GM and Ford losing grip

[Jimmy Durante]

Page one:

DETROIT, April 14 - In just the last few weeks, the grand plans that were supposed to carry General Motors and Ford Motor into their second centuries have crumbled.

Sales at G.M. have fallen, profits have tumbled to losses. Last week, Ford also warned of a drop in earnings. Thursday, in yet another blow, its union refused to give much ground on G.M.'s health care coverage. If that were not enough, G.M.'s stock hit a 12-year low. (Related Article)

The Big Two automobile giants offer plenty of explanations, from soaring health care costs to rising gas prices and creeping interest rates. But consumers and industry specialists say G.M. and Ford have swerved off course for a more basic reason: not enough people like their cars.

"I still hate to buy a foreign car," said T. J. Penn, a 44-year-old painting and drywall contractor walking through a Toyota lot this week in Ann Arbor, Mich. "But the quality and reliability makes it hard not to."

Despite free loans and rebates worth several thousand dollars, G.M. and Ford are losing sales to perennial competitors like Toyota and newer rivals like Hyundai, which are more often getting the carmaking formula right: consistent quality, reliability and that intangible appeal.

G.M. and Ford are having such a hard time bringing in the real American consumer that about a third of their sales go to their own employees, their family and friends, or to rental companies and corporate fleets, at razor-thin margins.

And now they are also losing their safety net. Detroit turned the S.U.V. and pickup truck into popular consumer products that propelled profits for much of the last decade. But with Asian makers now entrenched in the S.U.V. market - and setting their sights on pickups - G.M. and Ford have lost any margin for error.

In their storied pasts, both G.M. and Ford did best when they offered something others did not. Henry Ford created a car for the masses, the Model-T, which was far more efficiently made and cheaply priced than rival cars. G.M., the first car conglomerate, struggled to compete with Ford until an executive emerged in the 1920's, Alfred P. Sloan Jr., who believed the company's amalgam of brands - including Chevy, Buick and Cadillac - could be organized to offer what Ford did not, namely choice and plenty of it.

Today, both companies occupy the dreaded middle, offering neither compelling value nor compelling beauty, with exceptions like the popular new version of the Ford Mustang or G.M.'s revived Cadillac line. Auto companies can make up for a lot by making enticing automobiles, and right now analysts see something of a storm approaching that needs a survival plan.

"If I was in their styling studio I'd be working 24 hours a day on models that excited me when I walked through the door," said Gerald Meyers, a University of Michigan professor and the former chief executive of American Motors, which was taken over by Chrysler. "There has to be excitement in that instant when the customer walks through the door. That decision to look and buy happens very quickly."

Soaring health care costs are a crushing burden because G.M. and Ford cover 1.7 million Americans, or more than half a percent of the total population. Raw material prices, gas prices and interest rates are all rising. The two companies now command roughly 45 percent of the domestic market, their core profit center, down from 58.4 percent a decade ago, according to Ward's Automotive, even though they have acquired European brands like Saab, Volvo and Jaguar in the interim.

Mr. Penn's mother worked "at Ford's," he said, using the local vernacular for the family-controlled company. The idea of buying import cars "was out of the question, but then I had a Subaru Forester and it was a great car." Now he owns a Toyota Sienna minivan and said he was even considering eventually trading in his fifth Ford F-150 pickup for a Toyota Tundra.

"A lot of it is the engineering and that they stay on the road a long time," he added. "It seems like the Japanese technology in cars are better value."

Many analysts see a prescription for success in Chrysler, a division of the German automaker DaimlerChrysler. The company's recent recovery has been driven by hot sales of a few key products, particularly the one that stands out on the road, the Bentley-like Chrysler 300 sedan.

"American cars were like the Marlboro man for years - there was an ideal of freedom, space, luxury and abundance," said G. Clotaire Rapaille, a consultant on what makes consumers buy cars.

"The brands are being watered down so they are generic," he added. "And people have always said that if they want to buy generic cars, the Japanese or the Koreans build them better."

[Jimmy Durante]

Continued:

What is worse is that Asian cars are not even generic anymore. One of the most profitable automakers, Nissan, is now widely considered one of the boldest designers. G.M. and Ford have been vocal in recent years about making what G.M.'s vice chairman, Robert A. Lutz, calls "gotta-have" cars. But entrenched bureaucracies and cost-cutting pressure do not easily produce elegance.

Cars can fail to measure up on a variety of sensory fronts. Ford's new Five Hundred sedan has been criticized for borrowing an engine from the aged Taurus that lacks pep; a review in Car and Driver magazine lamented that the car "merely oozes forward." The Detroit Free Press criticized G.M.'s Pontiac G6, a sedan pitched as sporty and exciting, for a "rather numb" feel behind the wheel.

Pressure is coming from BMW and Mercedes, selling cars starting around $30,000, and Asian makers offering vehicles under $20,000.

"You want to put money into something you'll get return back from," said Nathaniel Nix, a 37-year-old pastor at a church in the Detroit suburb of Ypsilanti, in an interview this week at a Toyota dealership. Mr. Nix, who was a car salesman for both Ford and Toyota more than a decade ago, said Toyota's higher resale value and more consistent quality made its cars a good investment.

And if Japanese automakers "were the boring ones" in the past, he said now "they're doing an awesome job in the styling realm."

Mr. Nix is in the market for a car because his 16-year-old son, also named Nathaniel, crashed the family's Corolla. The younger Mr. Nix is pressing his father for an xB, an S.U.V. from Toyota's new youth brand, Scion, that looks like a microwave oven on wheels.

Does the younger Mr. Nix like American cars?

"The '67 GT Cobra, the Boss 302 and the old Charger," he said, reeling off vintage Detroit muscle cars.

"What about the new ones?" his father asked.

"Um," his son considered for a moment. "Not really."

As G.M. and Ford lose their grip on American buyers, Michigan's unemployment rate is now the highest in the nation.

"You can't keep losing the market share like G.M.'s losing, you know," said Kenneth Shelton, a 49-year-old machine operator at G.M.'s Willow Run transmission plant in Ypsilanti. The factory, which once produced World War II bombers and covers the space of more than 83 football fields in this Detroit suburb, is down to 3,800 workers today, from about 12,000 two decades ago.

Mr. Shelton and his wife, Joy, met 20 years ago at the time clock. He was punching in, she was punching out. Back then, Willow Run was "like a city that never stopped," said Joy, 48, a quality inspector. "It was just bustling, always bustling, everybody just worked, worked, worked, worked, worked. It was nothing like it is now."

Now, her husband said: "They hit us every day in the papers. We read it. We read it. We pay attention.

"These kind of jobs, where could you find something like this anymore?"

A rising sense of frustration is also evident in executive suites. G.M.'s chairman and chief executive, Rick Wagoner, who has declined interview requests in recent weeks, shook up his senior North American management last month and his company is increasingly on edge. Last week, G.M. pulled its advertising from The Los Angeles Times, the largest newspaper in one of G.M.'s weakest markets, after a columnist said Mr. Wagoner should be fired.

Ford's own troubles came into view last week as the company sharply scaled back its earnings projections and abandoned the cornerstone profit goal of its three-year-old revival plan; its stock fell to a nearly two-year low.

If most on Wall Street do not think bankruptcy is on the horizon because the companies have adequate cash reserves, analysts also see no clear turnaround path. Rising gas prices are weighing on sales of Detroit staples like Ford Explorers and G.M.'s Chevrolet Suburbans. In its profit warning last week, Ford cited as a key factor "the prospect of higher and sustained gasoline prices." Some analysts worry that Toyota and Honda are far better positioned to weather gas prices because they have stronger passenger car offerings and are far ahead in developing fuel-efficient hybrid electric cars.

Rising interest rates shave profits from car loans. Overseas operations drain more than reward. And both companies are flirting with junk bond ratings, which would drive up borrowing costs by billions of dollars.

"Right now, we don't know if we are going to be here another five years," said William Murphy, a 70-year-old lathe operator at G.M.'s Willow Run plant. G.M. recently made an investment in the plant, so it is not likely to disappear.

If it did, Mr. Murphy said his nearly four decades of seniority would come in handy. "I'll be the one to shut the lights down."

Mr. Murphy, a large man in overalls hailed as Murph by co-workers, spoke while eating an Italian ice before his shift, sitting in his sister's car. A Hyundai.

[Tikker]

/shrug

[Tacks]

Is anyone at all surprised...I mean really...

[Lyion]

Imagine how high GM and Fords profits would be if they didn't have such a crushing amount of cash being sent for Health benefits? Their cars are not wrongly called HMOs on wheels

GM is also being killed by its retiree's benefits, since they have a lot of people who refuse to die and are collecting pension benefits for a lot longer than forecast.

The problem we have is the auto market is oversaturated and we're still looking at essentially the same design that we've been seeing my whole life. There's only so many ways you can repackage a hamburger and call it something different.

It is a big problem as we move ahead and fewer opportunites become available.

It's not surprising in the 'me' age that people prefer to support Japanese Engineers versus their own sons, daughters and even parents collecting checks and benefits to save a few dollars now at the cost of the infrastructure of our country.

[Tikker]

no, GM and Ford are getting the shit kicked out of them because they produce an inferior product, and have for the last 20 years


ps Lyion, that's just capitalism, you sound like you're wishing more americans had socialist leanings!

[Rust]

It's not surprising in the 'me' age that people prefer to support Japanese Engineers versus their own sons, daughters and even parents collecting checks and benefits to save a few dollars now at the cost of the infrastructure of our country.

Why buy a shitty product? If the quality and price were comparable, I'd understand - but asking people to buy expensive crap for patriotism is a bit nutty.

The same type of argument can be made about WalMart - they pay crappy wages and force workers onto public assistance, but people get cheap toilet paper so they don't care. How much did California spend on health care for Walmart employees last year? How many mom-and-pop businesses went bust? How many gas stations? Because they can't compete with Walmart's market power?



--D.

[Lyion]

Socialized Medical Care is something I'm an advocate of, and always have been if you read my posts, Tik. I don't like Canada's system, but I'd like to see the US implement a plan that would enable everyone to get free basic health care.

There is little difference between many of the cars out. GM makes good product, as does Ford. Given the graphics I've seen the reliability is very close between all auto manufacturers. What hurts GM is the fact they have to raise the price due to the huge amount of support they provide the US Infranstructure. Granted, it wouldn't hurt Canada if GM or Ford collapsed, but the effect on the US would be devastating. Heck, even Chrysler nearly folding caused a ripple effect.

Given the current auto situation and the fact the low end is loaded with cheap Asian vehicles, I'm not sure how things will turn around.

[Tossica]

Socialized Medical Care is something I'm an advocate of, and always have been if you read my posts, Tik. I don't like Canada's system, but I'd like to see the US implement a plan that would enable everyone to get free basic health care.

There is little difference between many of the cars out. GM makes good product, as does Ford. Given the graphics I've seen the reliability is very close between all auto manufacturers. What hurts GM is the fact they have to raise the price due to the huge amount of support they provide the US Infranstructure. Granted, it wouldn't hurt Canada if GM or Ford collapsed, but the effect on the US would be devastating. Heck, even Chrysler nearly folding caused a ripple effect.

Given the current auto situation and the fact the low end is loaded with cheap Asian vehicles, I'm not sure how things will turn around.

American car manufacturers should have jumped on alternative fuel technology decades ago. They could have lead the way for the rest of the world and been back on top if they had. They are pretty well fucked now.

[Tikker]

Things won't turn around until American auto makers make better vehicles

I don't have any particular brand loyalty to automakers, so I just generally buy the vehicle that I like best

Currently, I own a Jeep Liberty (great camping vehicle~)

Previously I owned a Honda Civic

out of the 50 test drives I've taken ove the last few years, american made cars (other than the jeep) have been at the bottom of the list in terms of appeal and ride

[The Kizzy]

I used to have a Ford F150 4 door extended cab, but after we had the baby, we couldnt fit the car seat in. I miss that truck, I think I'm gonna buy another for myself as a graduation present.

[DangerPaul]

Blame the auto worker's union, they are the ones putting the US auto manufacturers out of business.

If not for the $40 + an hour, the 6 weeks + of vacation/sick/personal time paid, the guaranteed overtime, the insane health / dental / eye coverages and the pension package that guarantees these workers more money than most of us make a year its expected.

Oh yeah, that and American made cars are dogshit anymore.

[xaoshaen]

Oh yeah, that and American made cars are dogshit anymore.

Could be worse, could be European cars.

[Tuggan]

like ive said before, when the american auto industry collapses and the american economy follows right behind i'll be content to point a finger and say 'i told you so'. not directly effected by the slump in it yet, so who cares right?

keep on buyin your cheap lil ricers guys.

[Lyion]

Fortunately we have all those high tech jobs to replace the Auto ones!

Too bad they are moving overseas quicker than a yuppies car payment.

[Arlos]

All my previous cars were American. The last one before my current one being a 91 Chevy Corsica. I had more problems with that car than you would believe. It kept burning out alternators, which apparently was a really common failing for the model. In the 5 or so years I owned it, I replaced the alternator 4 times. It also had really crappy brakes that wore out in nothing flat, and needed frequent replacements of the calipers, etc.

When the time came to get a new car, I was so utterly fed up with it, and wanting a great handling car with AWD, I went and got myself an Audi A4. Never been happier with a vehicle, ever. Not that it hasn't had it's own issues, but never anything major, and certainly nothing like the continual alternator/brake issues. When the time comes for me to get a new vehicle, you can be damn sure I'll look first at another Audi. Not to mention, there's basically NO US-made vehicles that are even remotely competitive in the sport sedan class, compared to things like Audi, BMW, etc. If I was buying a minivan (ugh, I'd absolutely look at a station wagon first), I'd likely look at different manufacturers than I would for a car for my own use.

I have no interest in buying Japanese, however, I simply don't care for the styling on most of them. About the only exception would be the Subaru WRX, which not only looks good, but has unparalleled performance and handling at its price point. Show me a US vehicle with equal performance, similar good looks, and an equivalent price, and I'd consider it, if I was going to buy a WRX. At this point, I'm not aware of one.

I agree with Toss here too; if the US automakers want to reclaim the lead, they need to go bigtime into alternative fuels and hybrids. Just think of the cash to be made by the first company to bring out a hybrid SUV with sufficient power to tow most trailers/boats/etc, and yet at the same time get half again or more gas mileage compared to normal SUVs. Hell, make a partnership with major agri-business consortiums and the independant gas station franchises, and make high performance diesel vehicles designed to run on biodiesel, and get their partners to make the fuel available at places like WorldGas, Rotten Robbie, etc.

-Arlos

[mofish]

Oh yeah, that and American made cars are dogshit anymore.

Could be worse, could be European cars.

Like BMW? Audi? Those brands are so superior to any US brand its laughable. Volvo is also an excellent car, but owned by Ford I believe now.

And that's not even considering Asian cars. Better reliability, better styling, better crash ratings, better handling, more efficient. Why would anyone buy American? You want to blame someone, blame the idiots that run GM Ford and Dodge. That's where your finger needs to be pointed.

I love it. Crushing health care costs. Hey guys, tort reform will fix everything! If it werent for all those frivolous lawsuits, everything would be great! <- This message brought to you by the GOP, and every rich doctor everywhere.

[xaoshaen]

Oh yeah, that and American made cars are dogshit anymore.

Could be worse, could be European cars.

Like BMW? Audi? Those brands are so superior to any US brand its laughable. Volvo is also an excellent car, but owned by Ford I believe now.

And that's not even considering Asian cars. Better reliability, better styling, better crash ratings, better handling, more efficient. Why would anyone buy American? You want to blame someone, blame the idiots that run GM Ford and Dodge. That's where your finger needs to be pointed.

I love it. Crushing health care costs. Hey guys, tort reform will fix everything! If it werent for all those frivolous lawsuits, everything would be great! <- This message brought to you by the GOP, and every rich doctor everywhere.

Just so you know, as a category, European automobiles scored far and away the lowest on all the 2004 reliability reports I've seen. Volkswagon and Benz in particular had atrocious defect numbers. Of the 38 least reliable vehicles, 20 were European. Even your touted BMW fared abysmally if you bother to actually look at the data (25th out of 28 in Consumer Reports, for example, worse than any American manufacturer, save Lincoln).

[mofish]

Yeah I looked at the data. BMW drivetrains are the stoutest youll find. Several 500k and counting BMW engines out there. I agree European reliability overall hasnt been what it should be. But they are still doing great things with their cars, more than I can say for US. Take VW for example. They get bad reliability marks. So be it. That is definitely a problem, and mostly why Im not seriously considering a VW. Their cars are amazingly safe (fewest deaths = Passat), good handling, great styling, best interiors this side of $40k. Also, they are producing new, directly injected diesel engines that get 40+ mpg, and can run on biodiesel, soydiesel unmodified.

Kind of ironic, that VW is leading the charge to biodiesel, a charge that could possibly save the American farmer. Ford, GM, where are you on this shit?

[Lyion]

Currently, biodiesel is more expensive to produce than petroleum diesel, which appears to be the primary factor keeping it from being in more widespread use. Current worldwide production of vegetable oil and animal fat is not enough to replace liquid fossil fuel use. Some environmental groups, notably the NRDC (Natural Resources Defense Council), object to the vast amount of farming and the resulting over-fertilization, pesticide use, and land use conversion that would be needed to produce the additional vegetable oil.

[mofish]

'Current' worldwide production. That's only because the demand isnt there yet. The more diesel cars on American roadways, the more that equation changes.

Of course you couldnt turn every fossil fuel powered motor into a biodiesel motor overnight and expect it to work. What website is that quote from Lyion?

[Lyion]

Thats from wikipedia.

While I'm all for new and alternative fuel methods, I'm not a fan of 'diesel'.

We need to get a really good hybrid electric car out there.

[Arlos]

This is why the use of Hemp for biodiesel is perfect. It's a weed, it's extraordinarily hardy, requires almost no irrigation or fertilization, and no pesticides. It has a high oil content and can easily be grown in mass quantities, if the government would get its head out of its ass and un-ban it. The ban is especially galling given that the reasons the Government gives for it being banned are utterly absurd and inaccurate. (ie, hiding real pot among hemp. Problem is, they cross polinate and the pot plants lose most if not all of their THC levels, rendering it usesless for recreational or medical use.) Industrial hemp also has functionally 0 levels of THC in it, so you're not going to have people smoking their diesel crops. You can get significantly higher smoking banana peels if you know how to prepare them than you could smoking a dump truck worth of industrial hemp.

We had a whole long discussion about this in an earlier thread. Basically, yes, right now Biodiesel is more expensive to produce than regular diesel. However, it is much more environmentally friendly to burn than normal diesel. This is why I suggeted a business partnership/alliance between the automakers, the Agribusiness conglomerates and the unaffiliated gas station chains like World Gas and Rotten Robbie. Agribusiness grows the oil-producing product, sells the oil the independent gas station chains, who then re-sell it for use in the biodiesel vehicles the auto maker is producing. The Agribusinesses can grow the oil crops large enough to get economies of scale going, and can even resell much of the unused plant material as animal feed, or in the case of hemp, to textile or rope manufacturers. The independent gas station chains get a big new customer draw, as they're the only suppliers for the new fuel, until the big oil companies try to horn in, in which case competition may well lower prices. The auto maker gets to wave the "GOOD FOR THE ENVIRONMENT" flag over any other manufacturer, giving them a huge PR and advertising boost. Works out well for all 3 members of the alliance.

The problem is, most american companies don't tend to think as long-term as this would require, and they're risk-averse enough to not want to try. I think it could be a winner, even if it's just a division of a big automaker doing it, like Saturn or Geo or something. Yes, there are risks, potentially serious ones, involved in such a venture. Potential returns could be huge, however.

-Arlos

[xaoshaen]

The problem is, most american companies don't tend to think as long-term as this would require, and they're risk-averse enough to not want to try.

I'm not sure these are problems with American companies so much as with humanity. Stupidity and historical astigmatism seem to be the standards by which people live.

[Captain Insano]

I have a new Infiniti G35... There isn't a car made in America that can touch that thing in looks, quality, reliability and overall pimp factor. American cars are fucking shit, especially mustangs and camaros. I hope both Ford and GM just die. They have been plaguing the world with crappy automobiles for way to long.