its mouth shut about what is really happening in the former National Steel Corporation [NSC]. The bank consortium, literally still the legitimate owner of the NSC plant until 2012, or when GSHL finally would have paid a total of ₱13.25 billion [$240M, prevailing FOREX rate: ₱56.2/US$], (Manila Times, 2007), is probably waiting patiently for that time to come and take action, and most likely it would be too late again reminiscent of the Malaysian Wing Tiek-Hottick era at NSC. The Philippine government might, to paraphrase Joker Arroyo (2005), yet again be holding an empty bag.

Unfortunately, there might not be a provision of re-tender (as in Kosovo’s Llamkos) or something like a re-nationalization procedure (like what happened in Ukraine or Venezuela) in the Asset Purchase Agreement of NSC with GSHL, if the promise investments to the liquidated plant were not adhered to. Whatever happened to the bank consortium’s technical audit anyway?

As John M. Richardson, Jr. once wrote:

“When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.”


Notes:

Arroyo, Joker P. (2005). Journal of the First Special Session, Thirteenth Congress. Manila: Senate of the Philippines, 05-07 January 2005. p. 7. back to text

Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. New York: Simon & Schuster, 1994. pp. 301, 450, 460-461 back to text

Valdez, Katrina Mennen A. (2007). Global Steel to keep investment in Iligan City-based facility. Manila: The Manila Times, 22 May 2007. back to text

White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text

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