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9,883 Posts
Discussion Starter · #1 ·
US car giants in financial crisis

By Brian Barron
BBC News, Detroit

The increasing popularity of foreign vehicles has been a financial disaster for America's Big Three car companies, and nowhere can this be felt more than in Detroit, known for generations as Motor City.

Everything about Detroit seems outsize.
The airport terminals are on a palatial scale and a long way apart. The city's suburbs stretch almost forever.

And the freeways, the step-child of the motor car, are full of bulbous home-grown sports utility vehicles - SUVs - that make even a Range Rover seem petite.

As for downtown, it is dominated by the steel and glass towers of the Renaissance Center, soaring above the blocks of ice floating down the Detroit River, with Canada on the opposite bank.

Pride of place in one Renaissance showroom goes to a large, curvaceous, streamlined pick-up truck.

All that is missing is a prospective purchaser, perhaps wearing a mask, a cloak and black tights.

Boom and bust

By chance recently, I test-drove something similar covering a Nascar race meeting in Daytona, Florida.

"Fasten that seat belt tight," said the Chrysler Corporation minder.
"You're about to fly in the world's fastest pick-up."

Quite so, if you need one that can top 154 miles per hour to carry your tool-kit from one job to the next.

Just over 10 years ago, the Big Three emerged from recession and rode to new riches with a variety of SUVs and pick-ups.

For an industry where boom and bust are like fixtures and fittings, the SUV proved the ultimate cash cow.

As recently as 1998 the Detroit companies shared nearly £9 billion in profits.

But now the reckoning.

While they focused on huge gas-guzzling private vehicles, their foreign rivals, most notably Toyota of Japan, have eaten away at their overall market share within the USA.

Massive overheads

Now the luxury end of American car sales are largely dominated by Japanese and European car makers.

Add to that the dramatic rise in oil prices and signs that the demand for the biggest SUVs may be stalled and you have a crisis.
These days car analysts often talk of the Big Two and a Half because Chrysler is German-owned.

It is doing reasonably well, buoyed by the influx of German engineering know-how.

But the biggest Detroit company, GM, is in deep trouble. Much of it stems from its massive overheads.

In the good old days Detroit offered the most sought-after blue collar jobs in America, signing labour contracts giving the United Auto Workers Union almost de facto veto power over whether or not loss-making factories should be closed.

Today, GM has enormous liabilities from providing healthcare and pensions for hundreds of thousands of workers, their families and the retired.

It is estimated that adds nearly £1100 to the cost of every GM model that comes off the production line.

Recently, Chrysler Corporation slipped free of a similar straitjacket by persuading its workers to agree to share healthcare costs. Now GM and Ford are trying to do the same.

Motor city

Many in the industry believe Toyota will overtake GM as the world's biggest car company.

As the dinosaurs struggle to adapt and survive, the city of Detroit seems moribund.

Over the past 50 years one million people have moved out.

Now the population is only 900,000. And the city's own projections are for another 50,000 to leave within five years.

These days driving through Detroit's inner neighbourhoods prompts nostalgia and melancholy

It is not hard to see why.

The car companies' decline, and their suppliers too, has led to lay-offs and closures.

Companies that could, decamped further south in the US, to states where tax is lower and non-union factories can be set up.

These days driving through Detroit's inner neighbourhoods prompts nostalgia and melancholy.

There are streets of abandoned factories, shops and houses, including once elegant clap-board properties with small groups of drug addicts camped out inside.

Danger point

As the population has dwindled, so has Detroit's tax base pushing the city to the brink of fiscal collapse.

One result is that this summer 36 schools are being closed, with more to come later.

It is a sad place. Leaving the other day, I rode down from the 44th floor of the Renaissance Center.

Beyond the half-way point there was a ghastly clanging sound and the lift dropped like a stone for a few feet before the safety mechanism engaged as I swung between floors.

It took 10 minutes of ringing the alarm to get a response.

Another 20 minutes later, with periodic grinding sounds and much wobbling, my lift was finally lowered so the doors could be opened.

I hope it does not sound glib, but my adventure in the Renaissance Center felt like a metaphor for the decline of a once-proud industrial giant.

Now new ideas are urgently needed.

From Our Own Correspondent was broadcast on Thursday, 7 April, 2005, at 1100 BST on BBC Radio 4. Please check the programme schedules for World Service transmission times.

5,160 Posts
heheheheh oh well oh well.. never learn their mistake.

5,160 Posts
hobie237 said:
they never do, but they always manage to recover and make profits soon after... they're such huge companies... they're not going anywhere any time soon
recover aka govt help. and huge?? one thing i know the bigger u have the harder u fall. dats why honda still not as big as toyota and nissan, harder to managed and etc2.

1,374 Posts
Chrysler was in the spot around 1979, when it was about bankrupt, hit up Uncle Sam for a loan, created the K-Car and all was well. GM is staying afloat mainly by it's large sales of full size trucks and fleet sales. Now that Bob Lutz is introducing a bunch of improved products, it may be a case of too little too late, Toyota will very well eclipse GM in PASSENGER car sales.

9,883 Posts
Discussion Starter · #8 ·
Higher costs force Ford to slash profit estimates

Ford Motor Co., citing higher prices for gasoline, raw materials and health care, as well as other growing challenges, warned Friday its 2005 earnings will fall as much as 35 percent from its previous guidance.

And the automaker said it no longer expects to post annual pre-tax profits of $7 billion as early as 2006, blaming "vastly different market and business conditions."

The surprise announcement was made after the end of trading on the New York Stock Exchange, where Ford shares closed down 27 cents, or 2.39 percent, at $11.03. Standard & Poor's Corp. immediately changed its outlook on the automaker to negative from stable, and said it could lower its rating at any point if Ford's outlook doesn't improve in the mid-term.

U.S. automakers are being battered by unprecedented competition from Asian and European rivals. The combined U.S. market share of GM, Ford and DaimlerChrysler AG's Chrysler Group has dropped 1.3 percentage points this year to 57.8 percent.

General Motors Corp. warned last month its 2005 profits will plunge as much as 80 percent because of falling U.S. sales, an unfavorable product mix and escalating health care costs.

Last month, Ford said its full-year 2005 earnings-per-share would be at the lower end of a range from $1.75 to $1.95 a share. It now expects to earn $1.25 to $1.50 a share during 2005, while first-quarter earnings will exceed previous guidance of 25 to 35 cents a share.

While it still expects its automotive operating cash flow to be positive this year, Ford said its 2005 automotive pre-tax profits will break even at best. The latest estimates exclude special items, which include additional moves to restructure its luxury brand group, investments in fuel cell research, and the sale of a non-core business.

Deteriorating business conditions, particularly in the United States, are undermining Ford's profitability. The automaker's U.S. sales are down 5 percent in an overall flat market. And demand for some of Ford's most profitable vehicles, including the F-series pickup, and Explorer and Expedition SUV, has dropped sharply this year, in part because of high gas prices.

While Ford was counting on a boost from the introduction of several new models this year, such as the Five Hundred sedan and Freestyle crossover wagon, demand for the vehicles has been mixed.

"Historically high prices for steel and crude oil, escalating health care expenses and a weak U.S. dollar presented formidable challenges as we entered 2005," Ford chief financial officer Don Leclair said in a statement. "Throughout the first quarter we saw those and other business factors worsening."

The prospect of higher and sustained gasoline prices and continued aggressive pricing moves by rivals also prompted Ford to lower its earnings guidance.

The warning is a setback for Ford Chairman and CEO Bill Ford Jr., who launched a major restructuring of the automaker in 2001. Ford has taken aggressive steps to slash costs, including plant closings, job reductions, and a cut in its annual dividend.

Over the past three years, it has reduced expenses by $4 billion. It plans a new round of early-retirement offers to cut an estimated 1,000 additional U.S. white-collar posts in coming months.

"Although one of our strongest ever product line-ups has been well received by consumers around the world, we are not immune to the broad economic challenges we all face in our industry," Bill Ford said in a statement.

While Bill Ford said the company could take additional steps to achieve pre-tax profits of $7 billion by 2006, he said the automaker would not sacrifice product development or capital spending.

"We are unwilling to cut the essential investments in the products, technologies, infrastructure and expanding markets that are the very building blocks of our future," he said.

Like GM, major credit ratings are now poised to downgrade Ford to below investment grade following the warning.

"We now view the rating as weak," Standard & Poor's credit analyst Scott Sprinzen said in a statement "The rating can tolerate several quarters of weak profitability and cash flow, but only under the assumption that financial performance will improve to more satisfactory levels thereafter."


699 Posts
they just keep going down and down and's like falling in a dream and you never reach the bottom...i guess the saying is true...the bigger you are, the harder you fall...dam this is going to blow for our economy if one of these companies does go under and one most likely will too.

238 Posts
I wonder if the auto manufacturers will drop their pension plans like the tech industry has done. It might help a bit since auto workers tend stay on the job for many years.

10,923 Posts
They need to lower wages. This one guy who worked with
us, (Kroger), while he was on "temporary furlough" from
Saturn, (GM), made $22.00 an hour at their plant :eek, and this dude was a complete simpleton! I wouldn't give him minimum wage, if I were in charge; add to that all the benefits they get, etc., and I can see why the Big Three are biting the "big ONE". And this was in '98.
I believe in unions protecting the simple man's rights,
but they're just digging their own graves, in this case.
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