THE bulls running in the streets of Detroit last week were supposed to symbolise all that is positive and powerful in the American motor industry.
At the preview of the North American International Auto Show, which opened yesterday, 120 longhorns were herded by a dozen cowboys in front of the Cobo exhibition centre to accompany Chrysler’s new Dodge Ram pickup truck.
As a stunt, it misfired. It was best summed up by the deposits the beasts left on the tarmac. And if it did anything to promote the Ram as the biggest and toughest of this unique breed of American vehicle, it also served to illustrate what is wrong with the American motor business: it is launching the wrong cars at the wrong time.
The industry is reeling under the threat of legislation that would require drastic cuts in fuel consumption and carbon-diox-ide emissions. In December, oil reached $100 a barrel. American consumers, worried about the weakening economy and faced with a rising petrol price (even if it is still less than half the price in Britain), are edging towards smaller, more fuel-efficient cars.
Yet the focus for Chrysler and Ford at the Detroit Motor Show was on the biggest pickups with the largest engines: the new Ford F150 and the Dodge Ram. Sales of these trucks, which are both working and leisure vehicles, have declined recently. The F150 has been America’s top truck for 31 years, at its peak selling 900,000 a year. Now the volume is below 700,000 but that is still substantial – and highly profitable.
Looking to the future, both companies admit they would have liked to have presented small, fuel-sipping models but they were not ready. Planning, developing and building a new car or truck is a drawn-out process; decisions have to be made four or five years ahead.
General Motors, Ford and Chrysler are still known as the Big Three in Motown. All of them lose money – big money. Each has a recovery and reconstruction plan and claims to be on target to return to consistent profit. There have been many plant closures with tens of thousands of redundancies and costs have been reduced by billions of dollars. Suppliers have suffered. The powerful United Auto Workers union reluctantly agreed to a formula to reduce the companies’ crippling pensions and health-care costs for retired workers.
It is clear that, when all the savings are made and their production has been cut to reflect demand, the Big Three will be a much smaller trio. Forty years ago General Motors had nearly 50% of the American domestic market; now Detroit’s carmakers cannot achieve that between them. GM has 23.5% and Ford sank below 15% in December.
Nobody expects a big turn-round in America, where the market for cars and light trucks is at best static, at about 16.5m a year, although some analysts predict a steep decline in 2008. Improved fortunes for these companies, if they are to come, will be overseas, from expanding markets such as Russia, China, India and South America. And the overseas operations are increasingly seen as a source of cars appropriate for the New Age.
General Motors has put its Opel / Vauxhall operation in Europe in charge of the design of cars for its Saturn marque in America and, despite the weak dollar, supplies the Saturn Astra to America from its plant in Bel-gium. Its future small cars for world consumption, branded as Chevrolets, are being developed by GM-DAT (formerly Daewoo) in South Korea. And although it is hardly eco-friendly, its forthcoming Chevrolet Camaro – the return of a 1960s icon – is based on a chassis platform developed by GM Holden in Australia.
Meanwhile, Ford is streamlining its operation, making it “One Ford” in the words of chief executive Alan Mulally. When he arrived from Boeing in 2006, Mulally saw that Ford in America, Europe and Asia ran as separate businesses. He concluded they should be fully integrated.
It is Mulally’s unswerving commitment to restoring the “blue oval” Ford brand in America that led to the company putting Aston Martin, Jaguar and Land Rover up for sale. They were, in his terms, peripheral to Ford.
Asked if he had the slightest regret about disposing of these revered British marques, Mulally replied: “No. This is business. I’m convinced that we are doing the right thing.” And, of the possibility in the future that it may have to acquire another premium brand, he said: “Premium brands account for only 6% of car sales. The best thing we can do is create more value in the mass brand.”
Mulally wants to reinvent the “world car”, using the designs and expertise of Ford of Europe in America and beyond. Previous attempts failed because different markets wanted different things and in America the price and specifications were not right. But now, Ford believes, tastes on both sides of the Atlantic have converged.
The Verve concept car that previews this year’s replacement for the Ford Fiesta in Europe is being adapted for sale in America from 2010. Other European models, like the successful Ford S-Max, are also being prepared for the American market, and US models will progressively adopt smaller, turbocharged engines instead of the big V6s and V8s to achieve the same performance with better fuel economy.
All its overseas divisions are profitable, but Ford lost $12.6 billion (£6.4 billion) in 2006 through the underperformance of the brand back home in America. Mulally, whose smiling enthusiasm is disarming, talks confidently of “removing the brackets” on the bottom line in 2009 and having a completely renewed model line by 2010 “so we can start to grow again”.
General Motors is clearly ahead of Ford on the road to recovery despite a $39 billion loss in the third quarter of 2007 (the biggest in history but dismissed simply as a paper transaction, since it was largely unused tax credits).
Its new cars are being critically acclaimed – the Chevrolet Malibu was last week named North American Car of the Year and GM continues to invest heavily in alternative power systems, from the E-Flex plug-in hybrid to the hydrogen fuel cell.
GM announced last week that it had entered into a partnership with Coskata, an American company that has a cost-effective process to make ethanol fuel from agricultural waste and household rubbish using bacteria. Chief executive Rick Wagoner emphasised that GM had no wish to become a fuel supplier and that its investment in Coskata was small but necessary to support the wider use of E85 (a blend of 85% ethanol and 15% petrol).
Because the future of legislation on carbon-dioxide emissions and the supply and price of oil are uncertain, GM believes that it is necessary to develop several new technologies in parallel to be prepared for the future.
Over at Chrysler, demerged from Daimler of Germany last year and acquired by the Cerberus private-equity group, the search is on for quick solutions. The smallest of the Big Three – it made 2.68m vehicles last year compared with GM’s 9.3m – the new company finds itself with a thin forward model programme.
Bob Nardelli, the tough, fast-talking former boss of Home Depot who was a surprise appointment as chief executive in August, puts a positive spin on Chrysler’s declining sales: “We’ve had less deterioration in our market share than the other domestic manufacturers, and although we haven’t grown as fast as our competitors globally, that’s an opportunity.”
And not just an opportunity but, Nardelli said, “an imperative”. He has called for a doubling of overseas sales over the next four years.
Chrysler’s European sales are at an all-time high, but 238,000 in 2007 is small beer compared with rivals that have extensive local manufacturing operations.
Independent Chrysler – which sells cars under the Chrysler, Dodge and Jeep brands – does not have the resources to develop a full range of new cars needed for export and the changing home market.
Nardelli said: “It’s true we would need more engineering resources if we had to do everything ourselves, but we have the luxury of being able to break traditional paradigm, to do things in a different way that doesn’t require as much investment.”
What he means is that Chrysler will buy in models from other manufacturers. That way, in theory, it gets to market faster with the new cars it needs. But its deal with the ambitious Chinese manufacturer Chery to produce a small car in China for America and Europe has been delayed – it is unlikely to arrive before 2011 – and a recent agreement to rebadge the Nissan Versa made in Mexico for South American markets may well extend to America.
Nardelli has been quoted as saying that Chrysler will lose $1.6 billion in 2008, but officially the company makes no announcements on forward projections. “The advantage of being private is that we can be private,” he said.
Analysts worry that while Chrysler may be trimmed, sharpened up and returned to profit, it will do so by using products developed elsewhere and will lose its once-proud reputation for engineering.
There is also an underlying suspicion that in a few years Cerberus will sell the company– perhaps to the Chinese.
Before then, Detroit’s manufacturers have to face the indignity of being eclipsed by the Japanese. Later this week, when official production figures are published, we will know whether Toyota has finally toppled General Motors as the world’s largest car manufacturer. It is going to be close: there were only 10,000 vehicles between them after nine months of 2007.
Wagoner is famously cool when the going gets tough. Superficially, he is relaxed about the possibility of losing the crown: “We don’t keep a tally every day. We carry on with our business strategy. We like to win, but if we don’t we will come back and work harder.”
Bob Lutz, GM’s veteran vice-chairman, admits that the figures are too close to call but thinks that there could be a silver lining in relegation. “There is this feeling of distrust for the No 1, as the big evil corporation. It would be a relief for someone else to feel that pressure.”
That may be Detroit’s epitaph.
The Big 3's primary obstacle to profitability is the UAW union. Despite Detroit's sluggish response to the changing market in the U.S. they could sell their cars/trucks at a substantially lower price, and therefore sell more units, without the pressures placed on them by the UAW. No sympathy here!
Mark Cook, Brunswick,
The big three need to get off their duffs and start mass producing affordable plug-in hybrids with a 100-200 miles battery driving range or the Asian manufacturers will beat them at that, too.
Jim, Martinsburg, OH