Let the Good Times Roll

The PR departments of the Big 3 automakers are working overtime. With the public opening of the North American International Auto Show just days away, Ford, General Motors and Chrysler released financial results showing a significant increase in sales in 2010 and promising outlooks for 2011. And the flurry of news coverage certainly has a different feel than the doom and gloom of the coverage just two years ago (see, e.g., here).

Why the difference? Is the economic recovery helping the Big 3? Is chapter 11 bankruptcy the reason for the apparent rebirth of General Motors and Chrysler? If so, what explains Ford’s current success (for some interesting perspectives on this, see here and here)?

Many commentators have analyzed the General Motors and Chrysler bankruptcy cases, and they thoughtfully dissect what was novel, not so novel and somewhat troubling about those cases (see, e.g., here, here and here). It is difficult to assess exactly what role chapter 11 played in General Motors’ and Chrysler’s recoveries, other than to state the obvious that both companies used the process to reduce overhead and balance sheet liabilities significantly. That certainly can provide new life to a company; the question then becomes what the company does with the opportunity.

This is where I see an interesting, common thread among the Big 3’s recoveries—management changes that preceded or accompanied the financial restructurings. (For a thoughtful study on CEO pay and turnover in reorganizations, see here.) Bill Ford, Jr. stepped down and decided to hire Alan Mulally (see here), who made bold decisions regarding Ford’s operations. The government very publicly ousted General Motors’ CEO, Rick Wagoner, and some touted management change as one of the advantages to the Fiat/Chrysler deal (see, e.g., here). Given the connection between the Big 3’s financial problems and their business models, management change as a catalyst of recovery makes sense.  (For an interesting discussion of competitive advantage that touches on the auto industry, see here.) But can they sustain this success?

At the moment, all three seem focused on market demand, controlling costs and improving the bottom line—things of which they arguably lost sight in the not so distant past. And they all have potential opportunity in R&D and their new fuel-efficient cars (see, e.g., here and here) as experts predict gas prices to soar to new highs and Toyota continues to struggle to regain market share. But can management stay on track, and do their boards have the fortitude to make another change at the top if necessary? (For a recent example of board/CEO conflict, see here.)  Only time will tell but it certainly will be an interesting ride.

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2 Responses

  1. Mike Zimmer says:

    Until the hiring of Mulally at Ford and the collapse of GM & Chrysler, the management of the Big Three continued to assume that the auto business, while worldwide, was divided into separate national product markets. From the oil crash in the 1970s, if not before with the entry of VW’s Beetle, that was sheer hope in face of increasing experience.

    What should have happened to the managers of the big financial giants that the government saved did happen to the hidebound GM & Chyrsler managements who continued to do what had always done, even though the world had changed.

  2. Michelle Harner says:


    Thank you for the comment. The different approaches/responses used throughout the crisis and how those scenarios would play out under the resolution authority contemplated by the Dodd-Frank Act are all interesting and important questions. Also, although you may have already seen them (as they are both now somewhat dated), I have attached below two articles related to your points on management and the Big 3.

    Best regards, Michelle.