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U.S.
Carmakers Restructure to Stay Alive |
Posted:
05.08.06
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One hundred years after they were founded, General Motors and
Ford are closing plants, laying off workers, and trying to update
their images in hopes of rebounding from multi-billion dollar
losses.
Printer-friendly versions: PDF
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 The
two largest U.S. automakers, General Motors Corp. and Ford Motor
Co., are losing money -- GM lost over $10 billion last year --
and trying to compete with Asian automakers that have been producing
more popular cars and trucks.
Both companies have seen their bonds downgraded to "junk
bond" status -- credit rating agencies believe they are too
risky to recommend investment.
To try to reverse the downward spiral, both companies are cutting
their workforces, closing manufacturing plants in the United States
and trying to revamp their images with new technologies and fresher
designs.
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Restructuring
moves |
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 In
November 2005, GM announced it would close a dozen plants and
lay off 30,000 employees -- one-tenth of its workforce -- in the
next three years.
Ford made a similar announcement in January 2006: It plans to
lay off another 30,000 workers -- a quarter of its workforce --
and close 14 plants in the next six years.
The influence could be the most severe in the Upper Midwest,
especially cities like Detroit, where 10 percent of the economy
can be attributed to the automobile industry.
Economists hope the slogan "What's good for Detroit is good
for America" doesn't work in reverse, but the impact on the
U.S. economy could be sharp: one job in the auto industry supports
almost five other jobs, such as those in the steel and electronics
industries, according to The Washington Post.
In addition to layoffs, GM recently sold its financing company,
GMAC, for around $14 billion.
Ford, meanwhile, sold the world's largest rental car company,
Hertz Corp., in December for a profit of $1.5 billion.
In an attempt to save money, both companies have reached agreements
with the United Auto Workers, one of the largest labor unions
in the United States, to decrease social benefits like pensions
and health care.
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Health benefits
hurt |
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Part of the automakers' problems stem from generous health care
and pension benefit programs created in the 1950s, when the car
industry was much healthier.
 GM
and Ford now pay about $1,300 in health care expenses for each
car they make because they have to pay benefits -- mostly to retirees.
Asian manufacturers spend considerably less, about $450 for each
car, because their workers are younger -- they have fewer retirees.
In addition, GM's policy of providing full pensions for 30 years
of service tacks on another $1,000 per car, putting the company
behind the foreign competition that amount on each vehicle before
GM even starts building it.
"It's like an Olympic swimmer trying to swim with a couple
bowling balls hanging around his neck. He's just not going to
get very far very fast," David Cole, an industry analyst
and president of the Center for Automotive Research, told the
NewsHour.
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Turning around
carmakers |
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 According
to David Cole, now is a "change or die" time for Ford.
"Failure to change would be a real disaster," he told
the Christian Science Monitor.
GM and Ford are hoping smaller cars and fuel-saving technologies
like biofuels will help them take back the market.
In its "Live Green Go Yellow" advertising campaign,
GM has touted E85, an 85 percent corn-based-ethanol gasoline that
could help reduce emissions of greenhouse gases. GM hopes to accelerate
the use of biofuels by producing 400,000 "FlexFuel"
cars in 2006 that can run on E85.
Ford also is trying to increase its production of hybrid cars.
The Detroit Free Press reported that Ford hopes to sell 250,000
hybrid cars per year by 2010.
 And
both companies are expanding production in China, where the new
car market is about one-third the size of the U.S. market, but,
according to The Washington Post, grew 36 percent last year.
"GM and Ford are around to stay, but what their ultimate
market share is going to be is difficult to tell at this point,"
Don Rosenfield, a manufacturing expert from the University of
Massachusetts, told the Christian Science Monitor.
There is some good news for U.S. carmakers. The Chrysler Group,
the third manufacturer in Detroit's "Big Three," and
Japan's Nissan were facing difficulties earlier this decade, but
restructuring and job-cutting, plus the introduction of new car
models saved those companies.
--
Compiled by Adnaan Wasey for NewsHour Extra
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