Current crises in the auto industry is an opportunity in disguise

Current crises in the auto industry is an opportunity in disguise

Sanjay Rishi

Shivani, our teenage daughter, is taking American History in her summer school. Dad is getting re-educated through conversations that follow on long lazy summer evenings at the grill, watching the sun set late into the evening — hotdogs, ‘masala burgers’, and beer (for Dad only, thank you) allow for some healthy daddy-daughter banter. It is strange to see how history seems to repeat itself.

‘Billy’ Would Relate

As America struggles to break out of unprecedented turmoil on Wall Street, historic unemployment and the looming threat of veiled protectionism, a brief reflection on the 1920s is sobering. Post war boom followed prosperity and job growth. Banks merged and consolidated, corporations expanded, the Street hummed with restless energy as financial engineering stretched the boundaries of regulation.

What followed was catastrophic – and later helped create the foundation of banking regulations that held the American financial system together for generations to follow. Banks collapsed, farmers and homeowners lost their abilities to make their mortgage payments, foreclosures and unemployment as yet unimagined ensued.

Lawmakers did what comes naturally to them – they regulated, they appropriated Government funds, and yes, they moved America away from its free-trade republican ideals, and protectionism became the mantra. The predictable collapse of global trade (a reminder – globalisation is not a twenty first century idea) resulted in the Great Depression. What say you – a ring of familiarity to it, maybe?

The automotive industry also provides shades of déjà vu. William ‘Billy’ Durant started with Buick in 1907 and added Oldsmobile, Cadillac, and Pontiac to General Motors. The company that was later incorporated and in 1917 became General Motors Corporation is looking closer to its roots than ever. With Saturn, Saab, Hummer, and Pontiac jettisoned, and Opel closing in on separation, the new GM is now focused on Buick, Chevrolet, Cadillac, and GMC – four brands – that will lead it into the teens, twenties, thirties and beyond of this century.

A Transformed Landscape

Maybe it is my good Hindustani lineage, but I have always had a secret desire to escape to the Himalayas for a year — away from cell phones, blackberries, and the internet. My return, had I done this last year, would have been quite traumatic.

I would have found a fresh new line up of CEOs — from Fritz Herderson at GM, Takanobu Ito at Honda, and Akio Toyoda at the helm of his grand father’s company. Signs of the global conglomerate GM fragmenting would stare me in the face, and the thought of GM Opel soon being financed by a Russian company would raise at least one of my eyebrows. VW, Hyundai, and Honda holding their own in this crisis would not be too surprising. The $4.5 billion loss at Toyota would shock me the most.

It is heartening to see American manufacturers Chrysler and GM emerge from Chapter 11 bankruptcy as rapidly as they did. While there is indeed a lot of work to be done to energise the brands and the products, corporate shoulders and backs must feel rejuvenated having ridden themselves of decades-long debt and cost inequalities. Leaner, meaner organisations have emerged and now have a fighting chance of success, unlike just a few months ago.

Ford, the other of the ‘big three’, hums along just fine. A shiny new product line up, an image revitalised by its smart financial planning and no Government bailout, and a surprise earnings announcement of $2.3 billion in the second quarter