June 10, 2013 at 10:44 AM ET
General Motors achieved a significant milestone this past week, the maker regaining the spot it long held on the much-watched S&P 500 stock index. The significant step came barely a month before the fourth anniversary of GM’s emergence from Chapter 11, a bankruptcy that likely would have destroyed the automaker if not for a $50 billion federal bailout.
There are other signs GM has turned the corner including strong May sales, an eagerly sought increase in its U.S. market share – and the concurrent surge in its stock price which finally has surpassed the $33 level set during a November 2010 IPO.
And GM isn’t alone among Detroit’s Big Three automakers. Ford has posted an equally significant jump in sales, share and stock price, while Chrysler has maintained a steady month-after-month increase in volume that has continued unabated since it emerged from its own bankruptcy four years ago. That has helped drive up the stock price for Fiat S.p.A., the Italian automaker that took control of Chrysler as part of its own bailout process.
Industry analysts point to a variety of factors for Detroit’s collectively strong performance. Union workers, fearing for their jobs as the makers teetered on the edge of the abyss, lent a helping hand by delivering concessions cutting labor costs from more than $70 to barely $50 an hour.
But perhaps nothing matters more than the product side where the three makers have dramatically improved both the quality and appeal of their individual line-ups with new products such as the Cadillac ATS sedan and the Ram 1500 pickup truck -- named North American Car and Truck of the Year, respectively, last January.
That’s not to say Detroit’s Big Three can ease up on the throttle and blithely assume that success is their birthright, an errant attitude that led to their near collapse during the days leading up to the recent recession – which saw the worst downturn in the U.S. automotive market since the Great Depression.
“Even though things are looking good, they can’t guarantee success,” cautions Stephanie Brinley, automotive analyst with IHS Automotive.
If anything, competition is more intense than ever, with manufacturers from Europe, Japan and Korea ramping up their own game. The automotive market – both here and abroad – is more fragmented than ever. And the cost of doing business is steadily increasing as the industry faces pressure to come up with battery-cars and other alternative propulsion systems that can improve fuel efficiency while reducing emissions.
Significantly, each of the Detroit makers emerged from the past recession with a unique business strategy, a sharp shift from their historical pattern of marching largely in lock-step.
Chrysler, for example, has melded almost seamlessly into Fiat’s global empire. In fact, some might say it’s the other way around. The Italian maker is struggling desperately as its home European market is now facing its worst downturn in decades. In fact, Fiat/Chrysler CEO Sergio Marchionne has signaled he just might move the combined headquarters of the two companies from Turin to Detroit.
In some instances, the Detroit makers have found it better to work together – co-opetition, some call it. GM and Ford recently launched a joint venture to develop new, highly-efficient 9- and 10-speed automatic transmissions.
But the domestic makers also are forming alliances with erstwhile opponents abroad. Ford is working with Toyota, for example, on the development of a new hybrid drivetrain that could be used in big trucks, such as the Ford F-Series and the Toyota Tundra.
Of course, the steady upsurge in the U.S. market hasn’t hurt Detroit. If anything, having paired back excess capacity during the last recession, the makers are now struggling to keep up with demand, adding tens of thousands of new jobs after decades of cutbacks. Those leaner operations – along with labor cost cuts – helped Ford achieve enviable margins of around 11% in North America last year.
At the same time, Ford and its cross-town rivals have recognized more than ever that they can’t count on the U.S. market alone. GM this past week announced it had set yet another sales record in booming China. It is today the second largest auto manufacturer in what is now the world’s largest automotive market. Significantly, about two-thirds of GM’s total sales now come from outside North America, a shift it signaled when it introduced the convertible version of that most classic of American sports cars, the new Corvette Stingray, in Geneva last March.
On the downside, as with Fiat, General Motors and Ford are desperately struggling to reverse years of massive losses in Europe. GM recently launched an aggressive new turnaround strategy there but skeptics say that if the latest plan doesn’t take hold it might have to sell or even close its long-troubled Opel subsidiary.
For the moment, investors seem pleased with what they’re seeing from Detroit. But Europe isn’t the only challenge facing the domestic makers. Toyota, for example, this week unveiled its 11th-generation Corolla, a car that could not only firm up its position in the U.S. but help it challenge GM in China.
Meeting with shareholders at GM’s Detroit Renaissance Center headquarters this week, CEO Dan Akerson declared the 2009 federal bailout a “success.” Perhaps, but GM and the other domestics all recognize that success can be fleeting and they have a lot of challenges ahead of them.
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