With their sales trends trailing those of foreign-based rivals like Toyota and Nissan, time is running out for General Motors and Ford to put their houses in order. And the clock is ticking for unionized workers too.
About 30,000 unionized employees of GM, turning their back on the industry's uncertain future, have agreed to accept incentives worth an average $100,000 to leave their jobs under an offer that expires Friday. Another 10,000 have accepted a similar offer at GM’s bankrupt auto parts supplier Delphi, an official of the United Auto Workers Union said.
The voluntary departures are a major step forward, showing that the big automakers are on track to reach staff-reduction goals that are part of broad restructuring programs aimed at regaining their edge. But analysts say GM, Ford and to a lesser degree Chrysler have a long way to go to compete effectively with their nimbler Asian rivals and may never be able to catch up.
“[This is] good because it means cost savings, and it’s good to see the automakers work effectively with their unions,” said Kevin Reale, an industry analyst at Boston-based AMR Research. “But while we’re seeing a kumbaya around the job buyouts, the next big issue for these companies is their cost structures and getting them to be more competitive. These buyouts won’t even get them to a par with Toyota and Nissan.”
Although they have a market share of about 18 or 20 percent now, GM and Ford should be planning to operate with a 10 or 15 percent share, Reale says. A decline in share is inevitable, he said, pointing to the expectation that the world industry will be dominated in the near future by a “Global Six” — the original Big Three plus Toyota, Nissan and Honda.
“The big U.S. automakers must dramatically restructure and pare down their brands,” Reale said. “Until they make a major leapfrog change, in terms of strategy, they are likely to still play catch-up with Toyota, Nissan and other strong market players like Hyundai.”
Automotive analysts have said for years that U.S. automakers like GM have too many brands to support. GM, for example, has eight U.S. brands, including Chevrolet, Hummer and GMC, making it difficult for the company to innovate and invest in each of them, Reale says. Eight brands need eight engineering departments and eight marketing departments — a costly endeavor when compared with Toyota’s slimmer, three-brand approach, he said.
“Today’s automotive industry is not cyclical,” said Reale. “Sometimes I think that the big U.S. automotive companies are waiting for things to go back to the way they were. But these changes we are seeing are not cyclical; they’re structural, and you can’t ride out the changes. These companies have to downsize and make themselves more competitive.”
Cost-cutting is only part of the recipe for success at GM and Ford, notes Rebecca Lindland, automotive analyst at consultancy Global Insight. Building great products people want to buy is the other part, she said. GM will continue to do that in 2006 and into 2007, but she says she has more reservations about Ford’s product lineup.
Ford appears too dependent on gas-guzzling SUVs, like the upcoming 2007 Expedition and the longer 2007 Expedition EL, Lindland said, while GM is more aggressive in the crossover, car-based SUV segment, which tend to be lighter and get better gas mileage. Crossovers, which blend the ride and style of a passenger vehicle with the practicality of a SUV, are the fastest-growing segment of the U.S. vehicle market.
“GM seems to be more in tune with what consumers want,” she said. “The product lineup is stronger, and they are really responding to the market. Not proactively — they are not the frontrunner like Toyota, Honda and to a lesser extent Nissan. But they are responding to the market quickly and giving consumers what they want.”
Speed is of the essence.
“They need time to execute, but they don’t have much time,” Lindland said. “Their situation is not going to change overnight, but we are continuing to see improvements, and it’s important to note that. But GM is further down the road in this process than Ford.”
U.S. automakers continue to struggle in the marketplace, according to the latest sales numbers from Autodata, which tracks the industry. Toyota’s U.S. sales rose 2.4 percent from May 2005, while GM and Chrysler saw theirs decline 3 percent and 1.5 percent, respectively. Ford’s U.S. sales were virtually flat, slipping just 0.3 percent.
One area where U.S. carmakers are making some progress is on the factory floor: They are closing the productivity gap with their Asian rivals, according to the latest Harbour Report, a closely watched barometer of industry productivity.
GM, Ford and Chrysler all cut the labor hours needed to build a vehicle from a year earlier, with Chrysler showing the biggest improvement among the six automakers surveyed. At the same time, efficiency declined at Japanese rivals Nissan, Toyota and Honda, although these companies maintained their status as the most efficient, ranking first, second and third respectively.
With their Japanese rivals continuing to innovate, big U.S. automakers need to work out how to squeeze more efficiency out of their factories, said Reale.
“Cost structure is the 800-pound gorilla in the room,” Reale said. “The question is how will GM and Ford bring their cost structures into line with their new rivals? After all, [their rivals] are not sitting still. They are constantly reinventing their cost structure, and they have billions in profits they can invest in new technologies like hybrid drive trains. How do you keep up with the R&D advances at Toyota and Nissan when you have to spread your budget across all those different brands and maintain all those incentives?”
The job buyouts are designed to relieve some of these companies’ costs, which come from high wages and generous health and pension benefits, and are part of their plans to revive their flagging North American operations.
The number of buyouts each company achieves will be seen as an indicator of their ability to rein in their costs and recover a competitive edge. Final figures on the GM and Delphi buyout will not be available until at least Monday, company officials said, because workers have until Friday midnight to accept. Even then, workers have seven days to reconsider.
Ford, which plans to cut its payroll by 30,000 jobs by 2012 and close 14 plants, has said it expects up to 11,000 hourly workers to accept early retirement and other buyout offers by the end of 2006.
The buyouts — offered on a plant-by-plant basis depending on approval from local unions — are worth about $100,000 per worker on average. The packages can include a severance payment or tuition reimbursement.
Tom Ferguson, who worked for 14 years as an electrician at a Ford plant in Cleveland, has opted for the tuition benefit. He’s packing up and moving to Boston to attend summer school at Harvard, and he hopes to eventually get into the MBA program there. He’ll get $15,000 a year for tuition plus half of his $33-an-hour wage and full health care benefits while he’s in school.
“Certainly, there’s change in the wind, and so I thought that it might be a good time to move on,” Ferguson told NBC’s Nightly News.