Insider: Our Little Canary

Columns From: 11/1/2008 Automotive Design & Production, , Senior Editor

"Recession is when a neighbor loses his job. Depression is when you lose yours."-President Ronald Reagan.

If Detroit's automakers are the canary in the proverbial coal mine when it comes to the economy, one has to wonder whether the bird, which has been finding it hard to breathe of late, is headed for irreversible suffocation.

If Detroit's automakers are the canary in the proverbial coal mine when it comes to the economy, one has to wonder whether the bird, which has been finding it hard to breathe of late, is headed for irreversible suffocation. Earlier this year, prognosticators said the U.S. may go through a mild recession, one that would only last a couple of quarters and then things would get back on track. Sure enough, Detroit's automakers saw their fortunes fade at the beginning of the year, just as predicted. Layoffs and plant closings occurred, and everyone had hoped the actions taken would be enough to get the industry through what was likely to be a mild downturn. But still, the canary was beginning to sense a problem in the air.

After a few months, the situation showed no signs of abetting; rising gas prices and sagging consumer confidence hit the auto industry with a double whammy, as consumers flocked away from the profit-rich pickup trucks and SUVs of old, into small cars and midsize sedans. Detroit responded with more layoffs and aggressive moves to shift product plans to include more fuel-efficient vehicles, including plug-in hybrids. Some announced plans to convert their truck plants over to small car assembly, while others plowed scarce financial resources into far-reaching propulsion technologies. The canary seemed to survive another blow, although its lungs were getting weaker by the day. Could this have been the bottom? Far from it.

Now, the rest of the world is experiencing what Detroit's canary has been battered with for quite a while now. Home construction has come to a halt. Bankers are turning to the federal government for help as they try to stave off failure because of ill-conceived bets that were made on risky mortgages, and average Americans are watching in horror as the balances in their 401(k)s and investment portfolios drop like a boulder off a cliff. Our automotive industry canary, by the way, is getting sicker, as consumers tighten their belts even more, delaying vehicle purchases, while bankers put the brakes on auto loans and leasing. It leads us to the obvious question: Have we hit bottom now?

Probably not.

It's likely that the pains being felt throughout the national and global economies will continue to put negative pressure on the automotive industry through the remainder of this year and likely into the first or second quarter or next, at least according to none other than Federal Reserve Chairman Ben Bernanke: "Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased." That could spell even more bad news for our canary, maybe leaving him scarred for life, but yet still hanging on through the worst of what's to come. I know it's hard for some to believe, but we all need to remember that this too shall pass. Take a deep breath and calm down.

When things do turnaround, and believe me, they will, Detroit's automakers are likely to be in the best shape they have been in to take full advantage of the rebound. Product development is still going on, even though the priorities have shifted, and the industry is becoming increasing prudent about where it is putting its money, which is a good thing. I can still remember the days when automotive executives went running about, checkbook in hand, buying ancillary businesses that made little or no sense to their core operations. Thankfully, those days are long gone.

If automakers and suppliers continue to look at the future, knowing these problems will resolve themselves, instead of wallowing in the short-term present, it will be beneficial for everyone and provide a strong foundation for the next generation of designers, engineers and shop floor workers. Granted, there will not be as many workers in the ranks as there were just a few years ago, but those left will be in a much stronger position to succeed. Our little canary still has a strong chance at survival and that's all we have to remember.