Are They Smart or What?

In the 1950s and 1960s, Detroit auto makers dominated the global automotive market. They thought they owned that part of the universe, and they almost did.

In 1962, General Motors, by itself, had 51% of the U.S. market. With strong operations overseas and imports accounting for only a few points of market share at home, GM, Ford and Chrysler figured they would be in control forever.

But they ignored the fact the rest of the world's major industrial countries had been smashed flat by World War II. They didn't realize that one day those countries would get back on their feet and prove to be formidable competitors. And so they were taken almost completely by surprise when big chunks of the American public started buying imported cars by the boatload beginning in the 1970s.

To their credit, U.S. auto makers got their act together. In the 1980s, they went to work and made big strides in quality and productivity.

In the 1990s, the light truck market took off. Americans decided they had to have fullsize pickups and SUVs, and Detroit started minting money. It was the good old days all over again. Line workers were earning $8,000 profit-sharing checks. Top management was hauling in multimillion dollar bonuses.

Chrysler CEO Bob Eaton told me at the time he secretly hoped for a recession, so the auto maker finally could prove to Wall Street it could weather any financial storm.

But all three auto makers failed to see they were making so much money because they had the light-truck segment to themselves. It took Asian and European brands nearly a decade to catch on to the fact they, too, could make whopping big profits on pickups, SUVs and minivans. Once they did, the party in Detroit was over. The truck segment still was profitable but not like before.

In a couple of years, we're going to see boom times in the auto industry again. With new-car sales at the lowest level in three decades, pent-up demand is building. At some point the floodgates are going to burst, and consumers are going to start buying new cars and trucks like there is no tomorrow.

And because the Detroit Three have eliminated so much manufacturing capacity, they are going to strain to meet that demand. When you are struggling to meet demand, you don't need sales incentives. That alone will drop billions of dollars to the bottom line.

I believe Detroit auto makers (assuming they all survive) will go on to earn all-time record profits.

When they do, they will believe they have licked their problems once again. Egos and arrogance will re-emerge, and all the bad habits will creep back into the business.

But the boom will be short-lived. It will last from roughly 2012 to 2016. After that, pent-up demand will be exhausted, and stringent carbon-dioxide emissions limits will force a permanent shift to smaller cars, where auto makers don't make any profits.

It doesn't have to happen that way. The Detroit Three can start training themselves to take a more holistic view of the marketplace. And they can stash away those profits, so they're ready for the next downturn.

I hope that's what happens. But I've been around this business long enough now to know every time the good times roll, auto executives get the idea they all are geniuses.

John McElroy is editorial director of Blue Sky Productions and producer of “Autoline” for WTVS-Channel 56, Detroit and “Autoline Daily” the online video newscast.