Tuesday, June 2, 2009

The Heartbeat of America in Cardiac Arrest

There is a radical reorganization going on in the American automotive industry and low or zero emission vehicles are at the heart of it. General Motors (GM) and its subsidiary Chevrolet, a company that once described itself as 'the heartbeat of America' has succumbed after a long illness. The anticipated demise of GM was officially announced yesterday. This news comes after Chrysler filed for Chapter 11 in April.

GM has made history as the largest US industrial company ever to file for bankruptcy protection and Fiat's acquisition of Chrysler makes Ford the sole remaining American automaker. Although Ford may not be declaring bankruptcy, like many other automakers, it is suffering too.

These last couple of years have been extremely hard for the auto industry. In the US, the mortgage meltdown had already taken its toll before the global recession hit. Although the recession may have hastened its demise, GM's death cannot be attributed to the economic downturn. GM has been gravely ill for a long time as evidenced by the fact that they have not been competitive for decades. According to an AdAge article last week, GM vice chairman, Bob Lutz assessed GM products of the '70s, '80s and '90s as "brilliantly executed mediocrity."

Efforts were made to save GM, but after the phenomenal boom in auto sales during the '50s and '60s, and the decades of mediocrity which followed, GM was too fat and lazy to be rehabilitated by simple regimes of diet and exercise. The fact that it took so long for GM to come down to earth and die illustrates the awesome heights it had reached during Detroit's heyday.

GM died because it was morbidly obese and now nothing short of a new heart will resurrect the once great automaker. However, GM's heart replacement will not be painless, the government will have to infuse another $30 billion and become GM's controlling shareholder. Even these extraordinary efforts will not save an additional 21,000 union jobs nor keep thousands of dealerships from closing. Perhaps most worrisome is the liklihood that serious difficulties will undermine other industries that rely on GM.

Although the Obama administration is committed to softening the blow, GM's reorganization will put a strain on an economy showing signs of recovery. Despite this, the certainty of GM's reorganization is preferable to a continuation of the slide that has been weighing down the American economy. Last week shares of the now deceased auto maker sank below $1 for the first time since the Great Depression, by Friday GM's stock tumbled to the lowest price in the company's 100-year history, closing at just 75 cents.

Despite the painful effects there are significant advantages to GM's bankruptcy. As I argued in a Green Market article in February, the reorganization that bankruptcy protection affords makes it the best option for two of the Big Three automakers. Mr Lutz indicated that GM's filing will rid the firm of, "a lot of historic legacy costs that have been dragging us down for the last 20 years or so." He added that GM's current ratio of retirees to active workers is 10-to-1, and the company has paid out $103 billion in health-care benefits in the past 15 years. "That is a charge our foreign competitors simply don't have," Mr Lutz said.

Mr. Lutz clearly appreciates Washington's close involvement, he said he is "thrilled that Detroit has an ear in Washington and hopes some form of the panel is made permanent." He also explained that "the government doesn't want to run the two companies; rather, it's in the government's best interest for both automakers to be successful in the future so taxpayers can be repaid."

According to the annual data for the fiscal year ending in March, Japanese automakers are also reporting losses. Nissan reported fourth quarter losses equivalent to $2.8 billion, the firm's first annual loss in 10 years. Nissan officials blame the financial crisis in the United States (US sales dropped 19.1%), the global recession (worldwide sales are down an average of 9.5%) and a strong yen. Mazda also reported losses, however Mazda's focus on hybrids and electric vehicles lead many to believe they will rebound.

AdAge.com reports that that the new GM seems to have a better grasp of the future of automobile manufacturing. An ad scheduled to be launched tomorrow will explain the "new GM" to the American public. "The automaker already posted the 60-second spot online, including on YouTube and Facebook, shortly after it filed for bankruptcy protection yesterday morning."

"Let's be completely honest: No company wants to go through this," says the spot. "But we're not witnessing the end of the American car; we're witnessing the rebirth of the American car. General Motors needs to start over in order to get stronger. There was a time when eight different brands made sense. Not anymore. There was a time when our cost structure could compete worldwide. Not anymore. Reinvention is the only way we can fix this, and fix it we will."

According to their ad, the new GM will have fewer models and more efficiencies. The 60-second spot, includes buzz words like "Greener," "leaner," "smarter" and "faster." The ad makes the point that "this is not about going out of business; this is about getting down to business." As Mr Lutz said, the new GM, "will be smaller and leaner, but it will be a powerhouse."

Recent events in the American automotive industry further illustrate how efficiency is driving the new economy. Like a pheonix from the ashes, GM will be reborn through the application of a more efficient business model that involves manufacturing Greener cars.

Related Articles:
Efficiency and Auto Industry Bailouts
To Bail or Not to Bail: Financing the American Auto Industry
The Way Forward


Brett Rogers said...

Buying a GM vehicle is un-American.

Anonymous said...

Heartbeat of America or Scam only time will tell the future of Chevrolet and if they will be able tto stand behind their warranties

Anonymous said...

Give me a break buying a GM vehicle is American. I grew up on Chevy and the Heartbeat of America jingle. Anything other is a scam on being American in a country I love and believe in.

topblogdog said...

Heartbeat of America is obviously in cardiac arrest. They have tried to scam Americans long enough with their untruthful comments.

Anonymous said...

Chevey is a scam. They are not the heartbeat of America.

Anonymous said...

The true Heartbeat of America is Obama. He is not a scam but the best darn President America has seen in a long time.