Detroit Fairy Tales

The U.S. auto manufacturers tell a pretty story. They rave about electric cars and promise a return to profitability. But the industry will have to be on governmental life support for years.

What do you mean, crisis? What Armageddon? Alan Mulally oozes with assurance. In just two years, he beams, Ford will have its first electric models on the market. And just like that – abracadabra! – Ford will be back in the black. Oh, how beautiful the new automotive world is in America!

That scenario obviously has little to do with reality. Just like their competitors General Motors and Chrysler, Ford stands with its back to the wall. The Big Three’s business model has suffered a spectacular crash. Only radical surgery can save them from oblivion, and even that’s by no means certain.

When Mulally, GM boss Rick Wagoner, and Chrysler’s CEO Robert Nardelli have to once again withstand congressional scrutiny, they’ll try to sell their magnificent dream castles all over again because they know that policy requires vision. Congress is expected to dole out $34 billion just to get the ravaged manufacturers through the winter. GM needs the first $4 billion immediately, or the company could go broke before Christmas.

A bailout is already a done deal

Help for the threatened Detroit dinosaurs is already a done deal in Washington. Regardless of whether their rehabilitation happens with or without bankruptcy proceedings, the U.S. government can’t let this key domestic industry die on the vine. Especially not at this point in time when their collapse would destroy, directly or indirectly, millions of jobs. The comprehensive system of pensions and insurance financed by the companies – especially in GM’s case – would collapse. Entire cities would face economic and social destruction. President-elect Obama, who received massive support from the powerful United Auto Workers union, therefore has to develop a workable rescue concept in conjunction with the companies, congressional leaders and union officials.

That means those making the decisions should finally come clean with those who will be affected as well as with the public and admit that a rescue of GM and Ford will take years, cost billions of dollars more and result in the loss of tens of thousands of jobs. The Big Three’s promises to repay the loans in the near future are naïve at best.

The truth is, what would help the manufacturers most – a recovery in the automobile market – isn’t on the horizon. Industry experts are predicting further losses in 2009, both for domestic and foreign markets. A recovery isn’t even foreseen in 2010. During such crisis conditions, anyone depending on alternative power systems to save the industry is bound to be bitterly disappointed. Car manufacturers need at least three model generations to perfect such new technology to the point of mass acceptance. That was the historical case for the automatic transmission, for the new electronics of the 1990s, and it will not be any different for fuel cell and battery power now.

If the United States wants to maintain at least a core vehicle manufacturing capability, the government has to remain in the background, patiently pay the bills and push through industry restructuring. Developing new technologies swallows up billions of dollars. Taxpayers must make that investment, even though Ford and GM may not sell their first electric vehicle for years. At the same time, the government has to offer incentives in the energy arena in order to build the necessary infrastructure. All of this takes time. If all goes well, the first electric production models might appear on the market in ten years or so.

GM and Chrysler have to merge

Over that period, Chrysler will not survive as an independent company. An emergency merger with GM may perhaps be the only solution to save individual models and brands.

In order for the Big Three to actually begin their taxpayer-financed restructuring, the UAW must also make big concessions. They have to make compromises that will result in production costs comparable to those of their foreign rivals in the Southern states before they can once again compete.

Despite all the bad news, GM and Ford still have one major advantage over their foreign competition: Americans – like the Germans and French – prefer to buy domestic cars. Independent of oil prices, climate change and their significance to the people, limousines, sports cars and pickup trucks made by Ford and GM have been a part of the American way of life for nearly a century. But the companies now have to change with the times – and survive.