Goldilocks and The Big 2.8

Andrew Dederer
by Andrew Dederer

Now that the dust has settled on the last of the United Auto Workers’ (UAW) contract negotiations in Motown, the other shoe has dropped. All three domestic automakers have announced new lay-offs and plant closings, atop already extensive cuts. Chrysler killed half-a-dozen models. Ford has shuttered plants and signaled that “things might change” if “things get worse.” GM has eliminated several third shifts. So what’s next? Basically, we’re looking at an auto industry version of “Three Bears.” GM wants to stay big, Chrysler wants to get small, and Ford wants to be “juuuuuust right.”

Chrysler's cupboard is bare, there's nothing much in the pipeline and they have nothing to speak of overseas to lean on. All they have is a few decent entries in a handful of profitable niches. In line with their new owner's philosophy (a.k.a. strip and flip), Chrysler will continue to reduce production and kill products. They want to cut Chrysler's product line down to the vehicles they can sell profitably at the volumes they can move and then get acquired or go public. Done.

Look for Chrysler to try to get the 300s, the minivans and Jeep down to profitable volumes. The Ram and the Sebring/Avenger will survive even if they have to give them away; owning a volume product in a major market segment looks good to a buyer, profit or no. The multi-billion dollar question is how much is Chrysler spending on developing new products? The answer would give us a better idea of when they’re planning on selling their stake.

Meanwhile, Ford's market share has been dropping like a stone– which is no surprise to anyone. The fall from grace isn't “good,” just expected, as Ford has vowed to cut way back on their fleet sales. Clearly, Ford’s strategy is to downsize to a profitable volume and call it good. To this end, they’ve emphasized the need to improve flexibility in manufacturing. Details are sketchy, but part of the UAW agreement mandated/allowed for just such an investment. Hopefully implementation will involve multiple body types on one line, Honda-style, rather than just vomiting forth the usual badgeneered clones from one factory.

Shrinking down to a profitable volume– and trying to hold the line on price– looks like a winning strategy for The Blue Oval Boyz. But the question everyone is asking– and no one can answer– is “will it work fast enough?” There’s nothing left to hock. If shrinking doesn’t work, and work soon, Ford will be booking some federal court time for a Chapter 11 petition.

While The General didn’t wrest the concessions from the UAW that the later-negotiating pair secured, GM still got most of what it wanted– offloaded health care benefits, a new two-tier wage scale– without having to promise much. That said, GM has been doing its utmost to hold onto market share: upping incentives, investing in terminally ill brands, putting-up with duff dealers, etc. Why?

Is GM pushing sales to keep their bloated dealer network afloat, or simply attempting to drive one or both of their domestic competitors to the wall? Chevy is rooting for biz down-market (trading punches with Hyundai/Kia), well below where Ford seems to be aiming their name brand. GM’s leaving the competition with the Dai-san (Honda, Toyota, Nissan) to the old “premium” brands, and Saturn. Cutting brands and dealer networks has been back-burnered until the profits return– when the problem can be ignored.

GM looks the closest to healthy right now, which is both good and bad. They are the least likely to run onto the financial rocks, but if one of the other two reinvents themselves or survives a trip to bankruptcy court, GM will be playing by the old rules in a new world.

While these are confusing times, a few things are certain. First, The Big 2.8 are going to lose more market share. A fair amount of their current share is created by fleet and fire sales– that have devastated profitability without driving back the competition. To make money going forward, these have to go.

Second, The Big 2.8 are off the radar for roughly half of the American new car market. The Motown manufacturers hope that profits can be made from the half of the US market still “in play.” It's a viable stratgey; half of the US market is still a huge pool. But it leaves the Detroit boys playing a zero-sum game. Any increase in sales for one comes out of the hide of another.

This is a problem; the sum of the shares that the 2.8 are counting on grabbing literally will not add up. If 50 percent of the market is considered “in play,” the total of the 2.8s’ expected shares is likely closer to 60 percent. Somebody’s going to come up short.

Andrew Dederer
Andrew Dederer

More by Andrew Dederer

Comments
Join the conversation
2 of 68 comments
  • Dynamic88 Dynamic88 on Nov 11, 2007

    Interesting article. Thanks.

  • Landcrusher Landcrusher on Nov 13, 2007

    If a company has a good product, then management doesn't have to be half as good to execute a winning strategy. OTOH, if your product is sub par, your execution on everything else better be excellent. Good generals win the battle before it is fought, and good CEO's would do well to do the same. GM seems to be at least trying at this point, but it will take avoiding the latest MBA induced, idiotic trends for enough years that the public catches on to a better product. I do not believe anyone near Detroit is capable of doing that. Someone will put some calculus on a spreadsheet and "prove" that they should cut quality, or that they can use some new management ploy to win faster. The only thing that will save the domestics is real leadership, not management mumbo jumbo. They NEED a better car, and the NEED leadership that will earn back buyers' trust.

  • Carguy949 You point out that Rivian and Tesla lack hybrids to “bring home the bacon”, but I would clarify that Tesla currently makes a profit while Rivian doesn’t.
  • Cprescott I'm sure this won't matter to the millions of deceived Honduh owners who think the company that once prided itself on quality has somehow slipped in the real world. Same for Toyoduhs. Resting on our Laurel's - Oh, what a feeling!
  • Jrhurren I had this happen numerous times with my former Accord. It usually occurred when on a slow right curve in the road. Somehow the system would get confused and think the opposite lane (oncoming traffic) was an impending head-on collision.
  • Cprescott The Ford Shamaro is ugly, thick bodied, and a Mustang pretender.
  • Analoggrotto Speaking of mud, does anyone here enjoy naked mud wrestling?
Next