Why we can't let sputtering GM die

By Jon Markman

The foundation and icon of American industrial life is not the motion picture, the financial derivative, the computer, the politician or the retail store. It is the automobile, shiny and fast, and God save our new president if he does not find some way to save it from extinction.

No one will miss a random bank, a couple of brokerages, a few dozen thrifts or a retail electronics chain. Those are for the rich, the elite who actually have a few bucks left. The heck with them. But let General Motors (GM, news, msgs) go down the tubes and a symbol of all we stand for -- the open road, the scent of gasoline, the wistful vibe of a crackling radio and the industrial beauty of chrome and steel -- will forever be erased. The industry needs to be an immediate priority for the new administration.

Automobiles are not just what we make and what we drive -- they are at the center of a production chain that starts in the copper quarries of Chile, stretches to the rubber plantations of Malaysia, twists through the alumina mines of China, melts through the steel mills of Pittsburgh, runs through the platinum mines of Canada and emerges from the oil fields of Kuwait and Texas. It is at once the most American product in the world and the most worldly product in America, the source of hundreds of billions of dollars in income from coast to coast and mostly in between.

The prodigal automaker

We know that GM, Ford (F, news, msgs) and Chrysler squandered more than $100 billion in profits generated in the 1980s on two subsequent decades of inefficient processes, juvenile marketing, rich union contracts and fat executive deals. We know that it would be more effective to just cut a check to every autoworker today than to prolong the life of an industry that has been more of a value destroyer than a value creator in the past 10 years.

• Watch the videos to the right for more investing news and advice.

But these companies are like prodigal children. We may wish to wag a finger, cluck in disgust and make them feel ashamed. But we cannot kick them out into the street in their time of need, because it's our time of need, too. We need to find a way to encourage them to transform, retool, get big and sell us our dreams again, so America and the rest of the world can relish the joy of hitting the road in a Chevy, smoke peeling off tires, music blasting and wind howling. We can't throw hundreds of billions at the smug Eddie Haskells in banking and leave nothing for the Beav.

It won't be easy -- far from it. U.S. automakers were churning out 14 million vehicles a year at their peak, and now, because of bad planning, scarce credit and a depressed consumer, production is down to half that and still dropping. More than 12% of car purchases in the peak year of 2007 were fueled with home equity loans, and banks aren't making many of those anymore. Finance companies, meanwhile, require credit scores that slam the door on half the population. In the fourth quarter, trade research group IHS Global Insight reports, luxury sales were off 34.2%, versus 31% for the whole auto market.

Yet this is all rearview-mirror stuff, you might say. More than 1 billion cars, trucks and motorcycles roam the Earth today, and over the next two decades that number is expected to double, as stirring middle classes in China, India, Latin America and Africa want their share of the road. Plus, vehicles need to be replaced every 10 years or so. Put it all together, and the number of vehicles is increasing by 3% a year, with the slowest annual growth in Europe at 1% and the highest in China and India at 7% to 8%.

Tata Nano . . . bye-bye?

America needs to keep its share of this vital, dynamic business. We already have 250 million cars and trucks traveling 3 trillion miles a year on 4 million miles of road serviced by 170,000 gas stations and far more than double that number of restaurants, parts suppliers and cops. More than 85% of personal travel in the United States happens in a car or truck, regardless of the utopias painted by mass-transit advocates. This is what we do and who we are. Twenty percent of all U.S. retail sales are focused on the auto industry.

Remaking the U.S. industry must involve cheaper, lighter, safer cars that demand less -- or no -- fossil fuel. How hard is that? From India come reports that Tata expects to release a $2,500 car called the Nano later this year. Perhaps our automakers need to learn how to produce autos like breakfast cereal -- not exactly disposable but not meant to last 200,000 miles either. If there were changes in consumption patterns, the 85 million barrels of oil consumed by the world today would need to ramp up to 120 million barrels by 2030. Since most oil fields are believed to be near their peak of production, either this fuel would need to be replaced or there are going to be a lot of fuel-deprived Nanos on the side of the road.

I'm going to shock you now by reporting that General Motors actually has some pretty good ideas along these lines. Larry Burns, the company's head of research and strategic planning, has apparently been locked in a closet with his No. 2 pencil for a while and not permitted to push his ideas into production, but he's been hitting industry meetings with a set of ideas that look like they deserve a hearing.

Continued: Shifting the industry into drive

 1 | 2 | next >