The Washington Times - October 29, 2008, 08:25AM

 

So where is the auto industry going? Down the tubes, some might say, but it’s not quite that bad. Things are grim, however, and the near-term outlook isn’t very optimistic. Two years ago the automakers were accustomed to selling 17 million new vehicles in the US each year. Last year the number was down in the low 13 millions and this year is projected to be in the 10 millions. That’s a serious downturn for the industry, and it means a lot to a lot of people.

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Dealers have to pay the rent on all that floor space whether or not they are selling cars, so you can expect to see lean sales staffs manning the showrooms. Service bays shouldn’t suffer - yet - because people are now keeping their vehicles for and average of 71 months, up from 67 a couple years ago. Used car sales might stay stable for the time being as buyers opt for those vehicles, but big SUV’s are a dead market.

 

It gets much worse, though, because most estimates state that one in eight persons in the US works in some way related to the auto industry. Insurance companies, highway construction companies, gas stations, auto parts stores, catalog companies, auction houses, banks, component suppliers, detailers, alternative fuel researchers and a bunch of other professions will suffer with any downturn in the auto industry. Those of us who write about the industry will also suffer, as magazines and newspapers publish less and less on the subject. 

What about the US manufacturers? Will they survive or continue to lose market share? My prediction on this issue is that there will be a merger between GM and Chrysler, and potentially all three could merge to form…General Motors. After all, GM was the amalgamation of several independent auto companies way back in the 1920s, so why not take the best products from Ford and Chrysler (Mustang and Jeep, for instance) and merge them into GM divisions? Why not combine Pontiac and Dodge, Chevrolet and Ford, Buick and Chrysler/Mercury?

 

I know this sounds way over the top, but imagine the economies of scale to be enjoyed, not to mention the tremendous engineering talent that could be used for the creation of some of the best vehicles in the world. That’s not the case now. Each of the Big Three has some successful products, but not enough to be competitive. Chrysler really only has Jeep and the minivans. Ford has the Mustang and F150 and GM has Corvette, Malibu, Silverado, several Cadillac models and a Buick or two. Everything else is ho-hum at best or a loss leader in the worst case, so why not put all the good eggs in one basket?

 

I think that good executive leadership in the case above could minimize plant closings, pension reductions and losses of jobs, but not if those executives continue to be compensated in the present manner. It’s time for boards of directors to take charge again and the new economic climate is perfect for making those changes.

It’s also time to close that darn Harvard Business School, but that’s another topic.