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In 2006, the Big Three got smaller

Marketplace Staff Dec 29, 2006

BOB MOON: We started this week with news that Ford has been talking to Toyota about a possible partnership. And now capping the week, word that one of the other Detroit Big Three — Chrysler — has made a deal elsewhere in Asia. It’s teaming with China’s Chery Automobile Company to build small cars that will be sold worldwide.

Chrysler, like its counterparts, has been looking for a way to get around high labor costs and other expenses here in the U.S. And that’s been a struggle throughout the year. Mickie Maynard has some perspective on that. She’s Detroit bureau chief for The New York Times.

Thanks for joining us.

MICHELINE MAYNARD: It’s my pleasure. Thank you.

MOON: 2006 was a big year for the auto industry. Let’s start with the labor side of the story. What happened there and will that really be enough to turn these companies around?

MAYNARD: Well, the labor issue has been hanging over Detroit for years. And one of the things that always happens when car companies close their plants is workers receive their salary and benefits until the life of the contract runs out. So what General Motors and Ford wanted to avoid as they were closing factories and laying off tens of thousands of people, was having to pay them for the rest of the life of the contract. So they offered buyouts ranging from about $35,000 all the way up to $140,000. And, surprisingly, actually, 70,000 workers at both the companies accepted these incentives. That’s about the number of jobs that they planned to cut.

MOON: What I’ve been hearing is that GM seems to be out ahead in these recovery efforts. How well do you think they’re really doing?

MAYNARD: GM has definitely stabilized from where it was a year ago. They have yet to earn money in North America, however. Which is really their key market. And some of the auto analysts are starting to become concerned as we go into the New Year, because sales have been slowing down. And also, General Moters has a big group of pickup trucks coming out, but after that, neither it nor Ford really have any hot products on the horizon.

MOON: Well, let’s talk about Ford. We had the chairman and the CEO Bill Ford stepping aside for Alan Mulally. Do you think he’s going to be able to succeed?

MAYNARD: The appointment of Alan Mulally was really a landmark move. First of all it was Bill Ford acknowledging that he didn’t want to run the company on a day-to-day basis anymore, and it was time to bring in a professional from the Boeing Co. And that was a landmark moment here in Detroit, where no outsider has ever come in at such a high level.

There’ve been a number of steps taken by Ford. The most recent move was Ford’s decision to basically mortgage the place — its plants, even its blue logo — to secure $18 billion in borrowing. So the jury is still out on Mr. Mulally. It’s a little bit too soon to tell what kind of a leader he is. He’s already looked around the place, however, and said, “Why do we do things this way?”

MOON: Let’s move on to Chrysler, which really seemed to be having a winning streak around this time last year. What’s been happening there?

MAYNARD: The downfall at Chrysler has been something that’s taken a lot of people by surprise. If you go back about a year, it looked like Chrysler had found the magic bullet. It’s market share was up. It had a hot product called the 300C Sedan. But what happened to Chrysler was they overestimated how many vehicles people would be willing to buy. And they also overestimated the type of vehicles people wanted to buy. Their lineup is still about three-quarters sport utilities and pickup trucks, and when gasoline hit $3 a gallon this summer it was Chrysler that was hurt the most.

MOON: What sort of impact has that had on the kinds of cars that Americans are buying these days? And do you think these trends are going to be permanent?

MAYNARD: Well, I think the sport-utility market is the best example of what’s happened because of high gas prices. Sport-utility sales have been declining since they peaked in 2002. Last year they were down about 12 percent. This year they’ll be down even more than that. What is coming into vogue are small cars, and it’s really the first time since the early 1980s when subcompacts have been in demand. And now each of the Detroit companies is looking at what they need to do to develop new, small cars. Indeed, we are maybe becoming a small-car nation.

MOON: Detroit’s Big Three . . . painfully aware that they aren’t the only players in the auto industry now. Toyota seems to have plans to conquer the world, or at least the American market. Do you think that’s possible?

MAYNARD: I think this has really been Toyota’s year. And this is the year when everyone in Detroit finally recognized what a threat they are. In the most recent car sales numbers, Ford was beaten by Toyota. I don’t think we’ve seen nearly what Toyota is going to be in the American market, yet.

MOON: Mickie Maynard, Detroit bureau chief for The New York Times. Thank you for your insight.

MAYNARD: It’s my pleasure. Thank you.

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