AUTO-Biographical: The State of the American Automotive Industry

It seems as if every day there’s a new story about a major automaker having trouble because of the state of the economy, not just in the United States, but worldwide as events build and effects cascade.

• Toyota’s worldwide production is down by 1.3% for the first half of their fiscal year which likely means profits have slumped a little, though they’re still stronger than much of their competition.
• Honda is also feeling the strain. Their North American operating profit dropped 80.6 percent during the third quarter of 2008, and they’ve responded by cutting their outlook for the year.
• Alfa Romeo had planned to bring Alfas to the U.S. in 2010, but has pushed that back to 2011, with planned cars being for the 2012 model year (this marks the third delay – originally the cars were due on these shores in 2005, which then got pushed back to 2007).

Taken separately, these items are unpleasant. Taken together there is cause for alarm, and a sincere wish for some kind of cheap car insurance equivalent available for automobile companies.

Bigger automobile company news comes from sources a bit closer to home, where Chrysler, which has been losing money since Cerberus bought most of it from Daimler last year, has shut down the factory which produces their Chrysler Aspen and Dodge Durango hybrids, just as those vehicles were arriving in dealer show rooms, and General Motors has announced the delay of their 2010 Cadillac CTS coupe and Buick LaCrosse and is spending a lot of time trying to find a way not to file bankruptcy, including idling some of their production plants for a week at a time.

One possible rescue of GM may actually involve Chrysler as well. While GM has little cash, Chrysler has access to $11 billion of Cerberus’s money, and it’s been reported by Bloomberg, Business Week, The New York Times, and the Wall Street Journal that the holding company is interested in some sort of trade in which General Motors acquires Chrysler in exchange for the 49% of GMAC they don’t own already, which would potentially give Cerberus any government bailout funds GM is likely to receive.
The question then becomes: why would GM want to make such a deal? Acquiring Chrysler would increase their assets and bands, but it would also lead to bad press from more worker layoffs. On the other hand, a GM-Chrysler entity would receive a larger share of the $25 billion in federally guaranteed loans to develop fuel-efficient cars, than GM would alone.

Of course, GM isn’t the only company that was looking at Chrysler. Two years ago, says Automotive News Europe Nissan/Renault considered “extending their partnership to General Motors, and investors hated the idea.” More recently, it was reported that Nissan/Renault was in talks with Chrysler, but any such talks have now been abandoned.

With GM and Chrysler both asking for bailout funds as of this morning (October 29th), Fiat keeping Alfa Romeo out of the U.S. market for another three years, and both Honda and Toyota showing significant drops in profits, does this market look good for anyone? Not really. Though all of the attention on the status of GM and Chrysler has boosted sales of Ford’s Focus, company stock is currently hovering around $2.00. Ford CEO Alan Mulally is adamant that bankruptcy is not an option however. In a statement made yesterday, he said, “I just can’t imagine that being a strategy,” he said. “Your revenue would fall off so fast, I don’t know how you’d get back out.”

In a time when nothing is certain, one thing is: those companies that wish to succeed will have to drastically rethink their product offerings. Fuel-efficiency, whether it comes from standard gasoline engines, or hybrid options, is the key to future purchases and profits.