Two Cheers for General Motors

Was I a little hard on CEOs a few weeks ago? I accused them of a colossal  failure of imagination
and will for investing so little while sitting on record high heaps of
cash. (That sum is even higher now, according to new Fed data.) I got
some pushback. It’s not a CEO’s fault if demand is spotty and flaccid, a
friend told me, which is fair enough as far as it goes-and doesn’t go
far enough. There’s a whole wide world of demand out there. If you don’t
believe it, check out the U.S. auto industry.

Yes, the U.S. auto industry. Recent stats show U.S. exports are up
and that autos are among the big gainers. In the last couple of months,
GM raised over $20 billion with the largest initial public offering in
U.S. history and appears to be on track to record its first full-year
profit since 2004; the company also announced that it’s hiring 1000 researchers and engineers over the next two years to build its electric-vehicle capability. Ford is hiring 1,800 workers and rebuilding its Louisville plant
to build new versions of the Ford Escape, which is nipping at Honda’s
heels in the small SUV category. To be sure, to get here the industry
has gone through more pain than even the Marquis de Sade
would inflict. A whole lot of capacity has been boarded up; thousands
upon thousands have been laid off. The city of Detroit is making cruel choices about how to restructure to fit its new, unwanted small size. And though Chrysler’s hiring, too, Fiat hero Sergio Marchionne has yet to work his magic there. Anyone looking for half-empty glasses can find them.

But if you look with global eyes, you see plenty of vessels brimful
with opportunity. The very week of GM’s 2009 bankruptcy, my colleagues Ron Haddock and John Jullens published an article titled “The Best Years of the Auto Industry Are Still to Come.”
Their argument looks increasingly prescient. They noticed that there’s a
magic moment in economic development, a “mobility threshold”:  When
per-capita GDP crosses above $10,000, people start buying cars. That
line is now being approached not just by the BRIC countries (Brazil,
Russia China, India), but also by Argentina, Indonesia, Iran, Mexico,
Thailand, and Turkey-a whole lot of people. You can do the same kind of
analysis for many industries, such as food, personal-care products,
airlines, and much more.

Indeed, the auto story uncovers the existence of a next big set of
opportunities and challenges in global market for industrial companies
generally. Modern globalization’s first stage was about Western
countries setting up shop and selling into other markets. The second
stage was Thomas Friedman’s flat world, where low-cost
providers swept into established markets like the Central Asian tribes
that for centuries plundered the advanced civilizations of Europe and
East Asia.  In both cases, globalization was a one-way street-something
“we” did to “them” or “they” did to “us.”

This one-way globalization is becoming omni-directional, a scrimmage
in which multinationals from everywhere compete everywhere. If
Indonesians start buying lots of cars, Toyota’s toughest competition may
be a revived GM-or might be an emergent Tata.  Indeed,
the most powerful new champions from the BRIC and other growth
countries tend to be industrial firms-steelmakers like ArcelorMittal, vehicle makers like Mahindra,
to take two from India. (As another of my colleagues likes to say, “The
‘old economy’ in the U.S. is the new economy everywhere else.”)  The
capabilities that produced winners in either of the first two stages of
globalization are unlikely to work the same in this next one.

GM and Ford have some momentum now. If they can
combine the global opportunity with their upside of their restructuring,
they’ll be in a pretty good place. They’ve blown similar opportunities
in the past, however.

What should they do to make sure that it’s different-and better-this time?

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