U.S. carmakers face crucial year in fixing losses
January 24, 2007
BY JOE GUY COLLIER
FREE PRESS BUSINESS WRITER
For the first time in 15 years, General Motors Corp., Ford Motor Co. and the
Chrysler Group could all report losses in the same year, a sign that
underscores just how difficult the market has become for Detroit automakers.
Short of a dramatic year-end rally, GM, Ford and the Chrysler Group, a
division of DaimlerChrysler AG, could combine for losses of more than $10
billion in 2006. Ford, expected to have the steepest losses, on Thursday
will be the first to report financial results.
While all three likely will lose money overall, the results could tell
different stories for each, industry experts say.
GM cut costs in 2006 and should show further progress in 2007. Ford is in
the early stages of its turnaround plan, and financial struggles are
expected in the near term. The Chrysler Group is just now crafting its
"It's possible that they all would lose money, but they're in very different
positions in terms of the state of their turnaround," said David Cole,
chairman of the Center for Automotive Research in Ann Arbor. "GM is on the
way out of the swamp, Ford is in the middle of the swamp and Chrysler is now
in the edges and the water is starting to go over their boat."
The last time all three automakers dealt with losses in the same year was
They were saved by a quick resolution of the gulf war, a subsequent drop in
gas prices and the rise in popularity of SUVs.
The Explorer, launched for the 1991 model year, was a boon for Ford. Yukons,
Tahoes and Suburbans helped GM. The Jeep Grand Cherokee, released for the
1993 model year, took off for Chrysler.
These SUVs, built on truck frames, brought big profits for Detroit in a
segment where the Japanese had few offerings.
"It took a vehicle that would sell for $18,000 and you could get $36,000 for
it," said Joe Phillippi, a principal with AutoTrends Consulting in Short
Don't bet on SUVs, or any single segment, to save Detroit this time,
Phillippi said. SUV sales have fallen and every segment is competitive, he
"No one spots you 10 yards," he said. "None of the three -- GM, Ford or
Chrysler -- can afford to make a single misstep."
GM, which lost $3 billion through the first nine months, will be
hard-pressed to show a profit for the full year, but it is expected to show
signs of hope. GM's operating income, which excludes onetime expenses, is
expected to be positive for the last three quarters of 2006.
A buyout program accepted by 34,000 hourly workers last summer will help,
said David Kudla, chief executive officer and chief investment strategist
for Mainstay Capital Management LLC in Grand Blanc.
GM also has a host of new vehicles that could aid sales, he said. GM
launched late last year the GMC Acadia and Saturn Outlook. A redesigned
Chevy Malibu is coming this year.
"They've made significant moves on the cost side," Kudla said. "We need to
see improvement on the revenue side. They've got a strong product line to
make significant progress on that side this year."
The wild card for GM is the possibility of a multibillion-dollar onetime
gain from the sale of 51% of GMAC, its financing subsidiary. GM has not said
what it expects for onetime items in the fourth quarter.
Ford lost $7 billion through the first three quarters and is expected to
have more losses in the fourth quarter. Ford completed its hourly buyout
program, accepted by 38,000 workers, in late 2006.
The Chrysler Group will announce in February its own restructuring plan.
DaimlerChrysler is expected to be profitable, but the company has warned
that the Chrysler Group likely will have an operating loss for the year of
more than $1 billion.
GM, Ford and the Chrysler Group all must find ways to stabilize sales and
return to profitability quickly, Cole said. The competition, led by Toyota
Motor Corp., is taking market share at a rapid pace, he said.
"This is the defining period," Cole said. "This is the year where it's
Compared with 1991, the last triple-loss year, the Detroit automakers do
seem to have a different attitude, said Phillippi, who has been analyzing
the industry since the 1960s.
When U.S. automakers had dismal years before, their executives wrote off the
pains as temporary problems and discounted the gains foreign competitors
made, Phillippi said.
This time, with Toyota threatening to pass GM as the No. 1 automaker in the
world, no one is underestimating the Asian automakers.
"I think staring over the abyss and looking at the horrific prospects that
they had," Phillippi said, "these guys have had a come-to-Jesus moment."
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