into Debt Why driving in the summer of 2001 cost more than usual.
The uncertain future of the American automobile industry during a visit to this year's auto show. (01/15/02)
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Preparing for the future
The mood wasn't all grim at the recent car show in Michigan. Each January, major carmakers get together in Detroit, Michigan, and display their best new ideas at the North American International Auto Show.
This year, there were plenty of great new designs as well as new car technologies, like the hydrogen fuel cell introduced by General Motors.
The new fuel cell is a new, high-tech way of making a car move. The Bush administration decided two weeks ago to end the Clinton policy of encouraging auto makers to produce more efficient gasoline-powered cars and instead focus on building cars that run on fuel cells.
However, aside from all the hype over new designs and alternatives to gasoline power, U.S. automakers are realizing that the old way of producing and selling cars might not produce the profits these companies need to survive.
The economy of cars
The year 2001 was a fantastic year for car sales in the U.S. Manufacturers had their second best year ever in terms of how many vehicles were sold - over 17 million vehicles total.
At the same time, carmakers lost millions, even billions of dollars.
How is that possible? Because of competition and the economic slump, carmakers did not make much money for each car they sold.
The auto industry produced too many cars and just as the new 2002 models arrived, the terrorist attacks hit. People wanted to stay home with friends and family rather than go out and spend thousands of dollars on big-ticket items like new cars.
Car dealers set up special deals to convince people to buy a new car. And it worked. Once people realized that a new car was much cheaper than it had been a few months ago, thousands of new cars rolled off to new homes.
Unfortunately for the car manufacturers, all those great incentives cost money. Cars were moving off dealer lots, but profits went down to almost zero.
Heavy losses and tough competition
And according to Jim Padilla, head of North American operations for Ford, there are five to six million more cars than there are people who need cars. American car companies are going to have to make fewer cars to start making profits again.
There are three major U.S. carmakers - Ford, DaimlerChrysler's Chrysler unit, and General Motors Corp. - and all have fired nearly 10 percent of their U.S. workforce this year.
The Ford Motor Company recently announced it will cut nearly 35,000 jobs in addition to closing up to seven assembly plants and discontinuing four car models. Total losses for Ford last year were about $2 billion.
The Chrysler Group estimates it lost nearly $2.5 billion last year. GM, the world's largest automaker, is expected to show a profit but had to scale back production for 2002.
U.S. automakers have to compete not only with each other but also with foreign companies.
In 2001, over a fourth of the autos sold in the U.S. were made in Japan. And although American consumers liked the fancy new designs at this year's auto show, they are still drawn to the less flashy but more affordable foreign-made vehicles.
Over the next four years, Japanese and European automakers report they will increase the number of cars available for sale in North America by 1.4 million.
With more foreign cars available and lower profits, it's clear that change is brewing for the Big Three automakers in the U.S.
Industry insiders like David Cole, president of the Center for Automotive Research, believe that "it doesn't mean that every company is broken, but when you look throughout the industry structure what you have in an industry is that it is broken and it has to be fixed."
Why fix the problem?
During the 1990s, the Big Three automakers made big profits from sport-utility vehicles (SUVs) and minivans, but they let their share of the regular passenger-car market drop.
The three automakers had 66 percent of U.S. passenger car sales in 1990, but only 57 percent in 2000.
The U.S. auto industry employs thousands of workers-- from the people who design cars and trucks, to the people who build them, supply parts for them, and even sell them.
If the auto companies aren't making enough money, the companies will often close assembly-line plants that can mean layoffs for hundreds or even thousands of people in a certain area.
Could you imagine if several thousand people were suddenly out of work in your area? Many of the workers would have trouble finding new jobs because often assembly-line workers have highly specialized skills that may not be useful in another line of work.
The strength of the U.S. auto industry has many effects on the U.S. economy including on the stock market where stocks of these automakers are publicly traded. People who have bought these stocks have seen their investments lose value.
Like many other industries in an economic downturn, the auto industry is trying to figure out how to adjust to a new economic reality.
One trend to watch for is consolidation. Ford, for example, bought Jaguar, Volvo and Range Rover.
General Motors has alliances with Suzuki, Subaru, Fiat and Isuzu.
David Cole predicts a bloody battle in which the many current car companies will thin down to four or five groups of manufacturers in the world, sort of like teams.
One thing is for sure, when car enthusiasts gather in Detroit in 2015, the scene will be very different--new technologies, futuristic shapes and and perhaps different brand names on the dashboards.
What do you think? What would you do if you were the head of a major automaker?
-- By Samara Aberman, NewsHour Extra
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