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Unsold 2008 G6 sedans sit in a long row at a Pontiac dealership in Littleton, Colo., on Jan. 27, 2008. (David Zalubowski/Associated Press)

In Depth

The Auto Industry

The not-so-Big Three

Last Updated June 3, 2008

General Motors, Ford, Chrysler: Collectively, they've long been known as the "Big Three" - automakers that have been among the continent's biggest and healthiest car companies for decades. No more.

These days, the so-called "Big Three" just aren't as big. They're spinning their wheels amid very hard times as their market shares in Canada and the United States steadily lose ground to Asian-based automakers. Consider the following recent developments:

General Motors Corp.: In June 2008, the automaker announced it was closing a truck plant in Oshawa, Ont., affecting approximately 2,500 workers. Three other truck plants in North America will also shut, the company said. The news came just weeks after the closure of a transmission plant in Windsor, Ont., which affected 1,400 workers. The job cuts follow the 30,000 layoffs announced in 2006 as part of a major restructuring. GM lost $10.6 billion US in 2005, another $2 billion US in 2006 and a whopping $38.7 billion in 2007.

Ford Motor Company: Ford, for many years the No. 2 automaker, fell to No. 4 behind Toyota and Chrysler in January 2007 as its U.S. sales continued to decline. Ford lost a breathtaking $12.7 billion US in fiscal 2006 and was $2.7 billion in the red for 2007. It is expected to slash thousands of white-collar jobs this summer. The restructuring follows a January 2006 announcement of up to 30,000 job cuts and the closure of 14 plants, including the Windsor, Ont., casting plant.

DaimlerChrysler: The German-American car company was the last to add its voice to what has become the dominant theme of the North American auto industry - restructuring. In February 2007, it announced 13,000 job cuts - 2,000 in Canada - along with the closure of two U.S. facilities and shift reductions at two others. Chrysler Group, the North American division of the company that Cerberus Capital Management bought in mid-2007, lost $680 million US in 2006. Like GM and Ford, it has announced production cuts.

On Jan. 3, 2007, GM, Ford and DaimlerChrysler reported their year-over-year U.S. sales had fallen 8.7 per cent, eight per cent and seven per cent respectively, leaving 2006 as one of Detroit's worst years ever. A year later, the Big Three announced another collective 4.3 per cent year-over-year dip, although GM actually sold 2.8 per cent more vehicles during the period.

As recently as 1998, the combined market share of the Big Three in both Canada and the U.S. was 70 per cent. Just 10 years later, that share had skidded to 47 per cent in both countries.

GM, meanwhile, is sustaining a serious challenge to its title of world's largest automaker. Toyota reported global sales of 9.366 million for 2007, just steps behind GM's tally of 9.369 million.

How did Detroit automakers lose so much traction?

Analysts cite many reasons for Detroit's woes. Many of them come down to two things: labour costs and product.

First, a look at the product side. North American automakers made a big commitment to large sport utility vehicles in the 1990s. For a while, that was the segment to be in. But SUV sales peaked in 1999 and have been sliding since.

The gasoline price surges in the second half of 2005 hurt sales of large SUVs even more. This continued into April 2008, as gas prices inched closer to $4 a gallon in the U.S. Year-over-year sales of trucks dropped 17 per cent, while large SUVs plunged by 29 per cent.

Japanese automakers, long perceived as the leaders in the smaller, fuel-efficient vehicle market, aren't nearly as dependent on SUV models. While Detroit was rolling out one giant SUV after another, Japan was busy churning out gas-electric hybrids.

Other industry observers also say Detroit has taken too long to bring in more new and redesigned vehicles to market - too long to bring back the buzz, as it were. It didn't help matters any for Detroit when Honda's new Civic and its first pickup truck, the Ridgeline, were named car and truck of the year at the 2006 North American International Auto Show. Both vehicles are made at Honda's plant in Alliston, Ont.

Falling sales and falling market share have meant that plants have been operating below capacity. For instance, GM's plants were reported to be operating at 85 per cent capacity in November 2005, well below the plants of its Asian competitors. Hence, the production cuts, plant closures and layoffs.

All North American automakers cut prices on their vehicles in 2005 (the so-called "employee pricing" discounts). While these incentives did boost sales while the promotions were on, they also further cut into profits. The Japanese automakers haven't had to offer big discounts because their sales haven't needed a boost.

There's also the issue of perceived quality and reliability. In the past, Japanese automakers scored much better in initial quality ratings than North American nameplates. That's not as true any more. GM and Ford models have sometimes beaten Japanese models in recent surveys by J.D. Power and Associates. In fact, GM's Oshawa No. 2 plant was ranked as the best vehicle assembly plant in North America in 2005 in terms of initial quality. But getting the car buying public to realize that hasn't been easy.

Analysts usually cite labour costs - especially U.S. health care and pension costs - as another big reason why the U.S.-based automakers are having problems. GM, for instance, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees. Those costs have gone through the roof in the past few years, rising at double-digit rates every year. A recent agreement with the UAW will allow GM to trim billions from its annual health care bill. But the non-unionized Japanese automakers, with their younger American workforces (and far fewer American retirees) will continue to enjoy a cost advantage.

The issue of labour productivity is also cited by many. The 2005 Harbour Report estimated that Toyota's lead in labour productivity amounted to a cost advantage of $350 US to $500 US per vehicle over North American manufacturers.

What does the future hold?

No one knows better than the Detroit automakers themselves that changes are necessary. They're now busy introducing more fuel-efficient vehicles. So-called CUVs - car-based crossover vehicles - are the fastest-growing vehicle segment, with 41 models now available in the North American market.

That's good news for the Canadian auto industry, Scotiabank economist Carlos Gomes says. "We estimate that Canada produces about one-third of all CUVs assembled in North America (at Ingersoll, Alliston, Cambridge and Windsor) - more than double its share of total vehicle production." Ford's Escape is the biggest-selling CUV, but here again, the Japanese have an overall lead. Imported brands have a market share of almost 60 per cent, according to a recent analysis by Scotiabank's Canada Auto Report.

As highlighted above, GM and Ford have embarked on major restructurings - announcing major plant closures and job cuts in a bid to slash production costs and return their North American operations to profitability. Both automakers have also reached wage and benefit concessions from the UAW. But the time when automakers could rely on their highly profitable large SUVs to carry them through rough times has clearly vanished.

Will GM and Ford be able to turn it around? The automakers, of course, say yes. Analysts say they'll need to chop vehicles, models or brands that are unprofitable (much as GM announced the phase-out of its Oldsmobile brand in 2000). They'll also need to modernize an outdated dealer network and boost investment in their remaining plants and products.

As part of that investment, GM announced a $2.5 billion program in March 2005 to upgrade plants and boost research and development in Ontario. In November 2005, DaimlerChrysler said it would invest $768 million to upgrade and modernize its Ontario operations.

And, as industry aficionados gathered in Detroit for the 2007 North American International Auto Show, GM announced it was working on a lithium-ion battery that would significantly boost the gas mileage of hybrid sport utility vehicles. GM's Saturn Vue Green Line gets about 13.5 kilometres per litre on the highway. The new battery could more than double that to 30.

Meanwhile, Canadian and American automotive journalists chose Saturn's Aura and Chevrolet's Silverado as the car and truck of year. The Aura beat the Honda Fit and Toyota Camry for the award. The Silverado was picked over the Ford Edge and Mazda CX-7 crossovers.

The honours have been handed out annually since 1994. Japanese and European brands have taken top marks seven times. With the 2007 wins, North American carmakers have also come out on top seven times.

But the Big Three's struggles are far from over. Economic headwinds remain strong as consumers get the jitters from volatile stock markets, a major slump in U.S. housing, mounting foreclosures, tighter restrictions on credit and soaring gas prices. As for the Asian-based automakers, they'll be busy trying to make further inroads into the North American market - a market they had no share of just 40 years ago.

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