Weak sales, heavy costs and stiff competition from Asian competitors have taken a huge bite out of the US auto industry.
The Big Three have fought back with aggressive pricing campaigns that offer consumers employee discounts, but many analysts say incentives will not be enough.
And after General Motors Corp. announced its second quarter of major losses this week, while Ford Motor Co managed to squeeze a profit despite US$906 million in losses in its North American automotive business, some analysts are predicting that recent job cuts are just the tip of the iceberg.
"I don't think GM is going disappear. But in order for GM to become a healthier company, it has to become a smaller company," said Joe Barker, an analyst with CSM Worldwide in Farmington Hills, Michigan.
"Ford has the same problem. They have to become a smaller company," he said.
Both Ford and GM said last week that they are looking at closing more plants, while GM said it is also planning to purchase more material in Asia and Ford said it will be making additional cuts to its salaried workforce.
But current plans offered by GM management are not sufficient to help turn the company around, said professor Peter Morici of the University of Maryland's Robert H. Smith School of Business.
"GM makes cars and trucks that cannot sell for a profit, and that is not likely to change anytime soon," he said. "Without a radical change in strategy and leadership, losses will mount up, the company will run out of cash and bondholders and banks will be left holding the bag."
Morici's prediction for GM?
"The road ahead: a trip through Chapter 11," referring to the US bankruptcy protection law.
John Casesa, the top auto analyst for Merrill Lynch, said the US$1.2-billion quarterly loss at GM's North American operations sets the stage for more changes inside the company.
"The loss, remarkably large in the seasonally strong second quarter, comes as pressure is mounting for major change at the company," Casesa added in a research note.
"The results reflect both a revenue problem and a cost problem," Casesa added.
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