US automakers see tests from old, new threats
Top US auto executives may be allowing themselves the odd celebratory drink at this year's Detroit auto show as sales recover but they still have plenty of worries to keep them awake at night.
January 12, 2011 / 11:09 IST
Top US auto executives may be allowing themselves the odd celebratory drink at this year's Detroit auto show as sales recover but they still have plenty of worries to keep them awake at night.
Some of the issues, like demands from an increasingly restive union looking to share in the industry's rebound, are familiar. But others are new, a result of the wrenching restructuring that sent both General Motors Co and Chrysler into bankruptcy and resulted in a continued government investment in both."We cannot take two of America's big three automakers through the acid bath of bankruptcy, to call for huge sacrifices from our suppliers, dealers, investors, employees and retirees, and then be content with a small version of the same old industry," GM Chief Executive Daniel Akerson said at an industry conference timed to coincide with the show on Tuesday.In a similar note of caution, Mark Reuss, the president of GM's North American operations, said the company's record initial public offering of shares in November had also exposed it to another risk: that GM managers would run the business to hit short-term targets rather than the measures of long-term success like building a loyal customer base."I think that keeps me up more than anything -- that we get back into this thing where we're setting quarterly targets to drive stock prices and we forget about the long-term nature of this business," he said."I'm not saying the board would do that, but when you take the company public and you get the pressure on a quarterly basis, that worries me a lot." 'Sharing in the upside'?Other familiar stumbling blocks are already looming.The unionized workers whose concessions were critical to the industry's restructuring will begin negotiating new labor contracts this year and their leader, United Auto Workers President Bob King, said on Monday his members expect to share "in the upside.""It's a very, very positive year for our membership. All the sacrifices that they made are starting to pay off," King said.The union is seeking some form of profit-sharing arrangement at GM, Chrysler and Ford Motor Co that would reward autoworkers for concessions that cut the wage for new hires in half to USD 14 per hour.GM is counting on that lower wage to allow it to make a profit on two new small cars -- the Chevy Sonic and the Buick Verano -- that it showed off at the Detroit event.The GM small cars will be built at a plant in Orion Township, Michigan, while rival vehicles, like the Ford Fiesta, are built in Mexico.Ford Chief Executive Alan Mulally also said that the second-tier UAW wage was a key part of the automaker's decision to commit to hire 7,000 workers over the next two years."Part of that was to improve our competitiveness going forward. This was our dream, if we could improve the fundamental competitiveness of Ford then we can make cars in the United States as well as around the world and make them profitably," he said.Complicating this year's negotiations is the fact that the UAW is now a major investor in GM and Chrysler. In exchange for a claim on funding for retiree healthcare, the union was given an ownership stake in both companies in the 2009 bailout.The healthcare trust fund affiliated with the UAW owns 63.5% of Chrysler stock -- more than double what Italian automaker Fiat SpA, the company that runs Chrysler, owns. That trust fund is expected to be the major seller in an initial public offering of that automaker's shares in the second half of 2011.Mixed messageGM's Reuss said he had been in constant contact with the UAW's King. He said he shared the union's goal of giving factory workers some reward as earnings recover.Part of the formula could be adding some kind of "pay for performance" bonus to the contract that would reward UAW workers for gains in GM quality, he said."We're beginning the dialogue and we both basically want the same thing," he said.Chrysler CEO Sergio Marchionne, who also heads Fiat, was open to the concept of profit sharing in the 2011 contract round but cautious."I think both parties are approaching this matter with a very clear commitment to ensure the long-term survival and profitability and success," he said. "I don't think there is a doubt the UAW feels as a result of the sacrifices that we made to get everybody here, they're entitled to some participation in the future."But he added: "We cannot institutionalize costs in the structure of Chrysler that will seed the elements of the potential failure of Chrysler or another automaker in the event of a downturn."The Obama administration, which brokered and financed the 2009 bankruptcies that partially restructured GM and Chrysler, continues to hold a sizable stake in the two companies: 9% at Chrysler and 33% at GM.Ron Bloom, the US Treasury official charged with overseeing that investment, was set to visit the GM, Chrysler and Ford stands at the Detroit auto show on Tuesday.Toyota still... Toyota As carmakers rebound, some analysts believe the lack of a captive finance unit will put the No. 3 U.S. automaker at a disadvantage to competitors like Toyota Motor Corp, which have big lending arms.While the Japanese company is still dusting itself off from last year's embarrassing and costly product recall of nearly 14 million vehicles worldwide, it will not stay down for long.This week in Detroit, Toyota unveiled a family of Prius cars with two new additions to the lineup as it aims to build the iconic hybrid into a pillar of its sales in the United States, its single-biggest market.The roomier Prius V and compact Prius C Concept were among the highlights of the Detroit show, where rivals also revealed green cars in a bid to attract an increasingly fuel-conscious customer base.Toyota, the world's biggest automaker, has dominated the gasoline-electric hybrid market since putting its first Prius on the road in 1997.(Reporting by James B. Kelleher, editing by Matthew Lewis) Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
