Sober reality behind good news

Posted: Tuesday, November 10, 2009

The following editorial first appeared in the Washington Post:

At last, there's some cheerful news out of Detroit. General Motors, feeling confident after an improvement in sales during October, announced that it had enough financial strength to hang on to Opel, its European subsidiary, rather than sell it to a Russian-Canadian consortium. Chrysler rolled out a new turnaround plan. And, most promising of all, Ford announced a billion-dollar third-quarter profit, boosted by a substantial increase in its market share.

Now for the reality check. Annual sales of new cars in the United States are running at about 10 million, and while this should grow modestly in the next couple of years, the market is unlikely to return to the 1999-2007 average rate of 17 million per year. All automakers will be under tremendous pressure to preserve market share by producing popular, high-quality products. Yet the ability of the two taxpayer-backed members of the Big Three to do that is still questionable.

Chrysler, of which the U.S. government owns 10 percent, has lost 2 percentage points of its share of the U.S. market in the past year, and most of its new Fiat-supplied product line is a year or more away. GM owes its recent uptick to the government, not to any dramatic change in its product line. After the "cash for clunkers" program and continuing federal subsidies to its financing arm, GMAC, GM still found that about half the units it sold in October were heavily discounted 2009 models.

Though Ford didn't get a bailout, its problems are not over. The United Auto Workers rejected a contract that would have matched the wage and work rule concessions the UAW gave GM and Chrysler. You can't blame union leaders; UAW President Ron Gettelfinger had urged ratification. But the rank and file at Ford voted no. Apparently, three months of profitability were enough to persuade the workers that their jobs are safe even if they don't lend Ford a hand - despite the fact that the company still carries about $27 billion in debt. No good deed goes unpunished: Ford's reward for staying out of bankruptcy court, and off the federal dole, could be the least competitive labor costs in the United States. Someone needs to remind Ford's workers that the hottest-selling Big Three passenger car right now is the Ford Fusion. It's made in Hermosillo, Mexico - where no one belongs to the UAW.

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