Auto Industry's Slump A Challenge For Next Michigan Governor

July 7, 2008 - 7:20 PM

(CNSNews.com) - October sales for the Big Three American automakers fell drastically short of last year's record pace, down 30 percent despite interest free financing and other discounts. The slump might affect the way Michiganians vote in Tuesday's gubernatorial election.

Democrat Attorney General Jennifer Granholm has a nine-point lead over Republican Lt. Governor Dick Posthumus in the latest poll. The winner will succeed Republican John Engler who has held the governorship for eight years and cannot succeed himself.

Posthumus thinks slumping auto sales and the overall economy will be a huge motivating factor for voters, according to his spokesman Sage Eastman.

"The question is: which candidate has the experience to turn the economy around and bring jobs back to Michigan. Dick Posthumus has had experience as the (Michigan) Senate majority leader. When we came out of the 1990 recession, he helped bring 700,000 new jobs in the state by cutting taxes and he'll do it again as governor," said Eastman in an interview with CNSNews.com.

Eastman said Granholm "has never brought a single job to the state of Michigan."

However, Posthumus believes Michigan will have to redefine its role in the auto industry in order to maintain its dominance, especially since General Motors, Ford and Chrysler are building plants in the South and elsewhere.

"Where we can compete is in areas of high-tech manufacturing, research, design and alternative fuels," he said.

Chris DeWitt, Granholm's campaign spokesman, said slumping auto sales in the state would have no effect on her winning the Michigan governorship. He would not comment any further.

However, Granholm believes Michigan needs a "technology tri-corridor," in which the state focuses not only on automobiles but also on the biomedical industry and homeland defense technology.

"This will help our state's most important industry become a leader in this growing market," Granholm said in a campaign position paper.

The "TTC" as Granholm refers to it, would also "focus on promoting accelerated automotive research and development, retaining and attracting new high-tech workers and suppliers, and encouraging company expansions and start-ups - especially in other promising new areas such as composite materials and product-safety improvements."

The United Auto Workers union has endorsed Granholm, but not for reasons directly related to the automobile industry.

"On the issues that matter most to working families in this election -- Michigan's economic future, education, health care, the environment, transportation, workers' rights, tax fairness and responsive, accountable state government, Jennifer Granholm is the clear choice over Dick Posthumus," the UAW said in its endorsement.

If past history is any indication, the slump in auto sales could trigger autoworker layoffs, reducing the buying power for many Michigan families, damaging the state's economy and tax base.

The Big Three automakers had their biggest month ever in October of 2001, "because that's when they went to the zero percent financing. It was at the end of September, after the dark 9-11 days that they put that on," said Edward Latham, editor of Automotive News.

Now, General Motors, the nation's largest automaker, reports it suffered a 29.6 percent sales drop in October from a year ago. Its light-vehicle market share that included Saab and Hummer, fell to 29.8 percent compared with 31.9 percent last year. Ford Motor Company reports its sales dropped 31 percent from a year ago and DaimlerChrysler sales fell 25.8 percent in October, despite a record sales month for the company's Mercedes-Benz USA division.

Latham casts a bleak prediction about the short-term future. "I don't think anybody is expecting gangbuster sales again for the rest of this year," said Latham.

A Detroit News poll taken Monday indicates Michigan consumers don't have much confidence in the auto industry either. 55 percent of those surveyed believe it's headed for a prolonged slump.

But Jim O'Connor, Ford's vice president for North American sales, thinks, "Consumer fundamentals remain supportive for auto sales."

"Our October retail sales were significantly higher than September results, but were down compared to an exceptionally strong October in 2001," said Bill Lovejoy, General Motors vice president of North American sales, said in a statement.

GM's "Zero, Zero, Zero" interest-free buyer incentive program is set to expire on Thursday.

Latham emphasized that October this year was less profitable, "no question about it" because the effectiveness of incentives like, "zero percentage and others" had "softened a little bit."

Gary Dilts, Chrysler's senior vice president for sales, told Automotive News other factors contributed to the October slump.

"October had everything imaginable working against it," said Dilts. He said declining consumer confidence, the threat of war with Iraq and even the anxiety caused by the Washington sniper attacks and the possibility of copycat crimes contributed to the slump.

Foreign car companies are also tapping new U.S. markets, according to Latham.

"They are adding new models and they are selling in places where they haven't sold before like in North Dakota, South Dakota and places where the Big Three have been for years. Comparatively, the Big Three could see their collective light vehicle market share drop to 50 percent or below by the end of this decade," Latham concluded.

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