Buyouts Continue to Plague U.S. Automotive Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--The last few years have not been kind to the American automakers. Ford Company (NYSE:F) (Dearborn, Michigan), General Motors Corporation (NYSE:GM) (Detroit, Michigan) and Chrysler LLC (Auburn Hills, Michigan), also known as the Big Three, have been going through a rough transitional period as they attempt to reinvent themselves as profitable entities. A pattern of plant closures, blackouts, layoffs and buyouts have been the theme over the last few years as the companies work through various reorganization strategies.

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In late 2006, Ford and GM offered buyouts to large segments of their employee base. At Ford, some 33,600 United States employees left the company as part of their buyout offer while at GM, an additional 34,400 employees accepted their buyout offer. In early 2007, Chrysler announced job cuts, as well, and by June, 6,400 workers had left the company.

Now, another round of additional job cuts has been announced by Ford and Chrysler. Ford has offered buyouts and early retirement packages to its entire 54,000 U.S. hourly workforce while Chrysler has offered buyouts to hourly workers at 11 of its U.S. facilities as part of its plan to cut an additional 21,000 manufacturing jobs. GM is expected to announce its next round of buyouts, covering at least 46,000 workers, within a month.

At the end of this rainbow, the Big Three hope to find the pot of gold in the form of profit, something that none of them have seen for quite a while. Ford lost $2.8 billion in the fourth quarter of 2007, which made its full-year loss a modest $2.7 billion, much better than 2006 when the company lost $12.6 billion. Chrysler, recently purchased by a private equity firm, has begun a massive reorganization that will most likely involve the sale of unprofitable assets as the program develops. GM is struggling to hang onto its No. 1 position in the market share rankings with Toyota nipping at its heels and likely to take the No. 1 slot permanently before the end of 2008.

As these reorganization programs continue, one has to wonder who exactly will be left to manufacture automobiles within the Big Three in the next few years. All three companies hope to replace the workers they let go with lower-paid hourly employees, saving billions annually in employment costs. Couple these potential savings with the closure of obsolete and unneeded assembly plants and support operations, and the trio could well make it back into the black.

Only time will tell if these efforts will pay off in the end. The United Auto Workers (UAW) (Detroit) will, without a doubt, do everything in its power to get the most for its members as these cuts occur. However, there is a limited amount it can hope to accomplish. These job cuts are necessary if the Big Three are going to have a shot at regaining some of what they have lost in recent years in terms of market share. Ford is in the worst position of the three with its stock price dropping almost monthly and its losses adding up, but in all honesty, none of the three is in a good position at this point.

If the Big Three can manage to streamline their operations in the near future, with or without the help of the UAW, they will have a chance to become competitive once again. If, however, this process continues to be drawn out and take longer than is absolutely necessary, foreign automakers will capitalize and make it virtually impossible for the American automakers to catch up. Time is not on their side, and time is exactly what the Big Three need to get the job done.

Industrial Info Resources (IIR) is the leading marketing information services company for the industrial process, heavy manufacturing and energy-related markets throughout the world. Celebrating its 25th anniversary, IIR provides accurate and timely intelligence featuring plant and project information databases, focused market databases, industry forecasting, key industry contacts, industry and territorial map products, direct marketing services and applications, and daily industry news.