Rob Cleveland

When I talk to out-of-state relatives, they begin the conversation with the same pity-laden inquiry: “So how’s it going out there?” By “out there” they mean the state with the worst unemployment figures, rampant foreclosures, corrupt former mayors, headline-grabbing corporate meltdowns and enough clinical depression to put a squeeze on the country’s Zoloft supply.

Michigan’s slide into unwanted notoriety has been led by the collapse of the domestic automobile industry – once an engine for the economy, and now a drag both here at home and across the nation.

But unlike last winter (and spring, and summer), the news is looking a little brighter lately. Mind you, I’m not declaring “Mission Accomplished,” but the collective headlines that came out just this week could mean the auto industry, and by association the state of Michigan, could be on the mend.

Some Positive Signs at Ford, GM

The brightest news this week: Ford Motor Co., the only domestic manufacturer that opted not to take loans from the federal government, posted a near-$1 billion profit for the third quarter, built in part from a profit of $357 million from its North American operations. That is the first profit Ford has seen from its domestic unit since 2005.

Ford’s turnaround is tenuous, though. It still is sitting on a mountain of debt: more than $23 billion. That’s the equivalent of getting a job after a year of unemployment, and only now being able to face up to the maxed-out credit cards and home equity loans. And while Ford has some decent product out now, it is going to find it difficult to sustain a pipeline competing with other companies who shed their liabilities through bankruptcy, and now can devote more dollars to new cars and trucks.

It beats getting poked in the eye, though, and CEO Alan Mulally is predicting a return to annual profitability in 2011. Just one more year…

Meanwhile, east of Dearborn at the RenCen, the surviving General Motors crew is crawling to shore after the ship went down this summer. The public ire over billions of dollars in federal loans has apparently abated and they are buying GM cars again, up 4% versus October 2008 and up 13% over September 2009.

Perhaps more telling than sales, though, was GM’s decision to keep its European car unit, Opel, after a protracted effort to sell it to Magna – a giant Canadian parts supplier – and a consortium of Russian investors. The decision to keep Opel can only be based on optimism from the executive suites and a bullish forecast for the coming year.

In calling off the deal, GM managed to outrage both the German and Russian governments who had their own agendas and expectations built into the buyout. At least the taxpayers are getting some entertainment out of the federal loans, if nothing else just now.

What’s Up with Chrysler?

And then there is the plucky Chrysler that just won’t say die. In an all-out corporate marathon, Fiat/Chrysler-boss Sergio Marchionne took six long hours to outline the next, long five years that will pave the way to a Chrysler revival, largely on the backs of Fiat production platforms.

If the plan holds true, Fiat will do more for Chrysler in just two years, in terms of product sharing, than Daimler did for Chrysler during its entire ownership tenure. And Americans may, once again, be able to buy Fiats and Alfa Romeos at local Chrysler dealerships.

There are plenty of industry analysts and home-schooled amateurs who are writing Chrysler and Fiat off. Marchionne reminded the audience that the same dire predictions were made about Fiat before he took the helm there, and the company wound up turning a record profit in 2008.

Mind you, 2009 isn’t looking nearly as hot for Fiat but no one is lighting cigars with hundred dollar bills these days. If someone is going to try and revive the clinically dead Chrysler, it might as well be someone who has been through it all before.

The Road Ahead for Michigan

The slow and painful return of these three companies could mean better times ahead for Michigan. But that shouldn’t mean Michigan should give up its efforts to bring diversity to its business base. Foregoing efforts to bring other high-tech companies and industries into Michigan would mean that we’re back here a decade from now when the automobile industry takes another bad turn. And anyone who thinks the Big Three will ever have the same headcount it did five years ago is delusional.

Conservative groups are calling for elimination of tax breaks and subsidies to attract businesses here to Michigan. They claim it is a waste of time, and that those expenditures haven’t lived up to the forecasts for new jobs. That’s precisely the same short-term thinking that has put Michigan at the head of the pack when it comes to economic blight. Spending tax dollars to attract new businesses like high-tech software firms and new industries like the film business is a long-term investment: it won’t bring in jobs overnight but it beats the heck out of doing nothing and then whining about it when there are no results.

We can all hope and believe that the auto industry will come back. But Michigan needs to plan with the expectation that it might not. In the best-case scenario, more car jobs return to Michigan on top of jobs from other industries. Maybe then, the pity permeating over the telephone lines when out-of-state friends and family call may begin to dissipate.

About the author: Rob Cleveland is CEO of ICON Creative Technologies Group and a co-owner of Grange Kitchen and Bar in Ann Arbor.

Rob Cleveland

I held back submitting this monthly column until the end of March to see what latest theatrics would wash over the auto industry. I wasn’t disappointed. The Obama administration looked over the homework submitted by GM and Chrysler – homework designed to demonstrate how they were going to get out of their collective messes – and sent them back to detention to do it over again.

On top of it all, long-time CEO at GM Rick Wagoner was summarily dismissed, as if one lone auto executive had been responsible for creating an unworkable fiscal structure and a corporate culture developed over decades of booms and busts in the auto business. And just for good measure, the government is insisting that Chrysler and Fiat hook up – something they were bound to do anyway – making this requirement the equivalent of forcing children to eat dessert.

Those inside the industry recognized the Obama administration’s reply for what it is – political theatre. Only 16% of Americans polled believe the auto industry should get additional loans, making any decision to give GM and Chrysler more money…toxic. Obama had to scold the two companies, and chastise them for not being aggressive enough in their restructuring plan to show that the money he is bound to give them came after careful review and critique. And Wagoner? Bob Lutz, GM’s vice-chairman, called it throwing the virgin into the volcano to appease the gods a few months ago. I’m having trouble picturing Mr. Wagoner in a hula skirt, but the analogy fits.

Despite all of the pronouncements and lecture, something major is missing from the activity. It is an opportunity not just to save GM and Chrysler, but also to change the fundamental landscape of the auto industry and our energy consumption patterns across America. Sound too far-fetched, too grandiose? Well so does universal health care and rebuilding our education system, but I expect the Obama administration to handle these problems too.

Government’s job is not to try and decide how many employees GM should have, or whether or not a tie in with Fiat is a good idea. Government’s job should be to instigate fundamental change. As part of the loan package, the Obama administration could require GM and Chrysler to roll out their production-ready electric vehicles in 2010, offering the first real step towards a fundamental shift in how Americans get around and what they consume in order to do it.

Are these cars ready? GM and Chrysler both have pre-production models that have been driven by hundreds of people, including the hypercritical automotive press. The general consensus is that they are as good as any pre-production model can be. GM and Chrysler are not exactly bullish on how profitable the vehicles will be once they are in showrooms, but it seems pretty clear that they’re not making money on their gas-powered cars and trucks anyway, so why not at least lose money on something that shifts the environmental burden and the energy focus to the electricity industry.

If this kind of authoritarian mandate sounds too socialist, you’re close, because the Chinese are doing exactly this. The New York Times reports that Chinese leaders are planning to pour vast government resources into the development of electric vehicle technology and EV production. This comes from the very top down, meaning they have the means and the political will to actually pull off this grandiose plan.

Make no mistake; the Chinese aren’t doing it to save the planet from global warming or pollution (much of the new electricity demand in China will likely come from coal or nuclear power plants). Instead, they are eliminating a massive liability – their dependence on foreign oil. Most of China’s oil comes in from the Middle East, and must take a long sea route to show up in Chinese ports. The U.S. has a pretty big navy. Actually, it is considered the best and the biggest in the world. So the math isn’t hard. Either the Chinese government builds a massive navy that can go head to head with the U.S. to guarantee its energy security, or it reduces oil imports to negligible volumes by developing technology solutions that also could also be exported around the world, making the Chinese government even more money.

Meanwhile, back in Washington D.C. and Detroit, government is fretting over details about projected U.S. vehicle market volume (not even Nostradamus knows where that is going) and standalone viability casting a wafer-thin veneer over the obvious political subterfuge. I’m not advocating communism by any stretch, but if the executive branch is going to make a decision about the car companies unilaterally anyway, why not step up and make a decision to promote real and resounding change that will live on for generations.

Call it a silver lining, lemonade out of lemons, making the best of a bad situation. Whatever the label, the ideal confluence of events is upon us: needy car companies, a president who has made energy efficiency a keystone of his administration and a genuine shift in consumption patterns made by the American public that are more sensitive to the environment.

Change. Hopefully it won’t just be a tidy campaign slogan. If it is, you can bet the Republican Party – the authors of this miserable state of affairs – will be using exactly the same theme to rebuke the incumbent in 2012, blaming him for the failure of our manufacturing base, and the lack of progress in reducing our dependence on foreign oil. My hope is that President Obama realizes the opportunity in front of him and acts in a way that realizes those lofty goals he now is obliged to execute. 

About the author: Rob Cleveland is CEO of ICON Creative Technologies Group and a co-owner of Vinology Restaurant in Ann Arbor.

Rob Cleveland

In the continuing saga that is the U.S. automobile industry, we got introduced to a new character in the Chrysler soap opera. Just 15 months after Chrysler’s bitter divorce from Teutonic spouse Daimler AG, it has taken on a new partner: the tall, dark and very Italian automaker Fiat SpA.

Fresh with $4 billion in federal loans and in line to receive another $3 billion, Chrysler has the critics wagging their fingers at this new union like a group of English church ladies passing judgment on the town widow dating just after her spouse expired and her life insurance kicked in. (For a picture of what an English church lady looks like, Google U.S. Sen. Robert Menendez, D-N.J.)

I disagree with Sen. Menedez and his clucking brood. While the federal loans are coming directly out of the tax bucket, they also came with stipulations. Chief among them was that Chrysler fashions a recovery plan that would keep the company viable. Any analyst worth their hefty hourly fees will tell you that Chrysler needed some partnership or merger with another company – its cupboards nearly bare with no products in the pipeline.

Clearly Ford and General Motors are in no position to take on Chrysler’s liabilities, and nearly every automaker is trimming back its U.S. operations. So the last thing anyone already trying to sell cars in the U.S. needs is, you know, more cars. Not having an MBA personally, perhaps someone with more secondary education than me can make a more compound argument to the contrary, but I would imagine that already having more of something no one wants makes getting even more of it a bad business move.

Luckily, Fiat has no sales in the U.S. after limping out of the market in the ’80s due to low volume and a reputation for some of the most high maintenance automobiles on the road.

Make no mistake. If Fiat, or another car company was coming to America with the promise of new hope and new jobs, the federal and state governments would be ripping open their wallets promising billions of dollars in tax abatements (not loans but outright cash) just to get those companies in the door, as they have done in Alabama, Tennessee, South Carolina and in nearly every occasion where automakers have set up shop in the last five years. Fiat just is getting their stipend a different way. When major industries come into a market, the first thing you will see is an outstretched hand, palm up.

Fiat may not be generating brand new jobs south of the Mason-Dixon line, but by offering Chrysler a lifeline, and looking towards retooling existing Chrysler facilities, they are preserving quite a few manufacturing jobs here up North already on the bubble. These days, that is about as good a deal as the American taxpayer is going to get – better than our TARP funds being used to buy “commodes” with gold inlay at Merrill Lynch. (As a side note, if GM’s CEO Rick Wagoner spent $35,000 to buy a toilet by another name for his office, he’d be in jail right now. Count on it.)

With this tie in, Chrysler has immediate access to Fiat’s engines, transmissions and vehicle platforms, giving Chrysler a battery of new cars to bring to the U.S. without spending billions in R&D, design and development costs. Recent press says that as many as seven new vehicles could hit showrooms in two years, with a combination of Fiat and Chrysler-badged products.

Of course Fiat gets something too: access to a U.S. dealer network. Right now Fiat sells about 450,000 units worldwide – they need to sell over 550,000 to stay in the game long term. The deal opens up Chrysler’s dealerships to Fiat and its Alfa Romeo division, creating a nearly instant new market for Fiat for the stroke of a pen.

And that’s where the real value lies – both to the U.S. economy and to the American public.

Few people are sympathetic to car dealerships, largely perhaps due to the oftentimes heavy handed tactics used to sell cars. Or perhaps your experience was an inept warranty repair. In any case, car salesmen, and the dealerships they work for are well down on the list of people we think about when times are tough.

But dealers nationwide are a key component for local economies. They pay sizeable taxes to municipalities, employ not just salespeople, but also the technicians, accountants and support staff that keeps the place going. And many of them have active philanthropic programs inside of the community. I know, the tears still aren’t flowing profusely, but if all of Chrysler’s 3,300 dealerships were to fail nationwide, the impact would be as severe as any of the layoffs announced to date, with as many as 60,000 people going out of work. And it would affect far more towns and cities than any other collapse.

More selfishly, consumers will have more choice, not less. Granted there are plenty of car companies already out there, and we’re in little danger of seeing an automotive monopoly, but new competition, and new options keeps all of the manufacturers hungry. That drives down cost, and guarantees innovation not just for luxury cars, but across the price spectrum. Just compare any ’09 model with an ’05 in terms of infotainment, safety and performance, and the change is dramatic. That’s not the automakers being nice guys. That’s competition.

And finally, to all of those Fiat owners of days gone by, “fix it again Tony (Fiat)” is probably a well-known jab and stories about pushing a Fiat 124 Sport Spyder to the repair shop are worn like a badge of honor.

Fiat’s quality has reportedly improved as they embrace the same quality control tactics now used universally around the world. But if they can’t get it right, no one will be faster, or more vocal, in pointing it out to them than the American consumer.

In terms of product itself, Fiat’s lineup features several small vehicles – a segment that is in high demand (or were when gas prices hit $4 a gallon). The Punto and Bravo both are great looking cars, in my opinion. And Fiat’s 500, a retro design rolled out in 1957 and reintroduced again in 2007 is rumored to be on the “fast track” at Chrysler, with a possible introduction in as few as 18 months.

So dust off the “Learn Italian in 30 days” tapes, get out your Walkman, put on your parachute pants and start tuning up your linguistic skills. It just might get you a discount at the local Chrysler dealership sometime soon.

About the author: Rob Cleveland is CEO of ICON Creative Technologies Group and a co-owner of Vinology Restaurant in Ann Arbor.