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: FORTUNE: Detroit's darkest hour



SobeSVT
05-02-2007, 10:48 AM
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Detroit's darkest hour
The collapse of pickup truck sales undermines the industry's chances of survival, says Fortune's Alex Taylor.

NEW YORK (Fortune) -- You don't see any on the streets of Manhattan, but almost everywhere else, the homely pickup truck is America's common carrier. GM, Ford and Chrysler sell more pickups than do they anything else, more than two million a year in good times. In addition to high volume, pickups also produce high profits because they are relatively isolated from foreign competition.

So the sales data reported May 1 that pickup trucks have hit the skids is seriously bad news - much worse even than you might think. Without these reliable profit generators, the business model for domestic auto producers in North American doesn't work. Passenger cars, under ferocious foreign assault, are a breakeven proposition at best and sales of formerly lucrative SUVs are falling faster than Spider-Man without his web.

For General Motors, which raced to launch the redesigned Chevy Silverado and GMC Sierra ahead of schedule last year, the drop is a cruel blow to its plans to turn around North American operations - and may force it to scale back its assumptions about the business going forward. Despite incentives of up to $2,000 per unit, Silverado sales fell 7.2 percent in April.

Ford is fighting to protect the F-series with a new advertising campaign touting its durability in crash tests. But the collapse in the showroom digs an even deeper hole for the automaker. F-series sales are down 13.7 percent so far in 2007. At up-for-sale Chrysler, meanwhile, Dodge Ram sales are holding steady but only thanks to incentives that climb as high as $5,000 per vehicle.

There's no mystery about the slump in pickups. Many are used commercially and the collapse of new construction has decimated the market. Trucks are the favored vehicles of everyone on the job site - contractors, carpenters, plumbers and electricians - and a lot of them are out of work. Furthermore, $3-a-gallon gasoline has taken the steam out of personal use of trucks. It's getting expensive to hop into a V-8-powered crew-cab four-by-four for a trip to Starbucks. Finally, foreign competitors in the form of the Nissan Titan and Toyota Tundra are starting to win comparison tests in car magazines and making inroads in the showroom.

The collapse of pickup truck sales puts GM's seemingly quixotic bid to buy Chrysler in a new light. What at first glance appeared to be a reckless grab for more market share is now seen as a mostly defensive move. GM wants to buy Chrysler to take some of its capacity out of the market and improve GM's chances of survival in North America.

Under one possible scenario, GM would have emptied Chrysler's corporate headquarters in Auburn Hills, laying off thousands of white-collar workers, and shuttered most of its engine and assembly plants. It would have kept the Jeep brand, the minivans and Dodge Truck. By wiping out Dodge's and Chrysler's passenger car lines, GM could have put some nine points of car market share up for grabs at a time when it is struggling to hang on to its 20 percent slice.

From Daimler's point of view, GM would have been attractive buyer because it could sweep many of Chrysler's UAW workers under its union contract, which contains givebacks on health care unavailable to Chrysler's deep-pocketed corporate parent. But GM wasn't willing to pay much for the privilege for taking Chrysler off Daimler's hands. GM offered under ten percent of its stock - worth less than $1.8 billion at today's prices - in exchange for Daimler's willingness to foot the annual bill of $800 million to $900 million for retiree health care costs.


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ndwariga
05-02-2007, 10:55 AM
This is sooo far fetched. First of all, the new pick ups for GM are just rolling out, and as far as Ford is concerned, their truck is due for a re-design... and the F250 Series is just rolling out.

These companies are vast, the crossovers both Ford and GM are already outselling imports and they have not been on market for long. They are also global companies. A Bad North America is not the end


These people have never run an auto company.. heck any company.. its soo easy to write from an analyst point of view.

RG59061
05-02-2007, 03:29 PM
These were the same words that rang out of every Market Analyzer after Nissan launched the Titan and now with Toyota launching the New Tundra.

The new GMT-900 Trucks from GM are selling...albeit slower than the models that they replace and with approximately $500.00 less incentives to move them.

Ford has really ramped up the advertising on the F-150. The new F-Series Super Duty is just now reaching market and selling very strongly! Plus the
F-150 is about to recieve a full redesign within the year...so we will see!

As for Dodge, well...incentives are the name of the game and there has been little word if any that Dodge is redying a redesign of the current Ram so their position is harder to read. That is of course if Dodge still exists after 2008!

Honestly though, with Toyota certain to unseat GM as the World's Largest Automaker this year, I think this is good that Detroit is getting knocked off of the top of the heap.

Why? Because it is easy to get to the top and becoming #1...the hard part is staying there! Will Toyota be able to handle the demands and requirements of being the Largest Auto Maker and at the same time fend off every attack from Ford, GM, Chrysler (If it is still called Chrysler in the next year), Hyundai, Audi-VW, BMW, Mercedes-Benz, etc.? I think not, or at least not without some serious damage suffered.

It can be seen already that as Toyota grows...their quality control is having a harder time keping up with each increase! And that means that Toyota will have a hard time keeping the Lean Manufacturing techniques applicable as the demand for their vehicles outpaces their plant and supplier capacity!

All I can say about this being "Detroit's Darkest Hour" is...been there, done that, got the T-Shirt!

As Always...Stay Fabulous!
RG59061

B.R.
05-02-2007, 03:50 PM
Everybody said the same thing about the Titan when it came out, how it would be better than the Silverado, F-150 and the rest of the Detroit trucks, and how it would out sell them and how it would be the last couple years on top for Ford and the F-150. But that hasnt happened. Now they are saying the same thing with the Tundra, and I doubt it will happen either. With GM launching new trucks, Dodge offering huge incentives and Ford releasing a new one (hopefully soon!), the Tundra might be fogotten. But without a doubt, Ford CANNOT screw the next F-150 up becuse if they do, the GM dealers have some pretty nice trucks waiting on their lots.