Has Motor City fixed its misfire?

Has Motor City fixed its misfire?

Has Motor City fixed its misfire?

The City of Detroit may have declared its bankruptcy, but is there yet enough evidence to suggest that Motor City’s exit from Chapter 11 means it is now firing on all cylinders?

On a strictly business level the United States certainly seems to be on a roll, sweeping the Big Three along with it. GM, four years out of its brief bankruptcy, celebrated its rise in sales with a new CEO, Mary Barra, and its first dividend since 2008; Ford, with a double-digit jump in sales, a hike in dividend and the gratifying news that CEO Alan Mulally is to stay on board for a good few years, is in ebullient mood, too. Even Chrysler is boasting its strongest performance since 2007, relaxing in the security that it is now 100 percent owned by Fiat and that CEO Marchionne, too, will stay the course.

All too often, however, the numbers that please the short-term view of Wall Street can turn out to be misleading indicators of the prospects for Detroit’s longer-term health, in particular its investment in new products and technologies. And even in 2013, which may come to be seen as a watershed year, it is evident that much of Detroit’s current success is still related to its traditional (and traditionally most profitable) products – the heavy-metal pickups and light trucks favoured by everyone from construction workers to affluent retirees wishing to haul a heavy boat coast to coast. The Silverado and Sierra SUVs account for a quarter of GM’s total sales, while Ford is even more strongly dependent on its famous F-Series pickups, which take one in three Ford-brand sales. At Chrysler, too, the Jeep and Ram Truck brands alone attracted almost a million customers in 2013.

The question to ask is this: does this upturn in Motor City’s fortunes represent a permanent improvement to a more sustainable business model, or is it simply a cyclical trick, a happy coincidence of rising incomes,low interest rates and a relaxation in the upward trajectory of fuel prices, always a key determinant in the sales of these gasoline-hungry vehicles?

Statistics for the year show that in many cases the gains for the big trucks came at the expense of smaller cars as well as certain import brands, providing some evidence to suggest that the heavy iron has once again ridden in to Detroit’s rescue. But there is even stronger evidence that those trucks themselves could be becoming more sustainable and thus less vulnerable to fluctuations in fuel prices. Ford’s F-series pickup is the biggest-selling single model in North America and its 2015 re-launch is a bold move: by switching its structure from steel to aluminium it becomes dramatically lighter and considerably more fuel efficient. This radical modernization will enable it to comply with the increasingly stringent CAFÉ rules that will kick in from 2017, ensuring that Ford’s big pickups can remain a part of the American way of life for a long time to come.

In industrial terms Ford’s move with the F-series is probably the most significant advance ever for aluminium construction. How quickly its competitors follow suit will be an indication of their preparedness for the new and truly efficiency-conscious age we are about to enter.

This view point featured in RQ Q1 2014 - click here to download the full publication.