Auto Industry Researchers See Recovery, Urge Governments to Tread Cautiously

As the Obama Administration prepares to reveal a wide-ranging and complex plan to restructure the auto industry in the United States (see The Wall Street Journal: Auto Task Force Set to Back More Loans — With Strings), an international team of academics focused on the global industry has offered a road map for its recovery.

That road map comes in a position paper from the International Motor Vehicle Program (IMVP), co-directed by Wharton management professor John Paul MacDuffie. The paper predicts that worldwide, the industry "will recover to pre-crisis levels as the global economy recovers," and suggests that "there is no 'paradigm shift' at hand." The paper also encourages auto manufacturers to look beyond today’s cost cutting to take steps that improve capabilities and the prospects for long-term viability: increasing production flexibility to ensure better response to demand shifts; preserving future product development and technology investments; sharpening the focus of product strategy (i.e. not trying to compete in luxury and budget categories simultaneously); reducing debt as soon as possible; and introducing process innovations.

Governments are urged in the paper to state clear goals — job preservation, reduced environmental impact, or the establishment of a "national champion" to be the country's strongest competitor — and to allow facts rather than the "political muscle of … interest groups" to set policies in support of those goals. The paper does not offer an opinion on the use of bail-out plans; instead, it urges governments to adhere to policies and actions that are consistent with the pursuit of their stated goals — and to "take a strong stance against trade protectionism." In an interview this morning, MacDuffie said the IMVP paper "purposely remained neutral on the policies of individual countries, including the bailouts" that have been used and may be expanded in the United States.

According to The Journal article today, the Obama task force will likely "say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from their managements, unions and GM's bondholders. The team will also lay out a firm timeline for action." Such steps, MacDuffie noted, would be consistent with his own view that the U.S. automakers should not be allowed to fall into bankruptcy. "It's better to go ahead with the loans and to make sure that they come with tough requirements for the automakers," he said.

Additional Reading:

Bailout or Bankruptcy: What Will It Take to Get the U.S. Auto Industry Back on Track?

Biggest by Default: Toyota May Be Number One, But It Still Faces Challenges

Behind the Curve: Have U.S. Automakers Built the Wrong Cars at the Wrong Time — Again?

From The New Republic: Better Than A BailoutHere's how to rescue Detroit without forcing them into bankruptcy, by John Paul MacDuffie and Case Western Reserve University professor Susan Helper