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Automakers Hoping for a Happier New Year in 2010

Has there ever been as tumultuous a year for the automotive industry as this one? After the events of 2009, auto industry experts offer their predictions for next year and beyond

Oct/Nov 09
Automakers are no doubt eager to relegate 2009 to the history books and move ahead, though industry observers say the future remains difficult to predict. "I think we're pretty clear it's the bottom now," says David Cole, chairman of the Center for Automotive Research (CAR) in Michigan. If that's the case, there's nowhere to go but up, but there's been a lot of wreckage on the way down. "A lot of restructuring has occurred both with manufacturers and suppliers," he says. "There's a lot of capacity that has been probably permanently removed, that will not come back."

There's also that little matter of bankruptcy. General Motors (GM) has now been there and done that - racing through bankruptcy at Corvette speed and completing a massive restructuring in July after just 39 days. Chrysler also dashed through bankruptcy nearly as quickly, emerging in June with Italian automaker Fiat at the wheel but its future still uncertain.

As the summer progressed, automakers and dealers were enjoying the first good news they've had in a good while, reaping the benefits of the U.S. government's "Cash for Clunkers" program that promised hefty incentives to buyers who traded in gas guzzlers for newer, more efficient models. With the help of "Cash for Clunkers," a half-million new deals were done and some idled auto industry jobs were restored. But the program was never intended to be permanent, and it expired in late summer.

The big question for automakers is what the longer-term prospects will be. Right now, Cole believes, dealers are stuck in the middle between buyers seeking new cars and automakers that remain nervous about putting too many vehicles into a shaky market. Some estimates have put the average inventory at about 30 days of supply, about half of what has typically been considered ideal. "No one is going to be in a position where they're going to try to overproduce," he says. "They're going to be very reluctant to add volume unless they're pulled by the market."

Building Better Vehicles
The question is, what will make the U.S. market pull more vehicles? The most obvious answer is a robust economic recovery, though that may not happen for some time. The other solution, particularly for domestic automakers that have had trouble competing with international players such as Honda and Toyota, is to build more compelling vehicles.

Industry observers say that, in fact, is what's starting to happen. Both GM and Ford have solid and continually improving lineups of new vehicles, according to Peter de Lorenzo, publisher of and author of The United States of Toyota. Ford has lots of strengths to offer, he says, such as the Taurus, Fusion, Fiesta, and F150. GM is getting a lot of mileage - literally - out of the Equinox crossover vehicle, among others. "We have a terrific array of vehicles to choose from," he says.
According to de Lorenzo, the most important may be the Chevrolet Cruze, a compact sedan that is truly global in focus. It will replace the Cobalt next year, but more than just a new model, it's a part of what GM says is a renewed commitment to make the most of a vehicle from a global perspective and market a truly profitable small car.

The Cruze is one part of a recently announced GM move to optimize the manufacturing operations the company has not closed. GM is adding shifts at a number of assembly operations, including the Lordstown, Ohio, plant that builds the Cobalt and Cruze. President Barack Obama visited that plant in September, sat in a 2011 Cruze, and declared that "American automakers are getting back in the game." Also adding shifts are GM operations in Fairfax, Kansas; Fort Wayne, Indiana; and Delta Township, Michigan; the plant in Orion Township, Michigan, is to shut down temporarily, yield its production of the Malibu, and retool to start building a smaller vehicle next year.

GM's progress impresses many, though de Lorenzo says the company still has a long way to go. Ford, meanwhile, has continued to pick up momentum, "and they are clearly the leader in what's left of the domestic auto business," he says. "I think Ford is going to permanently replace GM."

Chrysler is a different story. "I am not optimistic about Chrysler," says de Lorenzo. "They are barely hanging on." And while Ford and GM are rolling out a solid selection of new, high-quality models, much less is happening in the Chrysler pipeline in the short term. Chrysler and new partner Fiat have, however, outlined a longer-term strategy that includes the Chrysler brand as an ultra-luxury lineup, a Dodge brand known for performance, and Jeep maintaining its well-established strengths. Chrysler says it plans to go to great pains to ensure that its lineup is diverse enough that the company won't be torpedoed should fuel prices spike again.

Progress and change doesn't happen overnight. The moves that look positive for Ford and GM got underway well before the bottom fell out of the auto business. "They started improving the way they go about their business seven or eight years ago, but now we're starting to see the fruition," says de Lorenzo. "This has been a long process, with years of re-evaluating R&D, looking at what they're doing on a global perspective to get the most out of their vehicles."

No Immunity for Toyota
The pain that has crippled the domestic automakers has not spared international players. "This global economic downturn has hurt the European manufacturers, it's hurt Toyota, it's across the board," says de Lorenzo. Time was when everyone thought Toyota was immune to trouble, but that is no longer the case. The company decided in late 2008 to put the opening of its new plant in Mississippi on hold, and has cut production at a number of its North American plants. The Mississippi plant originally was to build the Highlander, but in the wake of the gas price crisis last year, the company decided to build that SUV in Indiana and use the Mississippi plant to make the hybrid Prius.

Meanwhile, Toyota is shifting Tacoma production from California's New United Motor Manufacturing Inc. (NUMMI) plant to San Antonio, Texas, which had seen production slow. The NUMMI plant, a joint venture with GM, is to shut down for good in 2010 as the two companies part ways.

Elsewhere, while GM and Chrysler were steering through bankruptcy, Volkswagen was erecting the first walls of its new $1 billion, 2,000-job plant in Chattanooga, Tennessee. And Kia was making preparations to open a new SUV plant in Georgia, with a target launch of late fall.

So it's not all gloom and doom, and Cole suggests that some shuttered assembly plants could come back to life once the economy reawakens. Whatever happens in the short term, Cole renews his warning that the industry will one day face a labor crunch brought on by the retirement of baby boomer autoworkers. Their replacements will need to be more educated than ever.

"Economic development is going to be increasingly tied to the capabilities of the work force," says Cole. That means a good understanding of technology and a commitment to lifelong learning, because technology is always changing: "If you expect to get a job in the automotive business and you are a high-school dropout, you'd better forget it." 

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