Buyouts may not be enough for GM, Ford

Roland Jones Business news editor • Profile • E-mail

With their sales trends trailing those of foreign-based rivals like Toyota and Nissan, time is running out for General Motors and Ford to put their houses in order. And the clock is ticking for unionized workers too.

About 30,000 unionized employees of GM, turning their back on the industry's uncertain future, have agreed to accept incentives worth an average $100,000 to leave their jobs under an offer that expires Friday. Another 10,000 have accepted a similar offer at GM’s bankrupt auto parts supplier Delphi, an official of the United Auto Workers Union said.

The voluntary departures are a major step forward, showing that the big automakers are on track to reach staff-reduction goals that are part of broad restructuring programs aimed at regaining their edge. But analysts say GM, Ford and to a lesser degree Chrysler have a long way to go to compete effectively with their nimbler Asian rivals and may never be able to catch up.

“[This is] good because it means cost savings, and it’s good to see the automakers work effectively with their unions,” said Kevin Reale, an industry analyst at Boston-based AMR Research. “But while we’re seeing a kumbaya around the job buyouts, the next big issue for these companies is their cost structures and getting them to be more competitive. These buyouts won’t even get them to a par with Toyota and Nissan.”

Although they have a market share of about 18 or 20 percent now, GM and Ford should be planning to operate with a 10 or 15 percent share, Reale says. A decline in share is inevitable, he said, pointing to the expectation that the world industry will be dominated in the near future by a “Global Six” — the original Big Three plus Toyota, Nissan and Honda.

“The big U.S. automakers must dramatically restructure and pare down their brands,” Reale said. “Until they make a major leapfrog change, in terms of strategy, they are likely to still play catch-up with Toyota, Nissan and other strong market players like Hyundai.”

Automotive analysts have said for years that U.S. automakers like GM have too many brands to support. GM, for example, has eight U.S. brands, including Chevrolet, Hummer and GMC, making it difficult for the company to innovate and invest in each of them, Reale says. Eight brands need eight engineering departments and eight marketing departments — a costly endeavor when compared with Toyota’s slimmer, three-brand approach, he said.

“Today’s automotive industry is not cyclical,” said Reale. “Sometimes I think that the big U.S. automotive companies are waiting for things to go back to the way they were. But these changes we are seeing are not cyclical; they’re structural, and you can’t ride out the changes. These companies have to downsize and make themselves more competitive.”

Cost-cutting is only part of the recipe for success at GM and Ford, notes Rebecca Lindland, automotive analyst at consultancy Global Insight. Building great products people want to buy is the other part, she said. GM will continue to do that in 2006 and into 2007, but she says she has more reservations about Ford’s product lineup.

Ford appears too dependent on gas-guzzling SUVs, like the upcoming 2007 Expedition and the longer 2007 Expedition EL, Lindland said, while GM is more aggressive in the crossover, car-based SUV segment, which tend to be lighter and get better gas mileage. Crossovers, which blend the ride and style of a passenger vehicle with the practicality of a SUV, are the fastest-growing segment of the U.S. vehicle market.

“GM seems to be more in tune with what consumers want,” she said. “The product lineup is stronger, and they are really responding to the market. Not proactively — they are not the frontrunner like Toyota, Honda and to a lesser extent Nissan. But they are responding to the market quickly and giving consumers what they want.”

Speed is of the essence.

“They need time to execute, but they don’t have much time,” Lindland said. “Their situation is not going to change overnight, but we are continuing to see improvements, and it’s important to note that. But GM is further down the road in this process than Ford.”

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