As I went over the materials from the class, I decided that answering the question, “Are the Detroit Three Back?” was one of the key points. So, what do you think? Are GM, Ford, and Chrysler doing well now?
Bloomberg suggests that these three companies that were “famed for hubris and mismanagement a few years ago,” are now doing much better. As we all know, GM and Chrysler went through bankruptcy. Although Ford did manage to survive without bailout funds, it still asked Congress for an emergency $9 billion credit line.
Today, they are all doing well. GM reported that they made $9.19 billion profit in 2011, and Ford and Chrysler reported their best sales since before the recession in March. This leads to the assumption that they are building cars that people actually want to buy now.
General Motors (GM) hopes that with their new model “Corvette Stingray,” they can get a whole new sort line of buyers, the ones same buyers who drive Audi or BMW. More importantly, GM wants to improve their reputation, which is known as a brand that makes lousy cars. If it succeeds, then it will be a new era for the American auto industry. One of my concerns about GM is that the price of their stock has to go to pay off the $49.5 billion bailout. Hopefully the price goes up soon for the repayment. Ford and Chrysler are also following GM’s strategy.
Also, the difference in quality of American cars and Japanese cars has reduced significantly, so the reputation of American cars has changed. Hopefully, this fact will help the Detroit Three to return to their former place of glory.
In terms of quality, there’s no (statistically) significant difference among the volume cars, or only one so small as to be irrelevant. (90 defects per 100 new cars sold vs 120 defects per 100 still means you experience one defect, on average.) So it comes down to styling and strategy, and cost control. In the US both GM and Chrysler — especially Chrysler — are in good shape, so what it really comes down to is product. We’ll see what happens as more post-bankruptcy models hit the streets.
I think the professor is absolutely right in that what they do next will be more of a determining factor then what they have done lately. To me, the question (in terms of long term success) isn’t rather or not the Detroit 3 are ok today, but rather or not they have learned from their mistakes moving towards tomorrow. I think, of the big 3 Ford is the most likely to have learned. As we have discussed with the professor Chrysler’s head honcho may have changed but the corporate ideology is largely the same. Ford seems to have had a much more dramatic, and thorough, metamorphosis. Also important to mention is the strengthening Yen, which is cutting into Japanesse manufacturers profits, and making the domestic makers even more competitive.
I agree with both comments in that short term success is irrelevant and determining whether or not they have learned from their mistakes is the bigger issue. However, history suggests that the roller coaster-like cycle in the auto industry will continue. Even if they have learned from the errors made leading up to and during the recession, new errors will be made and these companies will have another downturn at some point. I think that it is impossible to determine whether or not their current decisions are the right ones during periods of prosperity and success. Instead, we will have to wait until the Detroit 3 struggle again, and by observing how well the problems are dealt with in comparison to last time, we will know how much they learned.