And Then There Was One

By Naughton, Keith | Newsweek, December 8, 2008 | Go to article overview

And Then There Was One


Naughton, Keith, Newsweek


Byline: Keith Naughton; With Caitlin McDevitt and Temma Ehrenfeld

Distilling the Big Three into a single player could save Detroit.

So this is how it ends for Detroit? After more than a century of putting the world on wheels, the American auto industry collapses amid squabbling over clueless CEOs and their private jets? Not necessarily. There is another way forward: the Big Three could become the Big One.

The notion of three powerful U.S. automakers is already an anachronism. These companies are husks of the mighty institutions that once ruled the

road. Now they control less than half the U.S. auto market and will lose a combined $30 billion this year. Collectively they are burning through nearly $6 billion a month, and General Motors and Chrysler warn that by the end of the year they'll be broke. They'll head back to Washington this week (ideally by car pool) to beg for a bailout.

But Detroit actually has parts worth saving. Melding them into a single entity could buff up its best brands, like Chevy, Ford and Cadillac, while leaving the clunkers (Pontiac, Mercury, Saturn, et al.) by the side of the road. It would take a healthy dose of Nietzsche's "creative destruction," but that's preferable to total destruction, especially when you're talking about an industry that supports 2.5 million jobs. Other major American industries have undertaken calamitous consolidations to survive. Why should Detroit be spared from market forces?

Sure, there are obstacles: a powerful union, fiercely independent dealers and a complex network of suppliers. Simply binding together three overwrought enterprises is likely to make matters worse. But there is a way forward. Chrysler, the weakest player, could fall, leaving two survivors. GM and Ford could eventually end up together by choice or force of bankruptcy. Ultimately, though, even GM Vice Chairman Bob Lutz, who warns that letting Detroit die will trigger "economic Armageddon," can see the power of One. "It would not solve today's problems," he told NEWSWEEK. "But long-term, with growing global competition and Chinese producers flexing their muscles, there will definitely be further industry consolidation."

Detroit might find a road map in other iconic American industries: aerospace and steel. After the Berlin Wall came down in 1989 and the end of the Cold War led to shrinking defense contracts, America's aviation companies began falling into one another's arms. Boeing grabbed up all U.S. civil-aircraft business, acquiring its chief domestic rival McDonnell Douglas in 1997. That allowed Boeing to take on the true competition: Europe's Airbus. A lone American automaker could also finally focus on its real rivals--Toyota and the rest. …

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