US car industry crisis "will make it stronger"

The sudden downturn in car sales globally combined with the worldwide credit crunch have combined to create the biggest crisis in the history of the automotive industry, says veteran executive Bob Lutz.

The global head of General Motors product development was making the comments while a group of auto workers outside the Detroit motor show called for more government assistance and better job protection.

However, Lutz says the crisis will make car companies stronger – providing they can survive the current storm.

When asked if this was the worst crisis the car industry had seen, the outspoken Lutz, who at 77 has worked well beyond his retirement age and has seen several peaks and troughs in his 46-year automotive career, said: “I think so. I don’t think any of us have ever seen anything quite like it. It’s the first time through on something this difficult for all of us. People say, ‘Gee Bob, you were around for the problems at Chrysler’. But it wasn’t this bad. I haven’t seen anything this bad.”

He said the car industry was uniquely affected by the economic downturn because investing in new models costs billions of dollars, factories and wages costs billions of dollars, and it takes years to make vehicles that suit changing customer demand.

“In a very high fixed-cost industry … there is no way around,” he said. “When you’re operating above the break-even point you can make a tonne of money.

“But the minute you dip below break-even, the fixed costs go on but you’re not covering it with revenue anymore and you’re just hemorrhaging cash like out of a fire hose and it’s almost impossible to stop.”

He added: “It almost doesn’t matter how good a job you’re doing … because the markets are so far off. If the market is 10 million and it used to be 17.5, it won’t pay the rent.”

However, there would eventually be some good to come from the disaster, Mr Lutz said.

“Everybody will lean out, cut the fat and remove some of the proliferation,” he said. “It was starting to get out of hand.”

He said when you start to see super-luxury cars such as the million-dollar Maybach it was time to get worried.

“Cars like that are a sign that everything was starting to get over the top, and there was too much money and things were going too well,” he said.

“This is probably a hard dose of reality and an adjustment the world had to go through.”

The 2009 Detroit Motor Show