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| Author: | Lee Hudson Teslik |
|---|
A worker at a Ford plant in Nanjing, China. (AP/Eugene Hoshiko)
This July marked the hundredth anniversary of Ford Motor Company's groundbreaking Model T, an early beacon of Detroit's auto industry success. It wasn't much of a party for Motor City. The same month, Ford posted its worst quarterly losses in history (CNNMoney). General Motors, also feeling the pinch, announced it will extend employee discounts to nonemployees to try to boost flagging sales (WSJ). Meanwhile, Japan's Toyota outpaced its U.S. rivals in sales through June, and analysts speculated 2008 could be the year in which Toyota definitively seizes the throne as global sales champion (LAT).
This is hardly phase one of the auto wars, but experts say it could be a turning point. Detroit's "Big Three"—Ford, GM, and Chrysler, which last year was taken over by the private equity firm Cerberus—have all laid out comprehensive (and, the Economist notes, quite similar) recovery plans. The plans aim to address ballooning "legacy costs"—sums paid to workers who no longer work for the companies, whether for pensions or healthcare—and also seek to confront a shifting marketplace in which rising gasoline prices have spurred Americans to purchase smaller cars.
There are signs that these plans aren't going as well as the Big Three had hoped. Ford, for instance, announced it will both alter and accelerate its recovery road map (Dow Jones). Chrysler, meanwhile, is cutting jobs (StarTrib), while GM is considering the sale of some of its brands (WSJ) as well as new layoffs. (Job cuts at U.S. automakers have become such a common refrain that The Onion satirized GM's "new 2008 line of layoffs.")
The outlook is especially grim for sales within the United States, where market share has fallen dramatically (WSJ-chart) for nearly all U.S. automakers. With average summer gasoline prices in the United States over $4 a gallon, buyers are increasingly keen on fuel efficiency, while U.S. automakers have for years focused on trucks and larger vehicles. The expense of overhauling U.S. production facilities is high, and while U.S. automakers have set up plants to produce smaller cars abroad, shipping costs make it uneconomical for them to bring these vehicles back to the United States.
Given these problems, experts see signs the trend in declining market share could continue. Forbes' auto industry specialist Jerry Flint envisions a scenario for GM in which "plants keep closing, white-collar staff is laid off, [and] the Detroit headquarters becomes a ghost town"—then points out that this scenario is already taking place, noting the waves of layoffs that have taken place in recent years. Flint recommends GM abandon the U.S. market altogether.
Whether or not such a drastic step is necessary, analysts do tend to agree that U.S. automakers face better prospects both producing and selling vehicles abroad. A falling U.S. dollar has made American auto exports cheaper for international consumers (though MarketWatch reports Detroit hasn't reaped the benefits of this shift as fully as it had expected). Given higher costs in the United States, U.S. automakers have also had an easier time setting up manufacturing facilities abroad than at home, and an analysis from Automobile magazine says shifts in production are likely to continue.
Meanwhile, U.S. producers are increasingly looking to emerging markets for future sales growth. Though analysis of China's auto market tends to focus on Chinese automakers, the country's demand for vehicles is surging at a rate beyond what China is able to produce domestically. This will be a fiercely contested market. It remains to be seen how much of it Detroit will be able to capture, but the fact of China's rapidly expanding market does provide a measure of hope in an otherwise dire economic climate.
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