Exactly what they wanted, again

Departments - Editor’s page

April 10, 2017
Robert Schoenberger Editor || rschoenberger@gie.net

Automakers cheered the Trump Administration’s announcement that it would reexamine fuel economy standards set in the waning days of President Barack Obama’s term (see Regulations). Executives got exactly what they wanted – time to argue that 54.5mpg by 2025 is not realistic.

This isn’t the first time that executives got exactly what they wanted, and things didn’t turn out so well last time.

In 2007, the United Auto Workers (UAW) and General Motors (GM) agreed to a labor deal that created a union-managed healthcare trust for retirees, ridding GM of a huge expense. Writing for The Plain Dealer newspaper in Cleveland, Ohio, in 2007, I penned the line, “No more excuses. The United Auto Workers has given General Motors exactly what the company has said it needed for years. Now it’s up to management to make things work.”

Executives at GM, Ford, and Chrysler spent decades complaining that money spent on rising retiree healthcare costs was money the companies could have spent to develop new vehicles. The automakers rid themselves of those costs in 2007, allowing management to focus on new challenges. Truck and SUV sales were falling, so companies desperately needed to improve car lineups to stay profitable.

Within 18 months of signing those contracts, two of the three Detroit automakers were bankrupt, surviving because of federal bailouts. Ford managed to stay solvent, but the labor deal did little to ease the Great Recession.

Clearly, the seismic shock of the credit market collapsing and the global economy dropping wasn’t part of the forecast when executives worked out the healthcare deals with the UAW. But that’s the point.

Corporate leaders have always been good at identifying the one thing standing in the way of their success – saying with one change, the industry would be fantastic. Unfortunately, they’ve rarely been right about what that one thing is.

Having identified UAW contract restrictions as the No. 1 problem in the 1980s, executives focused more attention on that challenge than they did on the rising popularity of Japanese and Korean brands.

A decade later, leaders in Detroit (joined on this topic by leaders from German, Japanese, and Korean automakers) are getting what they want again. So again, the excuses are gone, and leaders will need to show that freedom from strict rules will mean higher profits, more jobs, and a healthier industry.

Critics of Trump’s fuel economy decision note that higher standards have led to big innovations in recent years. Engines have gotten smaller and more efficient, new materials have slashed vehicle weights, and high-tech transmissions are squeezing more miles out of every gallon of fuel. Without the threat of tougher standards, will innovation slow? If so, will automakers be ready if consumer tastes switch to smaller, more fuel-efficient vehicles as they did in 2008?

Almost immediately after getting their hearts’ desires in 2007, Detroit’s automakers nearly died. Hopefully, they’ve been a bit more careful about what they’ve wished for this time.