Why US Automaking Is Here To Stay
By Robert W. Bradford

With the bad news out of Detroit in the past few weeks, I've been asked several times whether the US auto industry is washed up. The answer to this question is simple, and here is why: in 2004, there were 15.8 million vehicles sold in the United States. In 2005, there were 15.8 million light vehicles sold in the United States. In other words, we are buying cars about as fast as we have ever bought them, with little or no indication that we will be slowing down anytime soon. Now, foreign-owned vehicle manufacturers such as Toyota, BMW and Nissan, sold nearly 5 million of those cars, which should give anyone from Detroit reason to reflect on the strategies of the ''Big Three''. But, we should remember that General Motors and Ford, despite massive layoffs and plant closings announced last month, are still the world's number one and number two auto manufacturers.

It's also important to note that the plants being closed are generally older plants in areas with expensive labor, while the foreign-owned manufacturers are opening plants in the deep south which are adding thousands of jobs. One interesting note is that the southern plants are paying nearly as much as the plants being closed up in the North, despite the fact that their workforces are largely non-unionized and the cost of living is significantly lower in those states.

While GM may have some much deeper cuts to make in the near future, Ford is looking much healthier, as they are taking great care to focus their manufacturing assets on vehicles that customers want enough to pay a decent price for them. If Ford returns to their old strategy of limiting production in order to maximize margin on desirable vehicles, they could come out of 2006 in far better shape. GM, on the other hand, needs to take a very close look at their strategy, and focus their resources on creating some kind of maintainable advantage in at least one or two key vehicle categories. For both automakers, adaptation to new technologies and a domestic auto market that (at least for now) seems to want to use less oil will be critical. Look to announcements in the next quarter or two about increased investment in hybrid and fuel cell technologies to signal commitment in this area.

Strategically, Ford and GM can see great improvements in their long-term positions if they use their plant closings to eliminate the most commodity-oriented lines they manufacture. In particular, both companies could benefit greatly from backing away from the high-volume and no-margin large fleet sales that they have fought over for years.

Robert Bradford is President of Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at rbradford@cssp.com.

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