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Detroit Is Back in Retrench Mode, This Time to Make Real Money

April 27, 2018
Auto companies "were trying to be all things to all people, they made a plethora of cars and maybe a third of them made money,” said Ron Harbour. "Now they want to show returns and profit growth.

The General Motors slogan that ushered in an era of Detroit’s ascendancy in corporate America -- “a car for every purse and purpose” -- is looking a lot like a relic.

Take Ford Motor Co.’s decision to eventually exit the business of making sedans for the North American market. While it’s one of the more drastic steps a Detroit automaker has taken to retrench lately, it’s hardly the first. General Motors Co. and Fiat Chrysler Automobiles NV also are in retreat, not due to financial peril, but because of a simple goal:

Stick to the businesses and regions that are making them money.

GM, Ford and Fiat Chrysler are racing one another to make the kind of returns that get investors in a lather. All three have concluded this means they no longer should make every type of model for all markets.

“When they were trying to be all things to all people, they made a plethora of cars and maybe a third of them made money,” said Ron Harbour, the partner in charge of global automotive manufacturing at Oliver Wyman. “They felt like it was their responsibility. Now they want to show returns and profit growth.”

New Reality

Before Ford’s announcement that it will whittle its North American car lineup down to just the Mustang -- the Focus will live on only thanks to a crossover variant -- Fiat Chrysler declared the end of the road for the Chrysler 200 and Dodge Dart.

The call CEO Sergio Marchionne made in 2016 was a significant U-turn. He told 60 Minutes four years earlier that if a “serious” carmaker couldn’t compete in the compact sedan segment, it would be “doomed.”

A new reality also has set in at GM. The biggest exit engineered by CEO Mary Barra was from Europe. The almost 90 years the company spent on the continent culminated in one money-losing episode after another. She elected to sell the German Opel and British Vauxhall brands last year to France’s PSA Group.

In addition to that mega-deal, GM has walked away or retrenched from markets including India, Russia, Thailand, Indonesia and South Africa.

Wanting to Win

GM President Dan Ammann gave a blunt explanation for the departure from India, the world’s second-most populous country.

“In the places where we decide to put resources, we want to win,” the former investment banker told Bloomberg Businessweek. “In others we find a way to release resources or exit.”

Ford struck a similar chord this week. The maker of the Taurus, America’s best-selling car for five straight years in the 1990s, once pointed to the sedan as evidence it had what it took to brush back interloping Japanese brands like Toyota and Honda.

Now the Taurus is among the nameplates headed for the scrap heap as casualties of CEO Jim Hackett’s massive $25.5 billion cost-cutting binge. And executives are reviewing strategic plans for South America, a market where Ford has consistently lost money.

“We’re going to feed the healthy part of our business and deal decisively with areas that destroy value,” Hackett said on April 25.

By David Welch

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