BusinessWeek Jan. 3, 2008

For Detroit, 2007 was a bad year, and forecasts indicate 2008 could be even worse. Still, the outlook is not all bleak.



Brand-new Ford cars and trucks are seen at a Ford dealership Oct. 2, 2007, in Colma, Calif. Justin Sullivan/Getty Images

As expected, Detroit ended 2007 on a miserable note, seeing combined light-vehicle sales for domestic automakers slip 7.1%. And, also just as expected, executives from General Motors (GM), Ford (F), and Chrysler are predicting brighter days ahead for 2008. What makes them think that the new year will be any better than the old?

In fact, there is a distinct possibility that 2008 could be even worse. For instance, Edmunds.com forecasts U.S. light-vehicle sales of about 15.9 million in 2008, down from 16.1 million for 2007, said Jesse Toprak, executive director of industry analysis. That would make 2008 Detroit's worst year in a decade.

A Glimmer of Hope:

So how bad was 2007? GM reported on Jan. 3 that its sales were off 6% from 2006, to 3,822,612, according to Autodata in Woodcliff Lake, N.J. Ford sales fell 8.9% in December, to 210,872. For 2007, its sales fell 11.8%, to 2,558,553. Chrysler sales were down 3.1% for the year, to 2,076,650, even though its December sales were 0.5% ahead of the year-ago month, at 191,423.

Meanwhile, Toyota (TM) passed Ford for the full year for the first time in 2007, to become the No. 2 volume seller in the U.S. market. Toyota Motor, including its Toyota and Lexus divisions, had record U.S. sales of 2,620,825 vehicles in 2007, up 3.1%.

And yet, while much of their optimism deserves to be taken with a grain of salt, based on the results of the last few years, Detroit's Big Three have some plausible reasons for at least a little genuine hope.

For starters, the Detroit automakers were able to off-load billions of dollars in liabilities to independent retiree health-care trusts, as part of new contracts with the United Auto Workers. The hope is that not only will this help the automakers get their financial houses in order but also, more important, be able to apply many of those billions toward designing more competitive cars and trucks in terms of styling and quality, as well as developing alternative fuel technology.

There are plenty of indicators that Detroit is becoming increasingly capable of going mano a mano with the imports in the critical light-vehicle segments. Several new models—most noticeably, the Buick Enclave, Saturn Aura, Cadillac CTS, Chevrolet Malibu, Ford Edge, Lincoln MKX, and Jeep Wrangler Unlimited—have been both critical and commercial successes.
Trimmer Operations

In addition, Detroit is better prepared for weaker demand than they have been in previous downturns, with lower costs due to fewer factories and fewer jobs. They also have lower inventories of unsold vehicles and fewer unprofitable sales to daily rental fleets.

For instance, Ford said in a review of 2007 that it has cut its U.S. hourly workforce by 23,100 positions and salaried workforce by 7,600 jobs, and reduced its manufacturing capacity by nearly 1 million units since the end of 2005. Jim Farley, group vice-president for marketing and communications, said that Ford Motor's yearend inventory was about 533,000 units, down from 570,000 a year ago, or 733,000 two years ago. "Very few companies would have been as courageous as we have been, but we have stuck to our guns," he said.

Mark LaNeve, North America vice-president in charge of vehicle sales, service, and marketing for General Motors, said GM cut its sales to daily rental fleets by 108,000 vehicles in 2007 to about 596,000. He said not counting fleet sales, GM's retail sales gained 1.5% in December.

If there is one hope shared by Detroit executives and shareholders alike, it is that 2008 will be the bottom of the slide. At this point January, 2009, seems a long way off, but maybe by then their optimism will start sounding a little less like wishful thinking.

Jim Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.

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'06 E320 CDI
'17 Corvette Stingray Vert

The American car companies stubbornly refuse to take the bold steps necessary to meet consumer concerns, and Goverment regulations, regarding fuel economy.

Instead of building good, reliable, fuel efficient vehicles, they for years have chosen instead to concentrate instead on peddling unreliable, poorly constructed, problem prone, huge gas guzzling SUVs, Pickup trucks and muscle cars.

At the same time lobbying in Congress and suing in Court to fight and resist fuel mileage standards, rather attempting to meet them, while knuckling under to greedy, stubborn autoworker unions that follow a scorched earth policy in contract negotiations.

Now the chickens have come home to roost, and at this point, I say let the chips fall where they may, let Darwin's theory take over.

I daresay I am probably not alone in this thinking, judging from the votes many Americans have made with their pocketbooks on this subject.



Note: Until I bought my Mercedes 12 years ago, I was a die hard American car fan and owned nothing else..

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1991 560 SEC AMG, 199k <---- 300 hp 10:1 ECE euro HV ...

1995 E 420, 170k "The Red Plum" (sold)

2015 BMW 535i xdrive awd Stage 1 DINAN, 6k, <----364 hp

1967 Mercury Cougar, 49k

2013 Jaguar XF, 20k <----340 hp Supercharged, All Wheel Drive (sold)

They also have the burden of providing benefits to a legion of retirees. I read somewhere (in a galaxy far, far away) that the Big 3 pay something like 4x what the Japanese carmakers in America pay in retirement benefits PER EMPLOYEE. That's gotta hurt. It has something like $3K to a car (same galaxy).

Health benefits are an enormous expense. Before the last round of concessions that the UAW made, it amounted to $1600 per vehicle. I don't know what pensions costs amounted to, but that would probably be equal or greater than the health care costs. Apparently there is something like 3 retired employees/spouses for every present UAW worker.

It is the legacy workers/retirees that are killing the Big 3 when it comes to these costs. The Japanese companies don't have anywhere near that kind of baggage to pay for and their industry is expanding, unlike the contracting US market share.

Fundamentally I agree with Jim H. If they built quality cars that people wanted to buy, then people would buy them. They got complacent for a number of years when they could make huge profits from selling truck-based SUVs at top dollar while using production tooling often 10+ years old. They could've driven some of those profits into R&D but they didn't. The Big 3 have made advances in quality in recent years. Now they just need to advance the product. The new Chevrolet Malibu looks like a step in the right direction in the mid-sized family car segment. We can only hope.

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Jonathan

2011 Mazda2
2000 E320 4Matic Wagon
1994 C280 (retired)

That'd be a 1965 Ford Galaxie 500 XL, wouldn't it?

http://www.hubcapcafe.com/ocs/pages01/ford6502.htm

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1991 560 SEC AMG, 199k <---- 300 hp 10:1 ECE euro HV ...

1995 E 420, 170k "The Red Plum" (sold)

2015 BMW 535i xdrive awd Stage 1 DINAN, 6k, <----364 hp

1967 Mercury Cougar, 49k

2013 Jaguar XF, 20k <----340 hp Supercharged, All Wheel Drive (sold)

I bought my first MB in '91, and will likely always be an MB owner and driver.

How can 20 mpg HIGHWAY, be touted as so outstanding in the Howie Long /Chevrolet pick-up commercials?

I am of the opinion that great fuel mileage starts @ 30 mpg and up, for any vehicle that usually just transports it's occupants.

I LMAO, when Detroit releases HWY mpg of only 30 mpg for these new smallish automobile releases.

Wake-up Detroit......it's 2008!

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'06 E320 CDI
'17 Corvette Stingray Vert

The buying public, entering an American showroom, has consistently walked right past the Focus to drool all over the F-150 and Explorer. Back when gasoline was 'only' $1.98/gallon, Ford couldn't build them fast enough. Same story, different badges for GM and Chrysler products. Oh, and you could not give away a 4-cylinder engine when people keep asking "Hey, does that have a Hemi in it?"

Face it, the buying public still wants 5,000 pound, earthmoving SUVs, and no such vehicle will ever get 35mpg, no matter who writes the standards!

Congress could add taxes to make the price of gas $10.00/gallon, and use the surplus revenue to fund something else that needs funding. When this happens, you won't need Congress to raise fuel mileage across the country, a lot more people will demand smaller and more fuel-efficient cars. Believe me, with that kind of demand, Detroit will build them smaller, too.

Well, they first and foremost have to run a business. When you're up to your a** in alligators, you may forget that you wanted to drain the swamp.

Although the news is all about the economy being bad now. I'm pretty sure we really don't want an economy where the "Detroit" auto manufacturers have just disappeared.

Americans always vote with their pocketbooks. That's why we have McDonald's, Wendy's, Target, Wal Mart, etc. You take your pick, and take your chances.

There are some who would say that Mercedes is guilty of "...peddling unreliable, poorly constructed, problem prone, huge gas guzzling..." cars.

All of the above is just my opinion, my point of view, and is worth up to $0.02.

Not entirely accurate. The SUV was born out of fuel efficiency requirements under Carter's administration. Trucks had been excluded, so Detroit developed the SUV. People bought it because the SUV was brilliantly marketed.


That's a pretty gross misrepresentation. The UAW gets all that fat because the contracts were negotiated when the Big 3 were on top of the world and gave them whatever - some stuff they didn't even ask for. I know it's shocking to realize that Big 3 management is short sighted ()
but I can understand why the union resisted handing back over a bunch of gains.

The UAW certainly has a ridiculous deal (or did before renegotiating), but let's not pretend that's Detroit's only problem. Here is Detroit's biggest problem:
Billions of dollars on styling. This must be the $13bil Ford is spending on paint color. Brilliant, because styling is where the imports are killing Detroit . I'm not sure how quality is going to get better by shutting down plants, nor will quality change be evident for many years. Developing alternative fuels? Welcome to five years ago. Can anyone name an innovation by Detroit in the past decade? The only one I can think of is the Flexfuel, which we didn't get until last year (which has been marketed the polar opposite way of the SUV).

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1984 300TD

Not to pick on you or anything, but your profile indicates a home base of Holland Michigan.

In the interest of full disclosure, do you now or did you ever, have some connection with American Automakers, worked for them, got a pension from them or anything?


It's been noted in passing already, that ADVERTISING and MARKETING was - and to this day IS - being used enormously to shove these gas guzzling dinosaurs down the throats of patriotic and/or gullible American consumers.

Also, it needs to be mentioned, that the American Carmakers, ESPECIALLY GM and Chrysler, virtually ended, by the mid 1990s. the highly successful and perfected full size, BOF, RWD, cast iron V8 family sedan and staation wagon, something they were able to do very well, and instead, concentrated on selling full size and oversize pickup trucks and SUVs.

In their stead we were given underpowered, 4 and 6 cylinder front wheel drive, ugly sedans that sounded like a vacuum cleaner with a leaky cannister when you stomped on the passing gear!

These pickups and SUV's were specifically classsified as trucks, and were EXEMPT from CAFE automobile fuel economy standards.

It is NO coincidence that this was a a convenient way to sidestep the fuel economy/CAFE standards. Just do what you have been doing and call them "Trucks" and you have evaded the fuel economy standards in place.

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1991 560 SEC AMG, 199k <---- 300 hp 10:1 ECE euro HV ...

1995 E 420, 170k "The Red Plum" (sold)

2015 BMW 535i xdrive awd Stage 1 DINAN, 6k, <----364 hp

1967 Mercury Cougar, 49k

2013 Jaguar XF, 20k <----340 hp Supercharged, All Wheel Drive (sold)

Yes, I am 'connected' with American automakers.

[EDIT: personal information deleted by user not relevant to this thread]

I am quite proud of the contribution my father, and to some extent I, have made to the auto industry.

Jim,
I would surmise that most Americans are not bright enough to realize what Detroit has done to them, in the way of your post.

They are led to the slaughterhouse of low mpg cars & light-truck vehicles by the Big III. That's just my opinion, folks.

I have not bought a new American car since 1979 nor do I plan on ever buying anything used that is American-made, save perhaps a new Jeep 4X4 someday........maybe.

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'06 E320 CDI
'17 Corvette Stingray Vert

See post #12 for my info.

Anybody else going to join in?

Jim H.

LMAO!!!

Come to think of it........where is that Chrysler commercial, with that doofus guy asking; "Does that have a HEMI in it!?"

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'06 E320 CDI
'17 Corvette Stingray Vert

China and India have the world's fastest growing economies and are the only two countries each with over a billion people and are stepping up their auto production.




The first Audi A6 cars produced at the company's new production plant in Aurangabad, India, have rolled off the assembly line and been delivered to their new owners, the company announced Thursday.

"It takes five work cycles of 90 minutes each to build the Audi A6 from its roughly 2,500 parts," according to an Audi statement.

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'06 E320 CDI
'17 Corvette Stingray Vert

The writing has been on the wall for 25 years. First the luxury cars fell to the Europeans and Japanese, and now the midsize choices are dominated by imports. I won't even mention economy cars, because the US never had anything competitive. Once in a while one of the Big 3 would have a good year and that would be an excuse to reward their executives in an outrageous fashion. It's no wonder they are where they are now. They squandered a generation of goodwill that will take another generation to rebuild. That's the price of short-sighted American-style management.

Detroit has pushed itself to the brink of oblivion.

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1985 380SE Blue/Blue - 230,000 miles
2012 Subaru Forester 5-speed
2005 Toyota Sienna
2004 Chrysler Sebring convertible
1999 Toyota Tacoma