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US automakers face another brutal year

The Chevrolet E85 Hot Rod concept is introduced at the GM Style event in Detroit on Saturday, the eve of the North American International Auto Show. PHOTO: AP

After years of crisis, the big three US automakers face another brutal year, with demand expected to dip again due to an economic downturn threatening to snuff out last year's timid recovery.

The world's major automakers will exhibit upcoming models and the concept cars of the future from yesterday as media previews kick off for the Detroit motor show. But the extravaganza comes amid gloomy predictions for the market.

"It's pretty clear that demand in the US will decline during 2008," said Bruce Clark, an analyst at Moody's financial research group.

"At this point we are anticipating total retail shipments of about 15.7 million units. But actual shipment levels could be even lower depending on the overall state of the US economy," he said.

The three US manufacturers used to hold 95 percent of the market, but this has been chiseled to just over half as Asian firms seized 47 percent with Japan leading the charge, according to the firm Autodata.

Japanese giant Toyota for the first time passed Ford in the US auto sales rankings last year, taking second place behind General Motors (GM). Ford was pushed back into third place, with Chrysler in fourth.

European makers pose less of a general threat with around seven percent of the US market, but hold an edge in sales of deluxe vehicles.

Restructuring by GM from 2005 and soon afterwards by Ford and Chrysler helped them begin closing the gap with the Japanese in terms of quality and productivity.

Each of them struck a pay deal with the major autoworkers union UAW -- a key achievement which Clark said transformed the industry, helping them cut production costs to operate more competitively in the mid to long-term.

The deal cleared the way for the three companies to cut nearly 100,000 jobs.

GM said last week it had met its aims for last year by stabilizing its position in the market, while Ford reported having considerably reduced its net losses after record losses of US$12.6 billion in 2006.

But challenges remain: GM reported net losses of US$39 billion in the third quarter of last year and is fighting to put more fuel-efficient models in its show rooms.

Ford is reshuffling its product line to balance expensive models with larger numbers of popular cheap ones.

"The manufacturers are in very different places," JD Power analyst Tom Libby said. "Ford is obviously struggling and needing to stabilize things. They have a couple of major introductions coming."

Chrysler is in the biggest fix, analysts said, despite a boost to restructuring by the investment group Cerberus which bought it last year.

"Chrysler is in big trouble," said John Wolkonowicz of Global Insight. "Chrysler needs to merge with somebody quickly."

Oil prices and the general economic downturn in the US could hit sales of even the most efficient models.

Investment bank Goldman Sachs lowered its forecast for vehicle sales this year to 15 million, down from 16.3 million last year. Credit rating agency Standard and Poor's predicted North American sales could hit a 10-year low this year.
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