Detroit Car Show Hides Troubles of Big Three

Detroit doesn’t rule the automotive world the way it once did. Though, it is difficult to deny that the Detroit Auto Show holds some of the mystique from fatter and better days. The manufacturers still roll out the new models here, and the media and mavens descend on it with all the glee of college kids hitting the beach during Spring Break. But this year, the car business is just a mess, and there’s no denying that harder days are ahead.

For GM, one problem is a little thing called Saab. Essentially, the subsidiary faces oblivion if GM decides it doesn’t want to pony up the dough needed to bring the brand into the 21st century. James Mackintosh of the Financial Times wrote a fine piece on this yesterday, which included, “GM insiders said the company was unsure what the Saab brand stood for. The typical customer is an academic – and, says one executive, ‘the question is, are there enough university professors to make the investments worthwhile?’” One suspects there aren’t even enough graduate teaching assistants.

Another problem for GM is called Fiat. Back in 2000, in a fit of enthusiasm, GM bought 20% of Fiat Auto (subsequently diluted to 10%). It also gave Fiat a put option, which effectively would force GM to buy the rest of the company if Fiat decided it wants to sell. It is not likely to go through, but Fiat is a huge loss maker and GM is losing money hand over fist in Europe already. It may have to bribe Fiat not to exercise the option – payment to make the Italians go away.

Meanwhile, Ford and Daimler-Chrysler are also facing the same troubles as GM in more general marketing areas. Their costs are just too high to make any real money on small, less kitted-out vehicles and have to rely on SUVs and light trucks. Interestingly, national health care would make these three more competitive with Toyota, Volkswagen and other car makers based in countries where the tax payer covers health costs. The Center for Automotive Research says this adds $1,300 per car to the costs of the Big Three.

As a result, Toyota is selling more cars in the US than ever – 2 million in 2004, a 10% increase. Daimler-Chrysler was ahead of that by only 146,000. And GM and Ford are closing plants in North America because they have excess capacity. The bright spots, like Ford’s F-Series pickups, Cadillac, Chevrolet, and everyone’s hopes for hybrids are not likely to be enough to make 2005 a year of high profitability, but perhaps, the strength seen by the Big Three in 2004’s second half will keep Toyota from moving into third in North American sales, at least for 2005.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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