Why Are The Car Guys Smiling?

Joann Muller

For 44 years, the automotive glitterati has converged on this bucolic resort town (Traverse City) on the northern shore of Lake Michigan, with its sandy beaches, world-class golf courses and numerous wineries lining the Tuscany-like countryside.

One might expect the mood at this year's confab to be a bit dour, given that two of America's three carmakers just exited bankruptcy and numerous parts suppliers are hanging on by their fingernails.

Certainly, attendance is way down with 650 registered attendees vs. 1,000 last year and about 1,300 during the industry's peak years in the late 1990s. Unlike previous sessions there was plenty of elbow room at the bar during the evening social hour.

But oddly, Detroit's mood seems to be on the upswing.

"I feel like we're moving from, 'What in the world are we going to do?' to 'We can do this,'" said David E. Cole, chairman of the Center for Automotive Research, which sponsors the annual conference. "This is going to be a far more competitive industry than anyone imagined. People who have been writing this industry off are going to be in for a big surprise."

Cole would say that--he's the son of a former General Motors president and one of the industry's biggest cheerleaders. And auto company executives are, at heart, car salesmen--they always see better days ahead.

Still, there's no mistaking the survivor mentality taking hold in Detroit. The worst is over, and now it's time to pick up the pieces.

"I feel like it's the opportunity of a lifetime," said Thomas G. Stephens, vice chairman of global product development at General Motors, which used bankruptcy to shed billions in liabilities and lower its break-even point (on an EBIT basis) to an industry sales rate of 10 million vehicles per year. "If you can break even at 10 million units, and the replacement rate is 12 million, that bodes very well for the business."

For industry suppliers that feed off the automakers, there's also a feeling of relief now that the GM and Chrysler bankruptcies are behind them. "A lot of us were holding our breaths," said Prabhakar Patil, chief executive of Compact Power, which is supplying the battery for GM's upcoming Chevy Volt plug-in car. "That could have been a real mess," he said.

"There has been a lot of pain for families and for investors," he adds. "But the adjustment was required, and the manner and speed in which it was handled by the government puts us in a good position for the future."

The government's newfound interest in the auto industry--and in advancing cleaner alternative fuel technologies--also has a positive side, said Patil. "There was no way for some of these technologies to come to market by sheer market forces," he said, pointing out the enormous investment costs required. "No manufacturer is strong enough to bring these technologies to market on their own."

It certainly helped that the Department of Energy on Wednesday doled out $2.4 billion in federal money to automakers and their suppliers to establish battery manufacturing facilities, $1.3 billion of it in Michigan.

"Our economic table has been balanced on one leg," said Michigan Gov. Jennifer Granholm, who has been working to diversify the state's economy. "That's an unstable table. We need to make it stable with more legs."


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