Detroit's Turnaround Year Turns Into a Bust

General Motors (GM), Ford (F), and Chrysler’s new labour contracts with the United Auto Workers Union last year were supposed to save the US auto industry. But rising gas prices and a recession have turned Detroit’s banner year has turned into a bust. CNN:

Ford will report its first-quarter results Thursday and is expected to post its seventh loss in the past eight quarters. GM is forecast to report its second largest operating loss since the start of 2006 when its results come out. Both companies are expected to bigger losses this year than last year…

Overall, U.S. auto sales in the first quarter tumbled 8% from a year ago and the Big Three continued to lose market share as their sales fell even more than their competitors. Bob Schulz, the senior automotive credit analyst for Standard & Poor’s, said the downturn is “gathering speed” and warned that sales could fall as much this year as the combined 7% decline from their peak in 2000 through last year.

So what gives? Where did Detroit, once a symbol of America’s industrial might, engineering know-how, and commercial ingenuity, go wrong? Poor leadership and an out-of-touch labour union.

Detroit’s executives have been behind the curve on every industry trend since the 1980s. When their Japanese and Asian competitors introduced manufacturing reforms like Six Sigma and Lean Manufacturing, revolutionary methods that controlled costs and improved quality control, American execs were the last to recognise their value and implement them. More recently, as fuel costs have soared, Detroit was also the last to realise that consumers would want products with better fuel efficiency.

And then there’s the UAW. When times were good, the UAW negotiated generous pension and healthcare benefits. Now times aren’t so good, and American auto companies are saddled with eye-popping legacy costs. Instead of taking the kind of cuts that would have allowed GM and Ford to remain competitive, the UAW continues to squeeze the life out of the industry.

GM, Ford, and Chrysler finally did reach a workable deal last year, but it may prove to late. With foreign competitors lapping up market share, fuel costs exploding, and the economy in the tank, there may be no second chance for Detroit.


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