NY Times article on Ford and GM
Quote:
G.M. and Ford Stuck in Reverse As Buyers Look Beyond Detroit
DANNY HAKIM
DETROIT, April 14 In just the last few weeks, the grand plans that were supposed to carry General Motors and Ford Motor into their second centuries have crumbled.
Sales at G.M. have fallen, profits have tumbled to losses. Last week, Ford also warned of a drop in earnings. Thursday, in yet another blow, its union refused to give much ground on G.M.'s health care coverage. If that were not enough, G.M.'s stock hit a 12-year low. [Page C1.]
The Big Two automobile giants offer plenty of explanations, from soaring health care costs to rising gas prices and creeping interest rates. But consumers and industry specialists say G.M. and Ford have swerved off course for a more basic reason: not enough people like their cars.
"I still hate to buy a foreign car," said T.J. Penn, a 44-year-old painting and drywall contractor walking through a Toyota lot this week in Ann Arbor, Mich. "But the quality and reliability makes it hard not to."
Despite free loans and rebates worth several thousand dollars, G.M. and Ford are losing sales to perennial competitors like Toyota and newer rivals like Hyundai, which are more often getting the carmaking formula right: consistent quality, reliability and that intangible appeal.
G.M. and Ford are having such a hard time bringing in the real American consumer that about a third of their sales go to their own employees, their family and friends, or to rental companies and corporate fleets, at razor-thin margins.
And now they are also losing their safety net. Detroit turned the S.U.V. and pickup truck into popular consumer products that propelled profits for much of the last decade. But with Asian makers now entrenched in the S.U.V. market -- and setting their sights on pickups -- G.M. and Ford have lost any margin for error.
In their storied pasts, both G.M. and Ford did best when they offered something others did not. Henry Ford created a car for the masses, the Model-T, which was far more efficiently made and cheaply priced than rival cars. G.M., the first car conglomerate, struggled to compete with Ford until an executive emerged in the 1920's, Alfred P. Sloan Jr., who believed the company's amalgam of brands -- including Chevy, Buick and Cadillac -- could be organized to offer what Ford did not, namely choice and plenty of it.
Today, both companies occupy the dreaded middle, offering neither compelling value nor compelling beauty, with exceptions like the popular new version of the Ford Mustang or G.M.'s revived Cadillac line. Auto companies can make up for a lot by making enticing automobiles, and right now analysts see something of a storm approaching that needs a survival plan.
"If I was in their styling studio I'd be working 24 hours a day on models that excited me when I walked through the door," said Gerald Meyers, a University of Michigan professor and the former chief executive of American Motors, which was taken over by Chrysler. "There has to be excitement in that instant when the customer walks through the door. That decision to look and buy happens very quickly."
Soaring health care costs are a crushing burden because G.M. and Ford cover 1.7 million Americans, or more than half a percent of the total population. Raw material prices, gas prices and interest rates are all rising. The two companies now command roughly 45 percent of the domestic market, their core profit center, down from 58.4 percent a decade ago, according to Ward's Automotive, even though they have acquired European brands like Saab, Volvo and Jaguar in the interim.
Mr. Penn's mother worked "at Ford's," he said, using the local vernacular for the family-controlled company. The idea of buying import cars "was out of the question, but then I had a Subaru Forester and it was a great car." Now he owns a Toyota Sienna minivan and said he was even considering eventually trading in his fifth Ford F-150 pickup for a Toyota Tundra.
"A lot of it is the engineering and that they stay on the road a long time," he added. "It seems like the Japanese technology in cars are better value."
Many analysts see a prescription for success in Chrysler, a division of the German automaker DaimlerChrysler. The company's recent recovery has been driven by hot sales of a few key products, particularly the one that stands out on the road, the Bentley-like Chrysler 300 sedan.
"American cars were like the Marlboro man for years -- there was an ideal of freedom, space, luxury and abundance," said G. Clotaire Rapaille, a consultant on what makes consumers buy cars.
"The brands are being watered down so they are generic," he added. "And people have always said that if they want to buy generic cars, the Japanese or the Koreans build them better."
What is worse is that Asian cars are not even generic anymore. One of the most profitable automakers, Nissan, is now widely considered one of the boldest designers. G.M. and Ford have been vocal in recent years about making what G.M.'s vice chairman, Robert A. Lutz, calls "gotta-have" cars. But entrenched bureaucracies and cost-cutting pressure do not easily produce elegance.
Cars can fail to measure up on a variety of sensory fronts. Ford's new Five Hundred sedan has been criticized for borrowing an engine from the aged Taurus that lacks pep; a review in Car and Driver magazine lamented that the car "merely oozes forward." The Detroit Free Press criticized G.M.'s Pontiac G6, a sedan pitched as sporty and exciting, for a "rather numb" feel behind the wheel.
Pressure is coming from BMW and Mercedes, selling cars starting around $30,000, and Asian makers offering vehicles under $20,000.
"You want to put money into something you'll get return back from," said Nathaniel Nix, a 37-year-old pastor at a church in the Detroit suburb of Ypsilanti, in an interview this week at a Toyota dealership. Mr. Nix, who was a car salesman for both Ford and Toyota more than a decade ago, said Toyota's higher resale value and more consistent quality made its cars a good investment.
And if Japanese automakers "were the boring ones" in the past, he said now "they're doing an awesome job in the styling realm."
Mr. Nix is in the market for a car because his 16-year-old son, also named Nathaniel, crashed the family's Corolla. The younger Mr. Nix is pressing his father for an xB, an S.U.V. from Toyota's new youth brand, Scion, that looks like a microwave oven on wheels.
Does the younger Mr. Nix like American cars?
"The '67 GT Cobra, the Boss 302 and the old Charger," he said, reeling off vintage Detroit muscle cars.
"What about the new ones?" his father asked.
"Um," his son considered for a moment. "Not really."
As G.M. and Ford lose their grip on American buyers, Michigan's unemployment rate is now the highest in the nation.
"You can't keep losing the market share like G.M.'s losing, you know," said Kenneth Shelton, a 49-year-old machine operator at G.M.'s Willow Run transmission plant in Ypsilanti. The factory, which once produced World War II bombers and covers the space of more than 83 football fields in this Detroit suburb, is down to 3,800 workers today, from about 12,000 two decades ago.
Mr. Shelton and his wife, Joy, met 20 years ago at the time clock. He was punching in, she was punching out. Back then, Willow Run was "like a city that never stopped," said Joy, 48, a quality inspector. "It was just bustling, always bustling, everybody just worked, worked, worked, worked, worked. It was nothing like it is now."
Now, her husband said: "They hit us every day in the papers. We read it. We read it. We pay attention.
"These kind of jobs, where could you find something like this anymore?"
A rising sense of frustration is also evident in executive suites. G.M.'s chairman and chief executive, Rick Wagoner, who has declined interview requests in recent weeks, shook up his senior North American management last month and his company is increasingly on edge. Last week, G.M. pulled its advertising from The Los Angeles Times, the largest newspaper in one of G.M.'s weakest markets, after a columnist said Mr. Wagoner should be fired.
Ford's own troubles came into view last week as the company sharply scaled back its earnings projections and abandoned the cornerstone profit goal of its three-year-old revival plan; its stock fell to a nearly two-year low.
If most on Wall Street do not think bankruptcy is on the horizon because the companies have adequate cash reserves, analysts also see no clear turnaround path. Rising gas prices are weighing on sales of Detroit staples like Ford Explorers and G.M.'s Chevrolet Suburbans. In its profit warning last week, Ford cited as a key factor "the prospect of higher and sustained gasoline prices." Some analysts worry that Toyota and Honda are far better positioned to weather gas prices because they have stronger passenger car offerings and are far ahead in developing fuel-efficient hybrid electric cars.
Rising interest rates shave profits from car loans. Overseas operations drain more than reward. And both companies are flirting with junk bond ratings, which would drive up borrowing costs by billions of dollars.
"Right now, we don't know if we are going to be here another five years," said William Murphy, a 70-year-old lathe operator at G.M.'s Willow Run plant. G.M. recently made an investment in the plant, so it is not likely to disappear.
If it did, Mr. Murphy said his nearly four decades of seniority would come in handy. "I'll be the one to shut the lights down."
Mr. Murphy, a large man in overalls hailed as Murph by co-workers, spoke while eating an Italian ice before his shift, sitting in his sister's car. A Hyundai.
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