How long can the American automotive industry last?

[Butter]

Ford just reported a $12+ billion loss for 2006, and expect similar losses for the foreseeable future. GM is expected to have lost around $2.5 billion in 2006, while Chrysler is in the $1 billion or so loss range.

How much longer can these companies continue to post losses and remain viable? I am informed on this, but not well-informed, so I am asking an honest question... how can these companies still be in business posting gigantic losses year after year?

[bulletsponge]

how do you loose 12 billion dollars a year? is MC Hammer the CEO?

[Warhammer]

I would qualify it as the American owned auto industry, the Nissan and Toyota plants here in the states are doing very well.

[bulletsponge]

one of them need to go under and not have the damn US government bail them out. then the other 2 might get a wkae up call and shape up. its obviously the managment thats the problem

[CraigSca]

I think losing one of the three would be devastating to the economy (thus the Chrysler buy-out from the 80's).

I just think the car companies have to have greater flexbility and they've been caught with their pants down. They're trying to play catch-up, but they're paying the price for being bloated and inflexible in the past.

[st.cronin]

One could ask the same question about the airline industry.

[Desnudo]

I've often wondered this myself. Most of the cars they make are just so ugly or outdated when compared with German or Japanese cars. Look at the Ford 500. It looks like a Passat from five years ago. If it wasn't for Hertz and Avis, they'd have gone under a long time ago.

[JediKooter]

how do you loose 12 billion dollars a year? is MC Hammer the CEO?

And using Willie Nelson's tax man.

[cubboyroy1826]

I work with a lot of Detroit's union employees and will tell you that the unions are part of the problem and unfortunately a lot of the employees are paying for it now. When things were good for the automakers there were people that were getting paid outrageous money to complete very basic tasks. The whole idea that time in a job means you are entitled to an automatic raise is killer in an industry that is having problems. Now a lot of these employees are winding up having to take severence packages to get money now because who knows what will happen in the future. The real estate market in and around Detroit is in the tank. Many people have been let go from Detroit and cannot afford their home but they cannot sell their homes because they owe more than their house is now worth in a depressed market.

The fat cat management types are of course also to blame for seeming to rest on the past performances and almost expecting Americans to continue to buy a sometimes outdated and inferior product because it is American made. We as a people are patriotic but the younger generations are not going to buy a car because it was made in America by an American company. They want new sharp well priced reliable transportation. If you are in management you should be rewarded when the companyis doing well, but in hard times the huge bonuses these guys continue to get has to make you scratch your head. I am sure i will take some fire for my view but if you look at some of the troubled industries you will find unions and upper management issues.

[Masked]

how do you loose 12 billion dollars a year? is MC Hammer the CEO?

Restructuring charges and other one time expeses related to buyouts and plant closings. So some of the the $12.7B loss is due to their accounting practices. Even in a bad year, Ford still had $170 billion in annual revenue - compare that to Google who only had $10B in annual revenue (certainly not an apples to apples comparison, but I just wanted to give a sense of the scale). A $170B revenue stream can support a lot of debt. That said, I think most experts believe Ford is in far more trouble than GM.

[Wolfpack]

Well, Ford's hit is not unexpected as this is the outcome of the massive restructuring they're trying to pull off over the next few years. To that end, they mortgaged out just about everything to have the cash on hand to handle this rough patch. No one knows if it will be successful or not, but I do think CraigSca is probably right: if Ford were to go under, it would be a blow at least from a psychological standpoint to the economy and the country as a whole. After all, there's hardly anyone alive who remembers a world without Fords on the road (roughly the same number remember life without automobiles, period). It's one of those Americana-type things. Now, it would stand to reason that the American economy can physically withstand a loss of one of the big three (after all, in a market economy, someone else will step in to fill the vacuum eventually), but it would reinforce the notion to some extent that no matter the bullishness of the Dow or the relatively low unemployment figures hovering near 5% or that the GDP still grows, that there is something amiss in the American economy, which is why the economy has been a drag on the Bush administration in spite of these indicators.

[bronconick]

Maybe Ford should sell the Lions and reinvest into his company.

Please? :(

[rkmsuf]

Maybe Ford should sell the Lions and reinvest into his company.

Please? :(

Maybe Matt Millen will be hired as Ford #2 man.

[Subby]

They new sharp well prices reliable transportation.
FINALLY. Somebody gets it.

[QuikSand]

Detroit could probably survive through its bad long-term decisions in fleet design -- they have been late to the party with hybrids and more fuel-efficient cars, after they were late to the party before that on SUVs and high-profit models like that. Those bad decisions can hurt you, but usually don't kill you.

Detroit could probably survive though its bad long term decisions with union contracts, especially agreeing to clauses that amount to "guaranteed employment" for an ovewrwhelming share of the projected workforce, independent of actual product demand schedules. They really reduce their ability to respond to market changes with that sort of decisions, but they assessed the risks and responded accordingly.

Detroit could probably survive its lagging reputation for quality, and its rapidly escalting costs for labor. The reputation issues tend to be cyclical, and some good strategic decisions and a few big hits in future lineups tend to wash away at least some of these impressions.


Now, you take all three of these issues at basically the same time, and it's more serious. They have made seriously stupid decisions with what they decide we want to buy, and are getting punished properly for those stupid decisions. They have made seriously stupid decisions in managing labor relations, and are getting punished properly for those stupid decisions. And they have bigger trends in terms of cost and quality that are working profoundly against them, mostly independent of whatever else they are doing.

This is looking like a sinking ship. I don't forecast that GM or Ford is going to dissolve anytime soon, but there is almost no chance whatsoever that the US-based automotive industry is going to look much like it did in 1980 ever again.