DANIEL HOWES

Howes: Automakers learning from past mistakes

Daniel Howes
The Detroit News

Detroit’s automakers are downshifting, meaning that performing today is a more pressing challenge to earn the credibility they crave.

Second-quarter financials so far this week show it. Collapsing car sales show it. And yet pickups and SUVs are helping to deliver double-digit profit margins in the bellwether U.S. market — necessary, but not sufficient, to persuade a skeptical investment community that Detroit can manage an inevitable slowdown and place the right bets for a fast-evolving future filled with a new kind of competition.

The American market is morphing from record highs. Pulling it down is continually declining demand for traditional sedans. Add increasing pressure from investors and the certainty that traditional automakers can’t hope to compete with Silicon Valley heavyweights for the self-driving future without maximizing revenue and profits from current vehicle lineups.

That’s why General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV are showing a determination to avoid the good-times complacency that helped deliver the industry’s worst existential crisis just nine years ago. It shows.

It’s why Ford ousted former CEO Mark Fields just five months after the Blue Oval posted record earnings for last year; why GM is bolting Europe, India and South Africa even as it evaluates whether to drop slow-selling models; why FCA stopped making cars in the United States; why all three are continually reviewing product lineups.

Responding quickly to changing market conditions, and recognizing longer-term trends their predecessors routinely would have ignored, isn’t a choice. It’s a requirement, evidence that the survivors of the Real Reckoning learned hard lessons from mistakes of the past.

GM CEO Mary Barra and Ford CEO Jim Hackett are not just armed with the tools to chart changing demand. They’re using them to eliminate shifts, to kill slow-selling models, to move production overseas and to mull whether to exit segments altogether because projected returns are unlikely to outstrip the cost of capital. Radical idea, that.

Old Detroit it’s not. This, coming off record years for North American earnings and U.S. sales years? Yep. When profits from pickups and SUVs of all sizes are mostly offsetting the declining sales of cars? Yep. When big numbers aren’t enough to forestall production cuts or white-collar buyouts? Yep.

Pay attention to what they do. The actions of Detroit’s leaders suggest they’re more in agreement with FCA boss Sergio Marchionne’s “Confessions of a Capital Junkie” than they might publicly admit. His straight-talk manifesto, delivered a little over two years ago, says the investment thesis governing the traditional industry — and, therefore, producing low share values — will not change so long as it continues to consume capital at such a voracious rate.

Why else was Marchionne the first of the Detroit Three CEOs to stop building cars in the U.S. market, at the time stunning observers? He practiced what he was preaching. More than a year later, GM and Ford are showing unmistakable signs of moving in the same direction, painful as it likely would be for the folks directly affected.

Still, such pragmatism is unqualified good news. It’s far better than the chronic denial that for too long characterized Old Detroit — the automakers and the United Auto Workers — before the near-collapse of 2008 and the bankruptcy that followed.

Amid the most profitable run the Detroit-based industry has seen since the 1960s, today’s leaders are proving more clear-eyed about their competitive challenges and the smartest uses for scarce capital. They also understand, grudgingly, that investors are far less likely to bet big on today’s auto industry because their memory of yesterday’s near-collapse remains fresher than Detroit might like.

Call it the “New Detroit Discipline.” And the second-quarter financials out so far this week from all three automakers signal the coming months are likely to bring more of the same. The smart bet is that it will because the alternative is worse.

Now, none of this should be considered a traditionalist rant against the next-generation world of mobility, autonomy and electrification. The companies that put America on wheels, that define the deepest roots of Detroit’s identity, have no viable choice to make between the industry they know and the one they and their high-tech rivals are trying to create.

Theirs is a burden they own, and it cannot be shared with Silicon Valley start-ups. Or tech giants vying to be the Henry Ford of the 21st-century. Detroit has to do both.

Daniel.Howes@detroitnews.com

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.