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Job One for auto industry: Regain trust

Building really cool cars that get 50 mpg would be a good start

Detroit must convince buyers that its wares, such as these trucks sitting in Michigan, are worthy of purchase.

Detroit must convince buyers that its wares, such as these trucks sitting in Michigan, are worthy of purchase.

DETROIT – The $17.4 billion lifeline the federal government threw Friday is the best chance General Motors Corp., Chrysler LLC and Ford Motor Co. will have to regain the American people’s trust and reshape their business models for long-term profit and success.

First and foremost, they must get the vehicles right. Every new model they introduce must be a fuel-efficiency leader of its class.

Second, they must build great small cars. Cars that don’t just match, but exceed, the quality, fuel economy and flair of models such as the Honda Civic, Nissan Versa and Mini Cooper. Then they must demonstrate that 40-mile-per-gallon midsize sedans and 50 mpg subcompacts are just around the corner, and that when they come into view, they’ll be gorgeous.

To win back American buyers’ respect, the automakers must show the aid package was a sound investment, not a handout.

Symbolically, GM should immediately resume work on the Flint-area plant that will build fuel-efficient little engines for the 40 mpg-plus Chevrolet Cruze compact and the Chevrolet Volt electric car. The delay in construction announced this week didn’t threaten plans to have the Volt on the road by Thanksgiving 2010, but laying mortar to build hyperefficient cars sends an important message: We get it; we’re on it.

America is watching. It needs to be convinced the aid is more than a jobs package, but a helping hand to companies that deserve respect and will repay the loans, not just with money, but by building vehicles people will be proud and excited to own.

The first cars necessary to do this are already in the pipeline. They include the Volt, Cruze, Ford Fiesta and Fusion hybrid.

The aid President Bush approved Friday applies to GM and Chrysler, but Ford must play by the same rules. The public commitment to a new kind of American car from a new kind of American automaker must be shared, because Ford faces the same business challenges and public skepticism as its rivals.

Chrysler faces the toughest task. It doesn’t have the technology and resources to produce small, technically advanced vehicles like those coming from GM and Ford. Chrysler will offer the quirky and efficient little Dodge Hornet, but that car was engineered and produced by Nissan in Japan.

All three automakers have structures inherited from the time when they accounted for 70 percent or more of U.S. vehicle sales. Those days are gone forever, not because Detroit’s automakers are incompetent basket cases, but because the nature of a free market is that every new competitor takes some business from the leaders.

In addition to programs for new vehicles and advanced alternative fuels, the recovery plans the automakers present in three months must include a manufacturing footprint that acknowledges that reality and is sized to be very profitable at lower sales volumes. GM will still be No. 1, Ford second or third, but they cannot continue to foot the bill for factories they no longer need.

The crisis just became an opportunity. Detroit’s automakers must seize it to show Congress and the public that American companies can still build a great car.

Mark Phelan covers the auto industry for the Detroit Free Press. E-mail: phelan@freepress.com



Some details of the Bush administration’s $17.4 billion rescue plan for the U.S. auto industry:

• Automakers will get $13.4 billion in short-term financing from the Troubled Asset Relief Program, with an additional $4 billion to be made available in February, contingent on drawing down the second portion of the TARP funds.

•The United Auto Workers union will be asked to rework contracts to make wages and work rules comparable with those at nonunion plants in the U.S. owned by foreign automakers by Dec. 31, 2009.

• Auto companies must use the money to become financially viable.

•If a company has not become financially viable by March 31, 2009, its loan will be called and all funds returned to the Treasury Department.

• Auto companies must accept limits on executive compensation and eliminate perks such as corporate jets.

• Debts owed to the government would outrank other debts.

• Auto companies must allow the government to examine their books and records.

• The government has the power to block transactions of $100 million or more.

• Auto companies must comply with applicable federal fuel efficiency and emissions requirements.

• The UAW will be asked to accept stock rather than cash for the billions of dollars of pension and retiree health care liabilities being shifted from the companies to the union.

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