Detroit: if you're No. 2, try harder
As 2007 dawns, the US auto industry knows it's losing the battle for global leadership. The world's new No. 1 vehicle manufacturer will soon be Toyota, not General Motors. Detroit's road back will be rugged. But the path to recovery can still be found.
Last week, GM chief executive Rick Wagoner put on a brave face. "I like being No. 1," he said. "I think our people take pride in that, so ... we're [not] going to sit back and let somebody else pass us by."
Keeping the title of No. 1 automaker that GM has held since 1931 won't be easy. Toyota expects to sell 9.34 million vehicles worldwide this year. Last year, GM sold 9.1 million, and its sales trend is down, not up. GM, Ford, and Chrysler saw sales in 2006 slip by 8.7, 8, and 7 percent, respectively. Meanwhile, Toyota was up 12.5 percent and Honda 3.2.
As industry executives, news media, and the public descended on Detroit this week for its 100th annual auto show, the hometown team looks to have huge challenges ahead. GM, Ford, and German-owned Chrysler must negotiate new contracts with their union, the UAW. Worker concessions seem crucial to further cut production costs. A strike would prove disastrous.
At the company with the shiny azure oval, Ford blue has turned into Ford blues. The No. 2 US car company can no longer provide its workers with lifetime job security. Nearly half of its workers, some 38,000, are planning to take voluntary buyouts.
The automakers haven't asked for a government bailout like the one that helped save Chrysler in 1979, and they aren't likely to get one.
What can Detroit do for itself? It's slimming down. GM says it can cut its fixed costs to just 25 percent of its revenue by 2010, compared with 34 percent in 2005. And while the US market remains a tough battleground, GM and Chrysler are counting on big gains in sales overseas.
Ford CEO Alan Mulally is trying a little humility. Last month he traveled to Japan to visit Toyota and "study with the master," he said. Ford plans to completely revamp its lineup of vehicles by 2010. "It's like building a house," Mark Fields, Ford's president for the Americas, told the Associated Press. "We built the foundation last year. But you don't see the house. You see a hole."
Some of that hole is just a perception. While on average American vehicles still trail those from Asia in quality, they're better made on average than those from Europe and much better made than in past decades. Bad impressions are difficult to change.
Detroit has lagged in offering superhigh m.p.g. hybrids, and probably can't compete with the new generation of small, high-tech gas-sipping Asian sedans such as the Toyota Yaris and Honda Fit. But these represent only niche markets. Crossover vehicles, for example, whose design puts them somewhere between SUVs and station wagons, are one large segment Detroit can battle for effectively.
If US companies can restore confidence in their product quality and offer fresh models that meet new needs, they can halt the sales slide and perhaps even bounce back. But profitability, not market share, should be the goal for now.
If not, millions of vehicles will still be made in the US each year.
But their badges will read Toyota, Honda, Subaru, or Kia.