UPDATE (June 1, 2009): General Motors, the once proud icon of U.S. capitalism, filed for bankruptcy Monday. In the following piece, published last November in Maclean’s, Colin Campbell navigates through the rise and fall of the U.S. auto industry. In doing so, he identifies what went wrong at GM and explains whether the car company is even worth saving.
In hall No. 5, tucked far away from the main action at the high-profile Paris Motor Show last month, visitors who looked hard enough would have found the booth belonging to General Motors Corp. Those who went to the trouble—and not many did—were disappointed with what they found.
Paris was the place GM had decided to raise the curtain on a critical piece of its future in a world increasingly focused on efficiency and economy—the Chevy Cruze. The Detroit company is pinning its hopes on the lightweight Cruze to lure car buyers in Asia, Europe and North America away from bestsellers like the Honda Civic. Yet there were none of the usual showbiz trappings at its unveiling: no models leaning against the hood, no rock-concert special effects to usher in the age of the Cruze. Just a plain white stage and the car itself: a conventional, even understated, four-door family sedan. It “had all the pomp and circumstance of a Tuesday,” noted one auto critic. Perhaps it was just as well then that few journalists bothered to show up.
Most automakers look to the Paris show to highlight their next small, fuel-efficient wonders. It’s a science fair disguised as a car show. Mercedes-Benz and BMW were unveiling their first hybrids. Nissan snagged attention with its tiny Nuvu. Hyundai brought along its new mini-car, the i20. But at GM’s second-floor exhibit, visitors were confronted by a collection of massive Hummers and a hulking Cadillac Escalade. “This was emblematic of GM,” says Maryann Keller, an independent auto analyst who has covered the industry since the 1970s. “Here’s this show dedicated to small cars, new technologies, electric vehicles. Why, to Paris, would you bring Hummers, the Escalade and a Camaro? What planet are you on?”
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In truth, though, GM had far bigger problems than a flubbed launch. Just as the Cruze was fizzling in Paris, the company’s accountants and finance execs were assembling the final details of what was one of the company’s worst quarterly results in nearly 100 years. In just three months this fall, GM burned through US$6.9 billion in cash. In October, sales fell 45 per cent from a year ago, and it was clear the company was headed for yet another painful round of cuts. Even that may not be enough. GM ended last quarter with only $16.2 billion in cash, and there is no sign of an imminent turnaround in auto sales. Analysts have been musing about bankruptcy for years now, but suddenly it seems GM’s demise could really be at hand—a fact that even GM execs are now forced to acknowledge. “Even with our planned actions, our estimated liquidity will fall significantly short of the minimum required to operate our business,” the company reported.
The crisis is no longer just GM’s either. CEO Rick Wagoner warned of a domino effect should his company fail. Certainly, it would hit the Detroit auto industry like a wrecking ball, disrupting the auto parts industry and sparking a crisis of confidence among buyers that could drag an already weakened Chrysler and even Ford down too. Saving Detroit, even temporarily, could end up costing taxpayers dearly. The industry is currently asking for US$25 billion in relief, but it has already received US$25 billion to retool plants and will need another US$25 billion to fund health care trust funds it set up last year. Not saving the automakers could cost even more, as hundreds of thousands of jobs hang in the balance.
Politicians in Canada and the U.S. are now pondering the future of the once-proud American auto industry, and whether it even has one. But no matter what they decide, Detroit will never be what it once was.
There was a time that Corvette, Mustang, Cadillac and Chevy were not just brands, they were symbols of American technological achievement and material success. If there was a car to lust after or to gawk at, you could be sure it was made in Detroit. GM could confidently ask, “Wouldn’t you rather drive a Buick?” And the answer, to any red-blooded American, was always “yes.” Detroit was the first and last word on style and performance, and its influence spread through popular culture. The world looked up with envy at the American auto industry.
So how did it come to this? A dull sedan in a forgotten corner of a major auto show, with the spotlights shining on foreign rivals that not long ago were just tiny specks in Detroit’s rear-view mirror. The decline began slowly, almost imperceptibly. There were ups and downs, and periods when it seemed that salvation was at hand. But ultimately, Detroit’s carmakers were overcome by a combination of neglect, of a failure to learn from past mistakes, and staggering arrogance. They got caught in the slow lane in a fast-changing world. As lawmakers in the U.S. and Canada mull how to save the industry, the real question is whether there’s anything left to salvage.