Archive for Saturday, July 19, 2008

U.S. needs its auto industry

July 19, 2008


U.S.-based automakers have no one but themselves to blame for their dilemma.

Had they long ago embraced rather than fought higher fuel economy standards, they might now have a larger and better-established base for manufacturing and marketing the small cars that are selling like hotcakes.

Instead, GM, Ford and Chrysler - the so-called Big Three - have been offering prospective car buyers ultra-deep discounts sometimes exceeding $9,000, zero-interest loans for up to six years and long-term help on gasoline bills in an attempt to shed an alarming oversupply of brawny SUVs and pickups. Simultaneously, the automakers are scrambling to meet surging demand for compact cars such as the Ford Focus and Chevrolet Cobalt.

The Big Three moved like molasses in response to a changing energy world. Oil and gasoline prices have been rising for several years. U.S. sales of full-size SUVs peaked in 2004 at 1 million and had already declined 25 percent by 2007, before $100-a-barrel oil.

In June, Chrysler's U.S. sales were down 35.9 percent from a year earlier, Ford's fell 27.9 percent and GM's tumbled 18.5 percent. There's even talk that GM, which turns 100 this year, could file for bankruptcy. On July 2, its stock fell below $10 per share, the lowest since 1954.

But you shouldn't assume that the Big Three face an inevitable demise. They are still big players in the industry, with GM having finished in a virtual dead heat with Toyota for first place in worldwide sales last year. GM remains No. 1 in U.S. sales.

Long-ascendant Toyota is itself struggling with disappointing U.S. sales (down 21.4 percent in June). Sales of its popular gas-electric hybrid Prius have been limited by a battery shortage. Toyota will suspend production of both the Tundra pickup in San Antonio and the Toyota Sequoia SUV in Princeton, Ind., for three months beginning Aug. 8, because of weak demand.

Much has been written about Toyota's advantage over U.S-based automakers in labor costs. But that gap is closing with the Big Three slashing payrolls, inking a labor contract allowing them to replace many higher-paid retiring employees with cheaper workers and dramatically lowering their liabilities for retiree health benefits, as Business Week reported in April.

Toyota's labor costs have risen as its U.S. production workers age and reach top pay. By 2011, GM could have a labor-cost advantage of $108 per car over Toyota in the U.S., compared with Toyota's current $1,394 edge, according to the Center for Automotive Research.

With Congress' adoption of new fuel economy standards in December, U.S. automakers will have to make more fuel-efficient cars. Fortunately, the Big Three seem to have suddenly snapped to that reality, although they're still complaining that the new standards could prove onerous.

GM is considering selling the tiny Chevrolet Beat mini-car (getting up to 40 mpg) in the U.S., rather than confining it to foreign markets. The company plans to sell the gas-electric, plug-in hybrid Volt by late 2010. Ford plans to build its new Fiesta subcompact in Mexico for sale in the U.S., where it hasn't been marketed since 1980.

The competition could be brutal. Nissan plans to sell an electric car in the U.S. by 2010. Toyota announced Thursday that it will, in 2010, start producing the hybrid Prius in the U.S. for the first time, at a new plant in Mississippi. Fledgling electric-car maker Tesla Motors is to open a California factory in 2010.

I abandoned my long-term loyalty to Toyota in April by buying a new Chevrolet Cobalt because I liked the car and its modest price. It also reflected my recognition that the Big Three are building much-better small cars than they once did.

All Americans, regardless of whether they own a Honda or Hummer, should root for a resurgence of U.S.-based automakers. It's critically important for us to maintain industrial know-how and a strong manufacturing base.

That brings to mind the vital role that American automakers played during World War II, switching production from cars to everything from B-24 bombers to cargo ships.

It would be inspiring to see U.S.-based automakers take a lead role in developing new automotive engine technologies: gas-electric hybrids; plug-in, rechargeable hybrids; totally electric cars; and hydrogen fuel cell vehicles. That's what we'll likely need in place of all those gas hogs rusting on car dealers' lots.

Jack Z. Smith is an editorial writer for the Fort Worth Star-Telegram. His e-mail address is


cato_the_elder 9 years, 9 months ago

Headline: "U.S. Needs its Auto Industry." Author: "I abandoned my long-term loyalty to Toyota in April..." Res ipsa loquitur.

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