The latest bad news of projected losses and job cuts from Detroit points to an inescapable conclusion: U.S. automakers are going to have to get smaller if they ever hope to regroup and get bigger again.
"They are definitely heavily on the run," says George Peterson, president of AutoPacific, which consults for the industry.
That means closing more plants and slashing the workforce in hopes that costs will be reduced enough to make a profit. Only then will Detroit automakers be able to start thinking about a comeback.
Detroit was rocked by two big blows last week:
•Ford Motor. Ford will slash 10,000 additional white-collar jobs while offering early retirement and buyout packages to all of its 75,000 hourly workers.
The goal: cut the U.S. workforce by 29%, from 130,000 to 92,000 by the end of 2008. It will also close two more plants in addition to 14 previously announced. It still doesn't expect to make a profit in North America through 2008.
"Sometimes, you've got shrink to grow," said Mark Fields, Ford's chief of the Americas.
•DaimlerChrysler. The expected third-quarter loss for the U.S.-based Chrysler Group unit, which has Dodge, Chrysler and Jeep, more than doubled. Instead of $600 million, the loss will likely reach $1.5 billion. The unit anticipates a full-year loss of $1.2 billion.
DaimlerChrysler blamed excess inventory, employee retirement and health care costs, high fuel prices, more intense price competition on light trucks and a shift to smaller vehicles.
As a result, Chrysler plans production cuts through year's end.
While General Motors, the world's largest automaker, has come closer to righting its shaky finances lately, it's taking the same route to get there as Ford — employee buyouts and factory closings rather than earth-shattering sales.
"My feeling is we've been watching a long-term death spiral in the auto industry," says Richard D'Aveni, a Dartmouth business professor and consultant to several Fortune 500 companies. "The fundamental problems are not being solved by simply cutting back."
He compares the Detroit automakers with the Penn Central Railroad, which lingered for years by selling off assets — real estate, rights of way, stations — despite decades of losses.
D'Aveni says Detroit will be able to save itself only through radical action: breaking union contracts, investing in better parts and methods to increase quality, creating fresh new brands and getting more control over its dealer networks.
The Detroit Big Three are shrinking so fast now that they are almost at parity with the other Big Three, the largest Japanese automakers, Toyota, Honda and Nissan, says Kevin Tynan, auto analyst for Argus Research. These Big Six make up 88% of auto sales.
Peterson says U.S. "manufacturers are trying to right-size themselves. ... They are trying to get to the right level where they can make money on the products they sell."
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