The American Auto Industry Good-Bye
Now that DaimlerChrysler has put the Chrysler Group up for sale, the long-expected massive restructuring of the American automobile industry might finally have arrived.
Take a snapshot for posterity, because today's U.S. automotive landscape won't look like it does for much longer. As a friend reminded me, it's like what happened in the rail business at the turn of the 20th century, when once-dominant steam locomotives gave way to diesel- and electric-powered ones. The entire rail industry was turned on its ear.
For the past couple of decades, experts have been predicting a major restructuring of the U.S. auto industry because of too much plant capacity (notably that owned by Chrysler, Ford and GM), too many employees and too many costs (especially employee costs). Automakers have tried to ward off this inevitable transformation by attempting a nip here and a tuck there, but cosmetic surgery will no longer be enough.
No matter who buys it — and the list of potential suitors is long — Chrysler as we presently know it is history. More than likely, Chrysler will be acquired and broken into pieces. Some parts might be sold to the highest bidder, while others could be tossed onto the trash heap.
And what's going to happen to Ford? Is a U.S. automobile industry without Ford possible? Even a now-retired Ford employee recently told me that he never thought it possible but now is reconsidering. Indeed, Ford's turnaround appears elusive. Only recently, Ford admitted it is not meeting the goals of its Way Forward turnaround plan and employees are losing faith.
And it's not just the automakers themselves that will be part of the restructuring. What's happening with Chrysler has been occurring in the auto parts business for the past couple of years. A massive restructuring, brought on largely by bankruptcies, has been ongoing, gathered speed last year, and looks destined to continue at full speed in the near future.
Dow Chemical might well be the next major casualty. Based in Midland, Michigan, the company sells to the automakers as well as the pharmaceutical, agricultural and packaging industries, and it looks to be a takeover target. The private-equity firms of Kohlberg Kravis Roberts & Co. (KKR), Blackstone Capital Partners LP and the Carlyle Group are reportedly interested in teaming up to buy Dow in a deal estimated to be worth $54 billion. All of these equity firms interested in Dow have coincidentally — or maybe not so coincidentally — also been mentioned as potential buyers of Chrysler.
The size of this $54-billion deal would surpass even the record $45-billion KKR and Texas Pacific Group recently paid to take over TXU, the Texas energy company. And that deal surpassed the record-breaking $39-billion Blackstone paid for Equity Office Properties in early February.
In fact, the deal for Equity Office Properties foreshadows what a buyer might do to Chrysler or any other automotive supplier. Before its first month of ownership was out, Blackstone had begun dismantling its investment and selling it in pieces.
For contrast, look at what is happening with the import brands. Most recently, Toyota announced that Tupelo, Mississippi, will be the home of its eighth assembly plant in North American. No surprise that Toyota picked the South, because it is far from the influence of the Detroit brands, UAW labor and higher wages. Every other import automaker has gone to the South as well — Honda's operation in Ohio is the northernmost of these operations.
The American automobile industry isn't going away, but the industry of tomorrow won't look like the one of today.
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