Uncertainty hounds US auto makers

United States auto makers are hoping to reverse their sliding market share in 2006 with impressive new vehicles and sweeping restructuring plans. But their efforts could be undermined by a host of uncertainties, from the ongoing bankruptcy of auto supplier Delphi to gas prices and fidgety consumers.

“The market will still be incredibly and blisteringly competitive. Everybody wants to grow and it’s got to come out of somebody else’s hide,” said Jim Sanfilippo, senior industry analyst with Bloomfield Hills, Michigan-based Automotive Marketing Consultants.
“Nobody sleeps in this business.”

Just before Thanksgiving, General Motors (GM) announced plans to cut 30 000 hourly jobs and close 12 facilities by 2008 in an effort to restore profitability. It also plans to sell a majority stake in its profitable finance arm, GMAC, in 2006 to raise cash.

GM lost nearly $4-billion in the first nine months of 2005.

GM chairperson and CEO Rick Wagoner sent a memo to workers in November assuring them bankruptcy isn’t an option for the world’s largest automaker, but concerns about GM’s financial health persist. Billionaire investor Kirk Kerkorian, who bought millions of GM shares this year and now owns nearly 10% of the company, could seek even more drastic cuts.

Ford is expected to announce its own restructuring plan in January. The nation’s number-two automaker had its share of turmoil this year, including an expensive bailout for its former parts division Visteon. In May, Ford chairperson and CEO Bill Ford said he will accept no compensation until the company’s automotive business is sustaining profitability.

High note

Despite the gloom in Detroit, 2005 will end on a fairly high note. Analysts are predicting full-year sales of about 17-million vehicles, a healthy pace that has held steady over the past six years.

The trouble for the traditional big three is that a growing portion of those sales are going to foreign auto makers. GM, Ford and DaimlerChrysler AG’s Chrysler Group had a combined US market share of 57% at the end of November, down from 60% two years before. In sales terms, that’s as many as 600 000 vehicles lost to competitors such as Toyota, Honda and Hyundai.

US auto makers hit a home run this summer with discounts that let consumers pay the employee price, leading to near-record sales. But as soon as the discounts expired in October, sales plummeted.

GM, Ford and Chrysler have vowed to pull back on incentives, which confuse customers, cheapen brand image and hurt resale value. But analysts say that won’t be easy as long as US auto makers are churning out more vehicles than they can sell.

“If GM and Ford are successfully able to reduce capacity—and through new product they’re able to stabilise their sales situation—we could start to see some reduction in the level of incentive spending in 2008 or 2009,” said Erich Merkle, director of forecasting for the automotive forecasting firm IRN.

SUVs

Auto makers also were hurt this year by a dramatic downturn in sales of sport utility vehicles (SUVs), their long-time cash cows. SUV sales had been falling by 2% or 3% in each of the last few years, the victim of changing tastes and a rise in smaller crossover vehicles. But high gas prices accelerated that trend, and sales of large SUVs such as the Lincoln Navigator will be off 18% this year, Ford’s US sales analysis manager George Pipas said.

GM is hoping to halt that slide with a new line-up of full-size SUVs coming out in 2006. GM says its 2007 Chevrolet Tahoe, Cadillac Escalade and other models get 20 miles to the gallon (8,4km per litre), making them the most fuel efficient in their class.

Ford has high hopes that its Ford Fusion sedan, introduced this fall, will be stiff competition for the 2007 Toyota Camry, due out next year. Ford also has two crossovers in the pipeline. Chrysler is introducing a redesigned Jeep Wrangler as well as the Dodge Caliber, a replacement for the Neon.

In all, auto makers will introduce 21 new and 38 significantly redesigned vehicles in 2006, according to JD Power and Associates. That’s similar to last year, when 22 new vehicles and 30 redesigns hit the market.

Merkle said Chrysler showed that eye-catching products are the only way US auto makers can turn things around. Chrysler has seen its US market share rise this year on the strength of products such as the 300C sedan.

“You can try to cut costs all you want, but unless you can fix the sales side of the equation, you’re going to be constantly falling back,” Merkle said.

Strike

Auto makers’ plans could quickly go awry, however, if workers at auto supplier Delphi go on strike. Delphi, which filed for bankruptcy in October, supplies products ranging from satellite radios to steering wheels to every major auto maker. Its former parent, GM, is its largest customer.

As part of its restructuring, Delphi has asked its unions to reduce hourly workers’ wages by more than 60%. The United Auto Workers (UAW), which represents the bulk of Delphi’s 34 000 North American hourly workers, has rejected that request.

If it can’t get an agreement to lower wages, Delphi has said it could ask a judge to void its union contracts by January 20, an action that could lead to a strike. The UAW’s chief Delphi negotiator, Richard Shoemaker, recently said a strike appears likely.

The Delphi offer was one of a string of blows to unions this year. In October, the UAW agreed to a deal with GM to make active and retired employees pay more for their health care. It reached a similar agreement with Ford this month and is in negotiations with DaimlerChrysler.

The Canadian Auto Workers narrowly averted a strike against GM this fall before agreeing to a three-year contract with GM, Ford and Chrysler that will cut 3 500 workers and increase wages by about 1% each year.

The turmoil paves the way for contentious negotiations in 2007, when the UAW’s contract with the big three is scheduled to expire.

“We need to let Americans know that if we continue on this path, we will be on the path of eliminating the middle class,” said Jimmy Settles, a UAW regional director from the Detroit area who is running for UAW vice-president in an election scheduled for June.—Sapa-AP

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