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Changing Lanes?

Helped in part by Toyota's problems, American carmakers are starting to show signs of life

By Patricia Smith


Click for graphic
It's been the roughest of rides for U.S. carmakers the last few years. In 2008 alone, the "Big Three"—General Motors, Chrysler, and Ford—lost $53 billion—even after shedding more than 100,000 jobs. Then the 2008 economic crisis brought Detroit to the brink of collapse and forced G.M. and Chrysler to beg for billion-dollar government bailouts just to stay in business.

It was a long way from the glory days when Detroit automakers collectively employed almost 1 million Americans and controlled more than 90 percent of the U.S. car market. Now, however, things may be starting to turn around for Detroit, in part because of a big competitor's troubles of its own.

Japanese carmaker Toyota has long been known for the quality of its products—one reason it overtook G.M. in 2007 as the world's biggest carmaker.

But starting in January, it was forced to recall more than 8 million vehicles because of problems with runaway acceleration and faulty brakes.

Toyota's market share fell that month to its lowest level in four years, as both G.M. and Ford reported double-digit sales increases over January 2009 ( ). In an even more significant sign of the industry's improving health, Ford—the only Big Three carmaker not to take federal bailout money—reported a $2.7 billion profit for 2009.

"I do believe strongly now that the Detroit automakers are on the edge of something very good," says Gerald C. Meyers, an auto industry expert at the University of Michigan. "Going forward now, the old problems are fundamentally resolved—the costs are down, and the products coming are going to be much better—at least at G.M. and Ford. These companies are poised for a good market."

Chrysler, however, may be another story. Now controlled by Italian automaker Fiat, Chrysler's sales have fallen for 25 consecutive months, even when sales at Ford and G.M. picked up in January. Many analysts are pessimistic about its prospects for survival.

Government Bailouts

When it became clear last year that without bailouts G.M. and Chrysler would collapse, Washington stepped in with more than $62 billion in loans to the two companies. They both ended up filing for bankruptcy anyway, leaving the government owning 60 percent of G.M. and about 10 percent of Chrysler.

Detroit's troubles have been decades in the making. The auto industry was once the engine of the U.S. economy; indeed, it was often said, "As G.M. goes, so goes the nation."

But several critical strategic missteps, starting in the 1980s, sent the Big Three into a tailspin.

First, as foreign carmakers turned out smaller, more fuel-efficient cars, especially in the last decade, U.S. carmakers continued to focus on big pickup trucks and S.U.V.'s. When gas prices soared and a weaker economy sent consumers looking for cheaper, more efficient cars, Detroit was poorly positioned to react.

Second, for years many of the Big Three's cars were simply not as reliable as those of their foreign competitors. Though many analysts say Detroit is now producing excellent cars, it's not easy winning back customers who've been burned in the past.

"Toyota paid attention to detail, and at a certain point they surpassed domestic cars," says Bob Tasca, who owns a Ford dealership in Rhode Island. "The frustrating thing is that over the last several years, Ford product was as good as a Toyota, and in some cases better than a Toyota. But nobody believed us."

Finally, a huge problem for the Big Three has been that the salaries, health-care benefits, and pensions of its unionized workforce were much more generous than those of their foreign competitors, making it hard for them to compete. At G.M., for example, the health-care costs for retired workers alone added $2,000 to the cost of each vehicle.

Now, analysts say, some of these structural problems are finally being addressed. And it doesn't hurt that the wave of safety problems at Toyota has given many car buyers a reason to take a fresh look at American-made cars. (Of course, more than half of "foreign" cars sold in the U.S. are actually made at factories in Alabama, California, Indiana, Kentucky, Mississippi, Ohio, and Tennessee.)

'It's Turned Around'

In light of its 2009 profit, Ford announced plans to issue profit-sharing checks of roughly $450 to its 43,000 hourly workers.

"A year ago, we did not know where our fate was; the Big Three were getting hammered in Congress and we were on a downward spiral," says Bill Jackson, president of United Automobile Workers Local 588 in Chicago Heights, Illinois.

Jackson, who represents 700 workers at a Ford plant that's going to be adding jobs, says, "In a year, it's turned around."

(The New York Times Upfront, Vol. 142, April 5, 2010)