February 16, 2007 in Business

U.S. automakers forced to think small

Associated Press The Spokesman-Review

DETROIT — Shrink to grow. That’s the message from Detroit, where all three of the traditional domestic auto companies have announced thousands of job cuts in the hopes of turning red ink to black.

But they all know they can’t cut their way to profitability. In the end, they have to build more cars and trucks that people want to buy. These days, that means smaller and more fuel efficient vehicles.

“There’s no doubt that the easier part of the two prongs of restructuring is cost-cutting,” said Efraim Levy, senior industry analyst with Standard & Poor’s. “The hard part is getting the vehicles that consumers want.”

With Chrysler’s announcement Wednesday that it will cut 13,000 jobs and shut down one plant and some assembly lines, all the traditional domestic manufacturers have downsized considerably in the last two years. Ford Motor Co. will cut up to 38,000 blue-collar jobs and another 14,000 salaried positions. General Motors Corp. has trimmed its salaried ranks and about 35,000 production jobs.

GM alone says it has cut about $2,000 from the cost of building each car.

All three lost billions last year and were forced to shrink as expensive gasoline shifted demand from trucks and sport utility vehicles to smaller, more fuel efficient models, sending the Big Three on a scramble to come out with new models to try to recapture buyers who fled to Asian competitors.

The domestic brands’ market share dropped from more than 70 percent in the 1980s to 53.7 percent last year, and Toyota likely will unseat Ford as the No. 2 auto seller in the U.S. this year.

With many of their new products already in the market, several industry analysts say the jury is still out on whether the automakers can recover.

“There are some new products that have taken hold and there are others that are questionable,” said Tom Libby, J.D. Power and Associates’ senior director of industry analysis.

Among the successes he points to is the Pontiac Solstice, a niche car that sits only a short time on dealer lots and has sold roughly 1,000 to 2,000 per month since its introduction in October 2005. The sleek two-seat roadster is priced around $20,000.

“You have a combination of this sexy appeal of a car with this low price,” Libby said. “You have to have both, and that proves itself with the Solstice.”

GM and the others have to duplicate that success with higher-volume vehicles like Ford’s Fusion, the Saturn Aura and Dodge Caliber, Libby said.

Ford sold 142,502 Fusions last year, gradually growing its share of the midsize market to around 7 percent. The midsize Aura, on the market for only six months, is selling between 4,000 and 5,000 per month, while the Caliber small SUV, introduced in February 2006, sold just over 92,000 last year. Demand for it has been so high both in the U.S. and overseas that dealers are complaining about shortages.

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