The Future of the North American Automotive Sector, a Feature of "Navigating the Currents of Change" on Industrialinfo.com

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Researched by Industrial Info Resources (Sugar Land, Texas)--The trials and tribulations of the American automotive sector have been well publicized over the past two years. Decades of poor union contracts, bad management decisions, and a lack of focus and direction have driven this once proud, successful sector into the ground. Things came to a head at the end of 2008 when the Detroit Three -- General Motors Corporation (NYSE:GM) (Detroit, Michigan), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler LLC -- were forced to appear before Congress and ask for billions of dollars in taxpayer bailout funds in order to remain in business.

The combination of the aforementioned internal problems with the collapse of the housing market, the credit crunch and the demise of Wall Street at the end of 2008 drove the Detroit Three to their knees, forcing their trip to Washington D.C. GM and Chrysler each accepted billions in bailout cash while Ford said that it was doing just fine, a facade that was only possible thanks to the $25 billion+ in loans and lines of credit that it had taken out in 2006 and 2007.

The real truth for this sector is that all three automakers are in dire need of a complete rebuild -- a retool of their respective operations -- if they have any hope of not only remaining in business but also of returning to viability in the near future. In a few days, the Detroit Three will be required to submit to Congress their detailed restructuring plans that are expected to outline the cost-cutting, management and operating changes the automakers are going to take to ensure that they all survive.

The real question at this point is whether they can all survive. The odds of that happening are, unsurprisingly, not very good. Chrysler is in the most precarious of positions. As the smallest of the Detroit Three, it is also the most vulnerable. Chrysler recently formed a nonbinding alliance with Fiat S.p.A. (Turin, Italy). As part of this agreement, Fiat will receive a 35% stake in Chrysler, which can increase to as much as 55%, and Fiat will gain access to the North American distribution network that Chrysler currently operates. While not giving Chrysler cash as part of the deal, Fiat will pay to retool one or more Chrysler plants to produce Fiat models for sale in the U.S. In addition, Fiat would provide Chrysler with engine and transmission technology to allow Chrysler to produce more fuel-efficient vehicles.

Ford is in almost as bad a shape as Chrysler. Despite not needing federal bailout funds last year, once the cash it had received in previous years runs out, the company will face some difficult decisions about how it runs its operation. Both Chrysler and GM have recently announced another round of early retirement and buyout offers to their hourly employees, and GM will cut 10,000 salaried positions, as well. While Ford has said that it will not cut additional jobs at this point, we can expect it to have to cut jobs in the near future. Sales have continued to drop, and all three automakers are doing periodic production stoppages at their assembly plants to allow sales to catch up with production.

The balance of 2009 is going to be very rough for the sector as a whole, as all three companies struggle to make the job and production cuts as well as operational changes necessary to return themselves to viability. Capital spending has virtually halted across the board in North America and maintenance programs have been extended, as needed, in recent months. The conversion from fat and lazy to lean, trim and operationally sound is going to be difficult and painful for the Detroit Three and their employees, and by 2010, when spending is hoped to begin once again, we may be looking at a Detroit Two.

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