Case of Bankrupt Logic

About once a month someone gets lots of attention by predicting one of the Big Three could go bankrupt within the next 10 years. The media then react as if this is a bold, courageous prophecy that must be heard. It isn't. One of the Big Three almost goes bankrupt every 10 years. It's a cyclical industry; everybody gets their turn in the barrel, and not just the U.S. Big Three. Even well-known foreign

About once a month someone gets lots of attention by predicting one of the Big Three could go bankrupt “within the next 10 years.” The media then react as if this is a bold, courageous prophecy that must be heard.

It isn't.

One of the Big Three almost goes bankrupt every 10 years. It's a cyclical industry; everybody gets their turn in the barrel, and not just the U.S. Big Three. Even well-known foreign auto makers such as Nissan, Volkswagen and Porsche have seen buzzards circling in the past 10 years — to name only a few.

Ten years ago it was General Motors that had everyone wondering if it could survive. Ten years before that, it was Chrysler that was on the brink. Ford's troubles got less publicity than Chrysler's, but it, too, came close to going belly up in the early 1980s.

Go back through history and you can find a major auto maker in deep trouble every few years. If it wasn't Chrysler or Ford struggling, then it was American Motors, (which Chrysler eventually bought) or a European auto maker such as Renault or Fiat.

GM was on shaky ground from the start when it was formed by William C. Durant in 1908. Under Durant, GM soared to incredible heights, but it almost went bankrupt twice by the 1920s.

In 1945, Ford was huge but in ridiculously bad shape, in part because Henry Ford “didn't believe in accountants.”

It doesn't take a great crystal ball — or any courage at all — to predict “bankruptcy” in the future for one of the Big Three or any other auto maker.

It doesn't take guts to say Ford stock isn't worth $8 per share during the bad times, or to say it's undervalued at $50 during the good times, as some Wall Street analysts have done.

What takes courage is to predict — during the bad times — that the Big Three will come back stronger and more profitable than ever, as they have every 10 years for at least the past six decades.

In the early 1980s — or early 1990s — who predicted Chrysler would stage huge comebacks during both decades?

Who predicted 10 years ago that GM would become Detroit's low-cost producer, or that the Cadillac Escalade would be the dreamboat of the MTV generation? Who predicted 10 years ago that a small company — Porsche — would be the most profitable auto maker in the world, in part because it's making an SUV?

And who predicted five years ago that then-pathetic Nissan would have a 2002 operating margin of 10.8%, making it the most profitable large auto maker on the planet?

There is a name for people who make these kind of savvy, courageous predictions — and it isn't Wall Street analyst, journalist or “expert.”

They go by another name: rich.

Drew Winter is editor of Ward's AutoWorld.

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