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Detroit's spinmeisters won't be able to put a happy face on auto sales this year or next. It's going to be ugly, and there is very little the car companies can do to buck up sales quickly.
The problem? The automakers can't produce enough of the fuel efficient vehicles that consumers want. They were totally surprised by the rapid shift of consumers to smaller cars this year as gasoline prices at the pump plowed past $4 a gallon. June was nothing short of a rout for the once-storied Big Three. Chrysler’s sales cratered, falling 36%, while Ford’s plunged by 30% and General Motors’ (GM) dropped by 18%. None of the automakers is likely to make a profit this year. With U.S. auto sales plummeting about 15% below 2007 to around 14 million vehicles, 2008 will be the industry’s worst year since the early 1990s.
The problem is manufacturing. Detroit’s automakers “have little flexibility to switch production from big SUVs or pickup trucks to smaller cars that are in demand," says Erich Merkle, formerly an auto analyst with IRN Inc., an auto consulting firm. "It could take a few years to convert plants, so the most Detroit can do is add an extra shift at plants that make [small] cars."
GM's and Ford's European factories do produce lots of super-fuel-efficient cars, but the dollar to euro exchange rate makes it prohibitively expensive to import many, Merkle says. At best, they'll have to make do with a modest increase in manufacturing the handful of vehicles that are selling well, such as the Chevy Cobalt and the Ford Escape hybrid SUV.
GM and Ford do have a comeback plan. They’ll boost production of smaller cars, such as revamped Cobalts and Ford Fiestas, in retooled plants by 2010. GM remains on track to begin selling an ultra-high-mileage Chevy Volt plug-in hybrid by 2010. “There’s a big puddle that GM and Ford need to jump over, but things should start looking up in 2010, when sales are expected to rise and they shed billions of dollars in employee retirement costs” that will be assumed by the United Auto Workers union, says John Wolkonowicz, a senior automotive analyst with Global Insight, an economic consultancy.
In the meantime, don't get spooked by those rumors of a Detroit Three bankruptcy. GM’s moves to cut production of big SUVs and pickup trucks, slash its white-collar workforce and tap credit markets for several billion dollars should be enough to get it through 2009. Ford is sitting on $30 billion in cash, thanks to a 2006 loan, and it also is paring expenses to the bone. Chrysler, however, is in greater danger. Parent company Cerberus will continue to hunt for a buyer or a deep-pocketed partner.
Domestic automakers likely will get some help from consumers, who’ll be ready to shift their buying habits and pay a bit more for high-mileage small cars with more “spiffs,” such as leather seats, sunroofs and GPS systems. “That’s key, since it will allow these automakers to increase prices so that a Cobalt can be sold for near $20,000, where, at $12,000 today, GM sees very small profit margins,” says Wolkonowicz.
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POSTED BY: Kim (July 22, 2008 11:29 PM)
I live in Japan and I'm American. American automobile companies need to get some people over here to study the cars being put out. If they could copy some of the Japanese cars, they could turn themselves around. It's not even about producing hybrids, believe it or not, there are not a lot of them here. But most people are driving cars that have great gas mileage, yes they are small cars, but even the small cars have 4WD. It's amazing to see a little toy car with 4WD.
POSTED BY: ted (July 24, 2008 12:40 AM)
I have to laugh at the plight of the American Auto Industry. They are just short sighted (that is polite for plain stupid). It is time to move to plug-in hybrids. The secret is that it takes only a few horsepower to cruise. The big engines are only there for acceleration and hill climbing. For a 100 years our auto companies have been too stupid to de-couple the cruising requirement from the high power requirement. It is about time they got with it. The reason the mileage sucks is that the big engine is always being cranked even while cruising.
POSTED BY: Harold (July 24, 2008 11:48 AM)
Common on guys, the big three had a chance in the mid-seventies to do something about high gas prices and vehicles. But what did they do, make bigger and more gas consuming vehicles. While foreign auto makes like Toyota and Honda went to small energy efficient vehicles. The American execs don’t care because they already have their golden parachutes and mega bonuses. Like the politicians they don't face what we face. These leaders (Ha) make so much money and get alot for free, for example politicians get free cars, gas etc and as long as they don't pay for them they will ignore our problems. Make them pay for cars, gas, health insurance etc and they will do something to help ALL of US. Quit harping about oil, we need to switch to hydro and electric cars for if we stick to oil, down the road we will be complaining again about high oil prices. Let’s stop our dollars going to Saudi Arabia and subsequently the terrorists, the Saudi’s already get enough in foreign aid. Hydrogen, electric, solar and nuclear are the way to go. If Honda and Toyota can do it so can we, we have the technology but not the leadership to get it done. People have to stand up and push the auto, gas industry and our politicians for what we need. Write, talk, and vote for what we want and to move away from foreign oil and over priced execs.
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