Nov 20 2008
2008 LA Show: From the Trenches
I felt like a war correspondent at the LA Show yesterday. There was no need to dig out the story; it was unfolding all around me with startling ferocity, and on a scale and scope few could have imagined a few months ago. There were still the bright lights and the glitzy stands filled with shiny new cars. But the mood on the show floor was uneasy, full of forced smiles, dark humor and 1000-yard stares. The world had changed, but no-one was quite sure exactly what that meant. All they did know was that the future would be painful, and that there would be casualties.
Reports from Washington, D.C., where Rick Wagoner, Alan Mulally, and Bob Nardelli were pleading the case for vital bridging loans before yet another panel of politicians, trickled through like dispatches from the front line. The word from Washington was not good; Motown wasn't getting a lot of sympathy. "It's turned into political theater," grumbled one Detroit insider, who acidly noted that one politician loudly decrying the use of public money to support the auto industry should perhaps explain why his state offered extremely generous tax breaks to tempt a foreign automaker to build a factory there.
The Detroit Three, the most vulnerable of the world's automakers, have already been wounded, perhaps grievously, by the meltdown of the world's financial markets, the credit squeeze, and, most devastatingly, the widespread collapse of consumer confidence. The hushed, deserted, darkened Chrysler stand looked like a mausoleum full of cars; unintended symbolism, perhaps, that spoke volumes. "You mean they haven't even turned the lights on?" asked a shocked senior Ford executive.
Had this been a normal year, GM would have been making a big noise about the Volt in LA -- after all, this town is likely to be heart-of-market for the uber eco-Chevy. A highly detailed Volt concept graced one of the turntables, and a number of key members of the Volt team were available for interviews if you asked. But that was it. No reveal, no press conferences. Nothing. The all-new Cadillac CTS wagon sat in front of a set that was obviously designed for bigger things, revolving forlornly on a turntable, like an empty carousel on a stormy Tuesday in Atlantic City.
While industry observers have long noted GM's parlous financial state - we've blogged about it many times -- Rick Wagoner's blunt assertion that GM could run out of cash by the end of the year has shocked the company rank-and-file to its core. From the moment three years ago GM decided it was freezing product programs while pulling forward the launch of the GMT900 trucks and SUVs to generate cashflow, it's been obvious Wagoner and the senior management team have been racing against time to retool and restructure the business. But it's also now equally clear that until recently most GM employees had no real idea just how slim the margin for error was. "The senior management kept their cards pretty close to their chest," said one former GM insider.
Ford was the only one of the Detroit Three with anything resembling a normal auto show presence, with a number of senior execs on hand, including American operations head Mark Fields, marketing chief Jim Farley, and design boss J Mays, to support the reveals of the 2010 Mustang, and the significantly facelifted Fusion and Lincoln MKZ sedans. The Ford folk are, as you'd expect, upbeat about their new products (and the new Fusion Hybrid, which program chief Nancy Gioia says will achieve a stunning 39mpg city - 6mpg better than the Camry Hybrid - is an impressive piece of work). But lurking in the background is the knowledge that should GM fail, the widespread disruption among the North American supplier base would almost certainly drag the Blue Oval into the abyss as well.
With characteristic myopia the mainstream media has focused most of its attention on the travails of the Detroit Three. But the growing damage being caused to the global auto industry by the collapse in consumer confidence rumbled in the background in LA like a distant artillery barrage. "They say the problem is a lack of credit," said a spokesperson for one of the luxury car majors. "We have money to lend. But no-one's coming into the showrooms."
A couple of my European colleagues mentioned Daimler was shuttering 14 Mercedes-Benz plants for a month over the holiday season; another said Renault sales in France are down 50 percent. Even the Mini plant in Oxford, England, is taking downtime: "A few months ago they couldn't build them fast enough," said a British buddy. An executive with a premium European automaker ran a body count of some of his key markets: "Germany's history for 18 months; southern Europe - forget it; Russia's stopped dead; even China is way down." BMW has already admitted if the current conditions continue, it has maybe two years before it runs into serious financial problems.
Those working for the super-luxury brands wore tight grins, anxious not to appear too pleased with the fact the folks with the cash to splurge on an expensive automobile still, by and large, have the cash to splurge on an expensive automobile: "We will finish this year with record sales," said a Ferrari spokesman. "But our analysts tell us it will be terrible until 2010." Over on the Rolls-Royce stand, an insider admitted that while some customers had cancelled their orders, business was still solid. "Even in the past two months, there have been people who have made a lot of money." As we spoke he broke off to meet a potential buyer who'd made an appointment to view the lemon yellow Phantom Drophead Coupe on display.
I came away from the LA Show thinking should any one of the Detroit Three fail in the next few months, it will not be the beginning of the end. To paraphrase Winston Churchill, it may simply be the end of the beginning.
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