FORD & GM STRUGGLING TO STAY AFLOAT!
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09-19-2005, 08:59 PM
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FORD & GM STRUGGLING TO STAY AFLOAT!
DETROIT (Reuters) - A miserable year for U.S. automakers General Motors Corp. (GM) and Ford Motor Co. (F) looks set to turn even worse in the aftermath of Hurricane Katrina.
Sales of Detroit's most profitable models, full-sized sport utility vehicles, were already falling earlier this year, before the impact of the hurricane on the U.S. Gulf Coast.
But a spike in gasoline prices to more than $3 per gallon after the storm threatens a sea change in the way American drivers make vehicle purchase decisions, ending a love affair with gas-guzzling SUVs that dates back to the late 1980s.
The run-up in U.S. fuel prices, and collateral damage to automakers, is an issue that will come under the spotlight at the second annual Reuters Autos Summit in Detroit, which begins on Tuesday.
The summit comes as the two U.S. automakers have been groaning under a pile of bad news and are trying, with limited success, to pull their money-losing North American operations out of the ditch.
"After gorging on faddish, oversized SUVs for years, while studiously avoiding more rational vehicle choices, drivers in this country have woken up with a relentless hangover from Katrina made up of the double-whammy of tight supplies and jaw-dropping prices," said industry observer Peter DeLorenzo, who runs a closely-watched Web site called Autoextremist.com.
"SUV sales aren't just slowing -- they're crashing to a halt," he told Reuters, referring to traditional truck-based SUVs, not the "crossover" car-based variety that deliver better highway performance and fuel economy.
Japanese carmakers, which have been pouring billions into new light truck models for the U.S. market, may also be vulnerable to the shift in sentiment. However, their dominance of the small and mid-sized car segment, together with a focus on crossovers and increasingly popular gas-electric hybrid cars, should limit the impact of a sharp decline in SUV sales.
The most serious problems are foreseeable at GM and Ford. GM is due to launch a new lineup of full-sized SUVs in January, and Ford has just introduced its new Explorer, America's perennial best-selling SUV.
Analyst David Healy of Burnham Securities told Reuters in an interview last week that neither company is likely to return to profitability in North America before 2008.
"The whole segment is in a state of long-term decline," Healy said of SUVs.
U.S. carmakers' heavy dependence on big SUVs amid stalling demand was a factor cited by the Standard & Poor's ratings agency when it downgraded the debt of GM and Ford to high-yield, or "junk," status in May.
The auto giants, weakened by their seeming inability to sell enough cars without the use of profit-eroding discounts, have also been struggling under the burden of soaring costs for everything from health care to raw materials.
MOUNTING TENSION
No one is seriously predicting that GM or Ford will follow the lead of Delta Airlines Inc. (DAL) and Northwest Airlines Corp. (NWAC), which both filed for bankruptcy last week.
But tensions are mounting in Detroit, a redoubt of American trade unionism, as the U.S. carmakers bleed a slow but seemingly unstoppable flow of market share to foreign rivals led by Toyota Motor Corp. .
Delphi Corp. (DPH), the largest U.S. auto parts supplier, has said it could file for Chapter 11 protection as early as next month, unless it wins a deal with GM and the United Auto Workers union to cut billions in wages and benefit costs.
Delphi was spun off in 1999 by GM, whose chief executive, Rick Wagoner, has been locked in negotiations with the UAW since April to win cuts in health-care and other benefits GM pays for its own hourly employees.
Wagoner has said the company would press for cuts with or without the help of the union, and that could set the stage for a crippling strike at the world's largest automaker.
Globalization and the advent of automotive imports from low-cost labor markets like China and India mean that U.S. automakers and their unions have no choice but to slash domestic manufacturing costs, said Paul Taylor, chief economist at the National Automobile Dealers' Association.
"Everybody's posturing on this but those costs have got to come down or the jobs go offshore," Taylor said. "You can't get away from reducing the cost of production here in the United States and in Canada and even in Mexico."
UAW President Ron Gettelfinger, who speaks at the Reuters Summit on Wednesday, has argued that trying to compete with labor markets like China's is "a race to the bottom" that workers everywhere can only lose.
Lee Iacocca, who led Ford in the 1970s and is credited with saving Chrysler from extinction in the 1980s, summed up the grim mood in Detroit when he visited his adopted hometown last week and chided its automakers for lagging the Japanese in developing fuel-sipping hybrids.
"They should get off their asses and build more hybrids," he told The Detroit News.
"Something's got to happen in this town to turn it around, or we're all going down the tubes," Iacocca said.
Sales of Detroit's most profitable models, full-sized sport utility vehicles, were already falling earlier this year, before the impact of the hurricane on the U.S. Gulf Coast.
But a spike in gasoline prices to more than $3 per gallon after the storm threatens a sea change in the way American drivers make vehicle purchase decisions, ending a love affair with gas-guzzling SUVs that dates back to the late 1980s.
The run-up in U.S. fuel prices, and collateral damage to automakers, is an issue that will come under the spotlight at the second annual Reuters Autos Summit in Detroit, which begins on Tuesday.
The summit comes as the two U.S. automakers have been groaning under a pile of bad news and are trying, with limited success, to pull their money-losing North American operations out of the ditch.
"After gorging on faddish, oversized SUVs for years, while studiously avoiding more rational vehicle choices, drivers in this country have woken up with a relentless hangover from Katrina made up of the double-whammy of tight supplies and jaw-dropping prices," said industry observer Peter DeLorenzo, who runs a closely-watched Web site called Autoextremist.com.
"SUV sales aren't just slowing -- they're crashing to a halt," he told Reuters, referring to traditional truck-based SUVs, not the "crossover" car-based variety that deliver better highway performance and fuel economy.
Japanese carmakers, which have been pouring billions into new light truck models for the U.S. market, may also be vulnerable to the shift in sentiment. However, their dominance of the small and mid-sized car segment, together with a focus on crossovers and increasingly popular gas-electric hybrid cars, should limit the impact of a sharp decline in SUV sales.
The most serious problems are foreseeable at GM and Ford. GM is due to launch a new lineup of full-sized SUVs in January, and Ford has just introduced its new Explorer, America's perennial best-selling SUV.
Analyst David Healy of Burnham Securities told Reuters in an interview last week that neither company is likely to return to profitability in North America before 2008.
"The whole segment is in a state of long-term decline," Healy said of SUVs.
U.S. carmakers' heavy dependence on big SUVs amid stalling demand was a factor cited by the Standard & Poor's ratings agency when it downgraded the debt of GM and Ford to high-yield, or "junk," status in May.
The auto giants, weakened by their seeming inability to sell enough cars without the use of profit-eroding discounts, have also been struggling under the burden of soaring costs for everything from health care to raw materials.
MOUNTING TENSION
No one is seriously predicting that GM or Ford will follow the lead of Delta Airlines Inc. (DAL) and Northwest Airlines Corp. (NWAC), which both filed for bankruptcy last week.
But tensions are mounting in Detroit, a redoubt of American trade unionism, as the U.S. carmakers bleed a slow but seemingly unstoppable flow of market share to foreign rivals led by Toyota Motor Corp. .
Delphi Corp. (DPH), the largest U.S. auto parts supplier, has said it could file for Chapter 11 protection as early as next month, unless it wins a deal with GM and the United Auto Workers union to cut billions in wages and benefit costs.
Delphi was spun off in 1999 by GM, whose chief executive, Rick Wagoner, has been locked in negotiations with the UAW since April to win cuts in health-care and other benefits GM pays for its own hourly employees.
Wagoner has said the company would press for cuts with or without the help of the union, and that could set the stage for a crippling strike at the world's largest automaker.
Globalization and the advent of automotive imports from low-cost labor markets like China and India mean that U.S. automakers and their unions have no choice but to slash domestic manufacturing costs, said Paul Taylor, chief economist at the National Automobile Dealers' Association.
"Everybody's posturing on this but those costs have got to come down or the jobs go offshore," Taylor said. "You can't get away from reducing the cost of production here in the United States and in Canada and even in Mexico."
UAW President Ron Gettelfinger, who speaks at the Reuters Summit on Wednesday, has argued that trying to compete with labor markets like China's is "a race to the bottom" that workers everywhere can only lose.
Lee Iacocca, who led Ford in the 1970s and is credited with saving Chrysler from extinction in the 1980s, summed up the grim mood in Detroit when he visited his adopted hometown last week and chided its automakers for lagging the Japanese in developing fuel-sipping hybrids.
"They should get off their asses and build more hybrids," he told The Detroit News.
"Something's got to happen in this town to turn it around, or we're all going down the tubes," Iacocca said.
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