Pi-Consulting

Daimler Chrysler has sold off its Chrysler division for $1.35 billion, which sounds like a lot of money until one recalls that the erstwhile “automotive behemoth” sold two million cars last year for a total of $47 billion in revenues. The gaping disparity between the company’s turnover and its price-tag is accounted for by a vast health-care-and-pensions gap in the books. How are the mighty fallen, as employees’ twilight years suck the life out of the employers that hired them in the first place. As a result, Chrysler Corp. is now worth less than The Cheesecake Factory, Foot Locker and Pottery Barn. By some calculations, Chrysler is now worth less than Oprah Winfrey.

It could easily be argued that Chrysler was sold for scrap. If this seems surprising, and the social liability to employees is still not enough to explain it, we should ponder the other impending woes facing big traditional manufacturers of American automobiles. Gasoline prices are at an all-time high, which bodes ill for producers of big gas-guzzling macho models. California has set low-carbon fuel standards, and other states are following. Even President Bush has now been pressured into regulating car exhaust emissions. The business is set to get tougher, less rewarding and more expensive to be in for the foreseeable future.

However, those predicting that the American car industry’s tires will shred and bring it to a grinding halt forget one bizarre fact. Detroit keeps churning out macho monster trucks, humungous Hummers and swaggering SUVs because… amazingly, people keep on buying them. America is beginning to talk in hushed whispers about the increasingly glaring need to wean itself off conspicuous gasoline consumption, but it still drives down to the video store in a souped–up sedan, making satisfying roaring engine noises, to pick up a copy of Al Gore’s DVD on climate change, “An Inconvenient Truth”. This is not just denial. It is self-induced myopia on a scale not seen since Pompeiians dismissed the belching fumes from Vesuvius as “just a bit of smoke, nothing to worry about”.

Detroit seems to be going into competition with its own consumers as to who can be more mired in inertia and resistant to change. Big butch wagons keep consumers’ testosterone flowing, and put more profit per vehicle in the manufacturer’s pocket than smaller, lighter, more fuel-efficient cars. For as long as they go on selling, that is.

No-one really thinks that change will come in much less than fifteen years. Why should it? Each ten percent rise in the pump-price of gasoline results in only a 1% drop in America-wide consumption. When the change does come, it may surprise a complacent, gracefully-declining industry with its speed and ferocity. It will probably leave smiles on the faces of Asian auto-makers. There will be few smiles in Detroit.