Automotive: Misery Loves Company

"The global automotive industry is fraught with irony", according to a recent review at Yahoo Finance.

North American OEMs are having some success in Asia (namely China) while floundering at home. Japanese players are meeting with success in North America while remaining relatively passive about the ever-wakening automotive giant in their own back yard - again, China. Indeed, this is ironic, but symptomatic of "global" industries.

Once the yardstick with which automotive engineering was measured, the Germans are suffering from low quality. Who expected that? Amazing what happens when an industry falls apart.

General Motors is second only to the US government in health care spending. The company provides these benefits for more than a million Americans at an annual cost of more than $100 billion; $1,500 of every GM car sold goes to pay for those benefits. And so, GM is trying to wring heathcare costs out of the equation. It's sad, but predictable.

Financial analysts and bond investors think GM has enough cash for its rob-Peter-to-pay-Paul strategy to be sustainable for two or three years, then bankruptcy becomes more of a reality. Keep your fingers crossed. It c-o-u-l-d happen...bankruptcy this is.

GM is also struggling with products that just don't seem that compelling. What else is new?

GM's saving grace may be China where the company has a commanding lead. But that comes at the expense of American jobs!

Ford is focused on cutting jobs and saving cash. The company hopes to stop the hemorrhaging from its North American business which is losing nearly $1 billion per quarter. The most sweeping step so far is the elimination of separate sales and marketing organizations at its Ford and Lincoln Mercury divisions. The company has said it wants to cut as much of 30% of its salaried North American workforce. Ford also may opt to close a few of its North American assembly plants. Not good news for "Ford towns."

Meanwhile Ford also is looking to China for profits but is lagging behind GM, Volkswagen, Honda, Toyota, and even Hyundai for market share.

DaimlerChrysler is on the verge of a changing-of-the-guard when Jürgen E. Schrempp steps down in 2006 and makes way for Dieter Zetsche. Zetsche has been a rainmaker of sorts as the head of the Chrysler division, and it is hoped he can have a similar effect on the beleaguered Mercedes division back home in Germany. Mercedes has been plagued by slow sales, falling market share, and shoddy quality. Meanwhile, spurred by fresh products, Chrysler is enjoying a resurgence.

Volkswagen is suffering from high costs, high sticker prices, and low quality. Its VW brand is in decline both at home in Europe and in North America. The company has even lost its leading position in China to GM. The company has admitted it has problems but like GM its woes stem from powerful labor forces. To be successful VW has to battle powerful German labor unions to lower wage costs, trim jobs, and eliminate its 30% manufacturing overcapacity.

Toyota and Honda bring a little boom to the gloom. The two companies are successful in their home markets as well as those in Europe and North America. They both are leaders in the development of hybrid technology which, as fuel prices soar, will almost certainly be a key product strategy as time goes on. However, the two companies are biding their time in the world's hottest car market, China. Not only are they being outpaced by the likes of Ford and GM, they are being beaten by Hyundai - a second tier player. While Toyota admits it has gotten a slow start in China, did not Toyota and Honda come late to the US market?

Where's the good news in the industry? China, but for how long if things continue on this path. Look for the shakeout. It's coming and it won't be pretty.

Just a heads-up to my economic development friends.